The Ethiopian parliament recently approved an amendment to the Commercial Registration and Business Licensing Proclamation No. 980/2016. The new Proclamation No. 1150/2019 (“Proclamation”) came as part of the “Ease of Doing Business” initiative launched by the Prime Minister Office aiming to simplify and streamline business regulation. In this issue of our legal update, we provide a brief summary of the key changes introduced by the new legislation.
Scope: the Proclamation has broadened the definition of a ‘Business Person’. Under Article 2(2) of the existing Proclamation, a business person is defined as “any person who professionally and for gain carries out the activities specified under the commericial code or other commericial activities designated by law.” The Proclamation expanded to include all commericial activities designated by the commericial code and other business activities to be so provided by the Ministry’s “Business Licensing Categories Directive”. This directive has a national application encompassing the list and type of activities for which business licenses are issued.
One-stop-shop Service: the Proclamation establishes a one stop shop service within the Ministry as part of commericial registration and business licensing procedures. Accordingly, the Proclamation mandates the Document Authentication and Registration Agency (DARA) and the Ministry of Revenues to set up their respective desks within the Ministry with a view to providing authentication and tax registration services at the Ministry.
Use of IT for Service Delivery: the Ministry is obligated to establish a system that will allow it to deliver its services online. Commericial registration services are now permitted to be carried out virtually without the need for physical presence of applicants. In addition, as opposed to newspaper publication as the mode of publicizing registration and cancellation of business licenses, the Proclamation obliges the Ministry of use online platforms for such notices.
Grounds for Cancellation of Commercial registration: under the existing law, failing to obtain a business license after one year of registration served as a ground for cancellation of a commericial registration. Under the new Proclamation, this is removed and businesses will no longer have their commercial registration cancelled even if they fail to obtain a business license within a one year period.
Trade and Company names: the existing law does not make a distinction between a trade name and a company name. The practice also shows there has been a lack of clarity in this regard and the service was not uniform when it comes to registering a trade name and a company name. Under the new Proclamation, a distinction is made to differentiate a trade name from a company name. Furthermore, the restriction of not using a name of a celebrity as a trade name without securing a written consent is now lifted.
Amended grounds for renewal of Business License: the following new rules are introduced with respect to renewal of business licenses.
- Under the existing law, companies that have lost 3/4th of their capital cannot renew their business license unless an authenticated minute is provided to prove that 50% of the registered loss has been deposited by the shareholders. This requirement is amended to allow companies to renew their business license by raising 25% or 1/4th of the capital of the company. The requirement for an authenticated minutes has also been removed.
- Under the current law, business licenses would be cancelled if companies fail to renew their business license within the specified period set by law (including penalty period). The new Proclamation sets a higher penalty of 20,000 birr for companies that have failed to renew their license within one year of the renewal period set by law.