Analyzing Importance Of Minimum Legal Capital Requirement For Corporation; Comparative Study Of Ethiopian Company Law With Germany, France And Kenya.

Abstract

Minimum legal capital requirement is traditionally accepted as the creditor’s protection mechanism and cost of incorporation for shareholders of limited liability companies. Particularly this rule is highly associated with continental legal system EU laws in general and France and German company laws in particular. Since the Ethiopian civil code in general and commercial code in particular is highly influenced by continental legal system mostly that of French and German legal system, the Ethiopian commercial code also introduced the concept of minimum share capital as one of incorporation formality. However in current time many researchers and legal scholars are argued that the minimum paid up share capital become outdated, superfluous, traditional, symbolic and meaningless and does not serve any intended purposes for which it was enacted. The researchers are also looking forward to other alternative effective mechanisms of creditor’s protection instead of traditional obligatory minimum legal capital requirement. Therefore by looking these failure of mandatory minimum capital rule, many countries in the world including those selected jurisdictions are under gone several legal reform to deregulate mandatory paid up minimum capital and to replace its function of creditor protection with other effective ex-post mechanisms. But Ethiopia does not under go any legal reform or amendment to modernize the issue under consideration. Hence the researcher in this thesis tries to analyze the importance of minimum legal capital requirement under Ethiopian corporate laws by comparing it with the selected jurisdiction for comparative study. In doing so the researcher used qualitative study by analyzing primary, secondary and tertiary materials based on comparative studies. Based on this research finding the researcher concluded that even though the rules of minimum capital requirement traditionally has some kinds of purpose mainly for creditors and shareholders, currently it become outdated, superfluous and only symbolic legal concept without serving any legal purpose. Hence the researcher was recommended that the Ethiopian commercial code dealing with minimum paid up share capital should be amended so as to deregulate minimum capital requirement at least for private limited companies.