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the minimum paid up share capital become outdated, superfluous, traditional, symbolic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purpose mainly for creditors and shareholders, currently it become outdated,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.
