College of Business and economics The commercial code of Ethiopia defines a business organization
Department of Accounting and public finances
The commercial code of Ethiopia defines a business organization as follows. A business organization is any association rising out of a partnership agreement .According to this definition there are eight forms of business organization. These are:-
Sole proprietor
General partnership
Ordinary partnership
Limited partnership
Private limited company
Public limited company
Co-operation
Joint venture
Sole proprietorship: – this is the simplest ways to set up a business. A sole proprietor is full responsible for all debts and obligation related to his /her business. A creditor with a claim against all of his/her asset, whether business or personal. This is known as unlimited liability. if the proprietors choose to carry on a business under a name other than his/her own , he/she must registration will be valid for a certain period of time . a sole proprietorship is the cheapest and easiest form of business where must of them prefer to register their business in under a sole proprietor , the entrepreneur is the owner as well as the manager of the business. The sole proprietorship terminates by law up on the death of the sole proprietor with veryife exception. Estate planning document for the sole proprietor may grant the others of the sole proprietor the other of the sole proprietor the right to continue the business.
General partnership: – consist of partners who are personally, jointly, severally and fully liable between themselves and to the partnership firms under taking. This means that each partner is responsible for and must assume the consequences of the action of the other partners. All members share the management of the business. The death or withdrawal of a general partner or the expiration of the term of the general partnership continuation of the partnership following such events may be dealt with however, in the partnership agreement since a partnership is generally a ‘’ voluntary ‘’ associated any generally partnership may withdraw and force dissolution of partnership as a general rule requires the winding up of its affairs and a liquidation of the partnerships asset.
Limited partnership: – some members are general partnership who control and manage the business and may be entitled to a greater share of the profit while other partners are limited and contribute only capital. Limited partners take on part in control or management and are liable for debts to a specified extent only. A legal document outlining specific requirement must be drawn up for a limited partnership.
Joint venture :-is an agreement between partners on terms mutually agreed and is subject to the general principles of law relating to partnership stated below
Each person shall make money contribution , which may be in money ,debts, other property or skill
Property or the use of property may from a contribution
Unless otherwise agreed contribution shall be equal and of the nature and extent required for carrying out the purpose of the partnership.
Co-operatives:- this is where people associate on voluntary basis to promote their economic interest, where by resource are pooled together and used. People with financial constraints, especially tend to form co-operatives benefit from joint efforts and external support facilities.
Co-operatives business structure provides:_
Democratic control based on one member one vote
Open and voluntary membership
Patronage dividend
Private limited company: – by share is a company whose capital is fixed in advance and divided into share and whose liabilities are met only by the assets of the company. The members shall be liable only to the extent of their share holding. formation of a share company shall be by a public memorandum of association which consist of :-
Names, nationality and address of the m embers, the number of shares which they have subscribed, provided that a member may not subscribe to less than one share;
Name of the company
Head office and the branches, if any;
Business purpose of the company;
Amount of capital subscribed and paid up;
Par value, number, form and classes of shares;
Value of contributions in kind, their objects, the price at which they are accepted, the designation of the shareholder and the number of shares allocated to him by way of exchange;
Manner of distributing profits;
Number of directors and their power.
Co-operation
A corporation is a legal entity having an existence separate and distinct from that of its owners. In the eyes of the law there are two persons and a corporation is an ‘artificial person’ having many of its own rights and responsibilities.
Forming a Corporation
A corporation is created by obtaining a corporate charter. The charter is given from the states in which the corporation is to be incorporated. To obtain a corporate charter an application called articles of incorporation are prepared by the organizers called incorporators and submitted to the state corporation’s commissioner or other designated officials. These articles of incorporation specify the purpose of the business, its location, the names of the organizers, the classes and numbers of shares of capital stock authorized, and the consideration to be paid in by the organizers for their respective shares. The article of incorporation is approved by the state and charter is issued. Once a charter is obtained a board of directors is elected. The directors in turn hold meetings at which officers of the corporation are appointed.
8. A joint venture is a grouping of people arising out of a partnership agreement, which is also known as a joint venture agreement in which two or more persons combine their labor and/or capital for the purpose of carrying out economic activities and participating in the profits and losses arising out thereof ( Art.271 cum 211). The joint venture is the simplest form of business organization. It is regulated by title III of Book II of the Commercial Code. Joint ventures, more often than not, are used for a single transaction or project, or a related series of transaction or project. Although joint ventures can hardly be adapted to industrial enterprises, commercial transactions in which great amount of capital are involved are often dealt with by joint ventures. Large organizations often investigate new markets or new ideas by forming joint ventures. Joint ventures have the following merits:
1. Transactions or projects can remain secret by virtue of the secretive nature of the organization;
2. Joint ventures are exempted from registration, unlike the remaining legal forms of business organizations;
CHARACTERSTICS OF JOINT VENTURES
A joint venture, being one variant of partnerships, is subject to the general principles of law relating to partnerships [Art.271]. Exceptions to the application of partnership principles to joint ventures include the following:
1. A joint venture is not made known to third parties. What is more, a joint venture agreement need not be in writing and is not subject to registration ( Art.272)
2. A joint venture does not have legal personality [ Art.272(3)]. Thus, it is not going to be considered as a legal entity. That is to say, a joint venture may not have a firm-name; may not enjoy ownership right over the capital; may not incur liabilities; may not have a head office; cannot sue or be sued in its firm-name; cannot be declared bankrupt.
