6.ACCOUNTING FOR COMPANIES IN ETHIOPIA
6.1 Types and basic characteristics of companies in ethiopia
6.2 PLCs
6.2.1 Formation of PLCs
6.2.2 Management of PLC
6.2.3 Meeting
6.2.4 Preserve requirements
6.2.5 Dividends
6.2.6 Dissolution
6.2.7 Reporting shareholders' equity on the statement of financial position
6.1 Types and basic characteristics of companies in Ethiopia
In Ethiopia, there are several types of companies, including private limited companies (PLCs), public limited companies (PLCs), and joint ventures with foreign participation. The basic characteristics of these companies include:
- Private Limited Companies (PLCs): These are the most common form of company in Ethiopia. PLCs have a separate legal entity from their owners, limited liability for shareholders, and the ability to conduct business and enter into contracts in their own name.
- Public Limited Companies (PLCs): These companies are similar to private limited companies but with some additional requirements. PLCs can offer shares to the public and are subject to more stringent reporting and disclosure requirements.
- Joint Ventures: These are companies formed through a partnership between domestic and foreign entities. The ownership, profits, and liabilities are typically shared between the partners according to an agreed-upon arrangement.
6.2 PLCs
6.2.1 Formation of PLCs
The formation of PLCs in Ethiopia requires a minimum of five shareholders. The process involves submitting the necessary documents, such as the Memorandum and Articles of Association, to the Ethiopian Investment Commission (EIC). The EIC reviews the documents and issues a certificate of incorporation if all requirements are met.
6.2.2 Management of PLC
PLCs in Ethiopia are required to have a board of directors, consisting of a minimum of three directors. The directors are responsible for the management and decision-making of the company. The board of directors is appointed and elected by the shareholders.
6.2.3 Meeting
PLCs are required to hold a general meeting of shareholders at least once per year. Additional meetings may be held as needed. Shareholders have the right to attend and vote at these meetings.
6.2.4 Preserve requirements
PLCs in Ethiopia are required to maintain certain records and documents, including the minutes of meetings, financial statements, and accounting books. These records must be kept in the registered office of the company and made available for inspection by shareholders and government authorities.
6.2.5 Dividends
PLCs have the option to distribute dividends to their shareholders. The decision to declare dividends is made by the board of directors and approved by the shareholders at a general meeting. Dividends may be paid in cash or in the form of additional shares.
6.2.6 Dissolution
PLCs can be dissolved voluntarily or involuntarily. Voluntary dissolution can occur through a decision of the shareholders or expiration of the company's duration. Involuntary dissolution can occur due to bankruptcy, court order, or failure to fulfill legal requirements.
6.2.7 Reporting shareholders' equity on the statement of financial position
In the statement of financial position, the shareholders' equity of a PLC is reported as a separate section. It includes the company's share capital, retained earnings, and any other reserves or surplus. This section reflects the ownership interest of the shareholders in the company's assets and liabilities.