Setting up a New Business in Ethiopia

Ethiopian law recognizes six distinct sorts of business entities. Therefore in Ethiopia business can be carried out in one of the next six distinct sorts of business forms. 

Found in the horn of Africa, Ethiopia is the greatest country in the Easter sub-region beside the Republic of Sudan of over 1.14 million square km of land area about 13.2 million hector of 12 percent is cultivable, 40 percent is pastureland and this together with seasonal rain and abundant water source has made agriculture the mainstay of the nation’s economy. As a result of this, Ethiopians, engaged in foreign exchange, export are primarily dominated by agricultural products like coffee, oilseeds & pulses, hides and skin and in production, textile and clothes leather and leather goods also make sizable contributions to export.

Current data indicates that investment is rising and the market is growing at an unprecedented rate and tangible progress in Ethiopia. Moreover, both foreign and local investors are entering business today. The amount of tourist arrivals is also increasing at a substantial rate.

Types of Business Entities in Ethiopia

Ethiopian law recognizes six distinct sorts of business entities. Therefore in Ethiopia business can be carried out in one of the next six distinct sorts of business forms. Let us have a short look at them.

  1. Share Company

A share Company will be established according to the 1960 Commercial Code of Ethiopia and the Ethiopian Investment Legislation. The objective of the provider is free but there are a couple of sectors limited to taxpayers and the public sector. The business may be formed with a minimum capital of ETB 50,000. The share company liability is limited to the assets of the business. The price of its incorporation is less than USD 150. Formal registration or investment certificate is necessary. The corporation’s name shall be as agreed among the shareholders and will not violate public policy nor the rights of third parties and will include the words”share company”. Memorandum of understanding and articles of association is needed. Complete subscription of capital, along with at least 25 percent of the funds paid up capital. Contribution of shareholders equity and only of stocks plus other financial resources is essential.

Income tax of shareholders is based on the quantity of divides with progressive speed.

  1. Private limited company

The objective of the provider is free but there are a couple of sectors limited to taxpayers and the public sector. The maximum and minimum number of members of a private limited company is fifty and two respectively. The minimum funding requirement to set up a Private limited company is ETB 15,000. The Liability of a Private Limited Company is Limited to the Firm’s assets. The expense of incorporation for a private limited company isn’t less than SOUSD.

The company name shall be agreed but with revealing the nature of business inside and will include the words”private limited company”

Moreover a duly signed memorandum of understanding and Article of association is needed.

The sources of credit of a private limited company is from donation of shareholders equity and other financial sources income tax of investors based on amount of dividends with innovative tax rate.

  1. Joint Venture

A foreign investor may team up with a national investor or business for a joint investment, typically in the kind of venture or private limited company or discussion company. There isn’t any restriction whatsoever in share ownership in a joint venture. The overseas partner can meet this minimum equity capital either in cash or in kind.

  1. Company Registration

All foreign companies planning to invest in Ethiopia are required by law to receive enrollment in accordance with the commercial code of Ethiopia. The Ethiopian Investment Commission, representing the Ethiopian Ministry of Trade and Industry, carries out such business registration.

EOR Services in Ethiopia: employerofrecord-africa.com/ethiopia-employer-of-record-services/