Now, let’s attempt to elaborate on the legal ramifications of the above-mentioned two exceptions. First, one general principle of law relating to partnership is such that any business organization other than a joint venture must not be made known to third parties. ( [Art.219 (1)]. Also, sub-article (1) of Art. 272 provide that a joint venture is not made known to third parties. Nevertheless, where a joint venture is made known to third parties, it shall be deemed, insofar as such parties are concerned, to be an actual partnership [ art. 272(4)]. That is, in case third parties happen to be aware of the existence of a commercial joint venture, it will be presumed to be a de facto general partnership. It shall be deemed to be a general partnership, because it is commercial. And it is a de facto business organization, because it has not been registered. Here we can raise two questions in connection with the effect of non-compliance with the requirement of what is referred to as “absence of divulgation” for persons to engage in business in the form of a joint venture. Article 272(4) of the Commercial Code stipulates simply that “ where a joint venture is made known to third parties, it shall be deemed, insofar as such parties are concerned, to be an actual partnership.” This provision goes no further than providing a sanction for the said requirement. The first question, thus, is as to the time when the joint venture is considered to have been divulgated to third parties. Put differently, when should the knowledge of third parties exist in order that the joint venture will be presumed to be an actual partnership? The time has to be before they enter into a business dealing with the manager. The reasons are two-fold: One is third parties ought not to claim that they were misled unless there exists reliance. This is so, because it might be the case that at the time when they entered into transaction with the manager they had relied only on the individual manager and did not know of the joint carrying on of the business as between the ventures and did not still know of the identity of the ventures. Thus, what matters most is prior knowledge as long as assimilating all cases of subsequent knowledge would defeat the rationale behind the provision. Also inclusion of subsequent knowledge into the solution would render it one-dimensional. This is so, because if the manager could bind the members, they would be liable with him all the time.
The second question can be put as follows: undisclosed joint ventures enjoy ownership right over their contributions as per Article 273 of the Commercial Code. However, if the joint venture 73
is made known to third parties, it will be presumed to be an actual partnership. Now, the question is what is the effect of this legal presumption as to the change in the form of the business organization on the ventures‟ liability? There still is a possibility in which partners in the de facto partnership can enjoy the privilege granted them by virtue of Article 273 of the Commercial Code. Despite the fact that a joint venture does not have legal personality and is not registered, some of the ventures may not get misled as to their status. There is no reason why the partners in the de facto partnership should be denied of limited liability, so long as the policy of protecting the interests of third parties remains intact. Hence, the issue of whether third parties might have been misled will be resolved on a case by case basis. Nevertheless, the likelihood that third parties will be misled is higher in cases of de facto partnerships. It is submitted that, non-manager joint ventures may enjoy the privilege granted them by Article 273 even if the joint venture is divulgated, so long as third parties are not misled, none the less. Besides, it is important to note that what has been disclosed to third parties matters a lot. If third parties were informed that the partners have formed a joint venture, this would be immaterial. But, if third parties were aware only of the joint carrying on of the business in the form of a partnership, the solution will apply as stated above. With respect to the second exception the following comment is worth noting. Since a joint venture has no legal personality, ownership right over the capital contributions shall remain with individual contributors in the absence of an agreement to the contrary (Art.273). The joint ventures will merely put certain goods or assets at the disposal of the manager, who does not become the owner except in the case of fungibles, especially cash. If the manger acquires goods with the funds placed at his disposal by the ventures, he retains ownership of these goods but is obliged to account to the ventures for his acquisitions, and if he resells these goods at a profit he must share the profit with the ventures. Just in case the manager goes insolvent, the goods placed at his disposal by the ventures do not form part of the assets of the bankrupt manager and hence each joint venture may reclaim his contribution. Being the owners of their contributions, the venture’s may freely transfer them to third parties. Finally, each joint venture takes back the assets which he placed at the disposal of the manager if he still has them in kind upon dissolution. 74
The joint ventures may conclude a contrary agreement as regards ownership of their contributions. First, they may provide for transfer of title over their contributions to the manager. Therefore, the manager will become the owner from the moment the venture’s explicitly or implicitly show that they want to transfer ownership. In case of cash contributions, the manager becomes owner thereof. Anyway, the manager is duty-bound to use the goods placed at his disposal exclusively for the business purposes of the joint venture. Second, the joint venture’s are at liberty to provide for a regime of co-ownership pertaining to their contributions, thereby rendering each venture a co-owner of the common property.
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