Merger and Acquisition in Ethiopia
Mergers refer to the process of one company purchasing the assets and liabilities of another company, which results in the latter ceasing to exist as an independent entity. The 1960 Ethiopian Commercial Code, which had been in effect for over 60 years, was replaced by the New Commercial Code introduced under Proclamation 1243/2021 and ratified in March 2021, which is currently in force in Ethiopia. It defines the merger of business organizations as follows: Merger of business organizations is an operation whereby two or more organizations merge into one either by one of them acquiring the rest or two or more organizations forming a new organization and merging into the new one. The New Commercial Code allows for mergers between any type of business organization and provides various methods for merging such entities. A merger by acquisition is an operation that involves winding up one or more business organizations without liquidation and transferring all their assets and liabilities to a preexisting organization. A merger by the formation of a new organization is a process in which two or more business organizations transfer all their assets and liabilities to a new organization that they create, without going through liquidation. The shareholders or partners of the dissolved business organizations receive shares in the new organization in exchange for their previous holdings. They may also receive additional cash payments, depending on the circumstances. A business organization that is undergoing liquidation can merge with another organization before the distribution of its assets.
The Commercial Code has laid down the law on mergers and acquisitions, and the Directive to Provide for Commercial Registration and Licensing and Post-Licensing Inspection No. 935/2022 has taken it up a notch. It has set the bar high for businesses looking to merge or acquire and has put in place stringent requirements that must be met before any such transactions can take place. The directive is a testament to Ethiopia’s commitment to fostering a healthy business environment that encourages growth, innovation, and fair competition.
Directive No. 935/2022 on Commercial Registration, Licensing, and Post-Licensing Inspection has set out several requirements for mergers and acquisitions in Ethiopia.
When two business organizations consider merging, they must follow certain procedures. Suppose the merger is under consideration by a body authorized by law to regulate business competition. In that case, the merger must be authorized by the Merger and Acquisition Department of the Ministry of Trade and Regional Integration’s Trade Competition and Consumer Protection. A minute authenticated by a body authorized by law must indicate that the merger is adopted by members with voting rights representing two-thirds of the shares of each business organization present at the extraordinary meeting. If the merger is not under consideration by such a body, a minute authenticated by a body authorized by law must indicate that the merger is adopted by a unanimous vote of all members of the business organizations to be merged. Each merging business organization must submit a separate closure tax clearance certificate. If the merging companies agree to consolidate their debts/liabilities, the agreement authenticated by a body authorized by law shall be submitted. The business organizations to be merged shall submit the business name and trade name of the business organization to be merged. If the business organization to be merged uses a new business name and trade name other than the one used by one of the merging business organizations, the previous trade name and business name shall be canceled. The new name shall be amended by recording in a minute which shall be authenticated by a body authorized by law. If the business organization to be merged uses the trade and business names of one of the merging business organizations, the other name or names shall be canceled. A copy of the newspaper or link having nationwide circulation in which the merger plan is notified to the public once in month shall be submitted as evidence within two months from the date the plan is adopted by the general meeting.
If you want to transfer a business or business organization through sale or lease, you must prepare the following documents:
• An agreement authenticated by the Document Authentication and Registration Service (DARS).
• A tax clearance certificate related to the previous business license.
• A minute authenticated by DARS that shows the unanimous agreement of the members to transfer the same of the transferor.
• A minute authenticated by DARS indicates that the transfer is adopted by members of the transferee with voting rights representing two-thirds (2/3) of the shares of the organization present at the extraordinary meeting.
• An investment permit shall also be submitted where the person to whom the business/business organization is being transferred is a foreigner or a business organization in which a foreigner is a member.
• Verification shall also be made whether the investment area is open to foreign investors.
• The trader who receives the business must obtain a business license in their name, while the previous owner’s license must be returned.
• To acquire the new business license, the transferee must provide a copy of a newspaper or link with nationwide circulation as evidence. If the trader to whom the business/business organization is transferred is already engaged in the same business, it may cause the business to be registered as a branch. If it is not engaged in the same business, it shall obtain a business license based on the previous commercial registration.
When a foreigner or foreign business organization joins an existing business organization, the investment area of the existing business organization must be verified to ensure that it is open to foreign investors. The following documents must be submitted:
• Permission granted by the Ministry of Trade’s Competition and Consumer Protection Merger and Acquisitions Department.
• An unauthenticated minute of the existing business organization indicating that it has given its consent to allow the foreigner or foreign business organization to join the business organization.
• Proof that the minimum capital required of a foreign investor, as provided for in the laws regulating investment, has been transferred to a local bank.
• Proof showing the consent of the foreign business organization that is to acquire shares from the existing business organization.
• A valid business license of the existing business organization.
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