Introduction
Under the new commercial code of Ethiopia, there are various types of business organizations that individuals can engage in. These organizations provide different legal structures and have varying advantages and disadvantages. In this assignment, we will discuss and analyze the types of business organizations present under the new commercial code of Ethiopia, including their nature, differences, similarities, and other relevant factors.
1. Sole proprietorship
A sole proprietorship is the simplest and most common form of business organization. It is owned and operated by a single individual. The owner has complete control over the business and is personally liable for all its debts and obligations. There is no legal distinction between the business and its owner, meaning that the owner's personal assets are at risk in case of business liabilities. Sole proprietorships are relatively easy and inexpensive to establish and dissolve.
2. Partnership
A partnership is formed when two or more individuals come together to carry on a business with the intention of earning a profit. Partnerships can be general partnerships or limited partnerships. In a general partnership, all partners have equal management rights and are personally liable for the partnership's debts. In a limited partnership, there are both general partners who are fully liable and limited partners who have limited liability.
Partnerships are governed by partnership agreements that document the rights and responsibilities of each partner. Partnerships are not separate legal entities, and partners report their share of profits and losses on their personal tax returns. Partnerships can be dissolved upon the death, withdrawal, or bankruptcy of a partner, unless otherwise stated in the partnership agreement.
3. Limited Liability Company (LLC)
A limited liability company (LLC) is a hybrid form of business organization that combines the benefits of a corporation and partnership. LLCs offer limited liability for its owners (known as members) while allowing flexible management and tax benefits. Members' personal assets are protected from business liabilities. Unlike corporations, LLCs have pass-through taxation, meaning that profits and losses are reported on the members' personal tax returns.
LLCs are created by filing articles of organization with the appropriate government authority. LLCs are governed by operating agreements that outline the management structure, rights, and obligations of members. The dissolution of an LLC can occur upon the happening of certain events stated in the operating agreement or by a decision of the members.
4. Joint Stock Company (JSC)
A joint stock company (JSC) is a form of business organization that raises capital by issuing shares of stock to the public. The shareholders' liability is limited to the value of their shares, and they have limited involvement in the day-to-day operations.
A JSC is created by incorporating a company and issuing shares to shareholders. The company's affairs are managed by a board of directors elected by the shareholders. JSCs have the advantage of easy transferability of shares, allowing for the liquidity of investments. However, JSCs are subject to more regulations and formalities compared to other business organizations.
5. Private Limited Company (PLC)
A private limited company (PLC) is a form of business organization that combines features of partnerships and JSCs. PLCs have limited liability for their shareholders, but their shares cannot be traded publicly. PLCs are typically owned by a small group of individuals or families.
PLCs are incorporated and governed by Articles of Association and Memorandum of Association. PLCs can raise capital through the issuance of shares, and the liability of shareholders is limited to the value of their shares. PLCs have a separate legal entity from their shareholders and can enjoy perpetual succession.
Conclusion
The new commercial code of Ethiopia provides a range of options for individuals looking to start a business. Each type of business organization has its own advantages and disadvantages, and individuals must carefully consider their goals, risk tolerance, and legal obligations before choosing a structure. It is crucial to consult legal professionals to ensure compliance with the commercial code and to protect the interests and liabilities of the business owners.
Reference
Ethiopian Commercial Code Proclamation No. 1960/2007.