Company form conversion is the process of changing the company’s legal form without creating a new legal entity. The Ethiopian commercial law’s rules on the process are provided in the commercial code (amended in 2020) and directive to provide for commercial registration, licensing and post licensing inspection, no 935/2022.

Conversion doesn’t affect the continued existence of the original business organization. The rights and duties of the former organization shall pass automatically to the new business organization on the day of registration. It neither increases any liability of members nor deprives rights of members. Notwithstanding these stipulations, members of Share Company or Private Limited Company who dissent from the decision on conversion may withdraw by selling their shares. The conversion of a firm shall not discharge partners with unlimited liability of their liability for undertakings entered into by the firm prior to the conversion, unless it is proven that the creditors have approved the conversion. Where a share company, private limited company, or one person P.L.C is converted into partnership, the partners shall be free from personal liability for debts incurred by the organization before the conversion.

Upon registration of the new business organization, creditors of the former firm shall be required to establish their claim forthwith, and shall be informed that, unless they object thereto, they shall be deemed to be creditors of the new business organization.

The decision to convert a bussiness organisation into another form may pass unanimously or by a majority required by the establishing document of the business or by law. The process has to be public through a notification publication in a news paper and the website of the company and finally the amended Emmorandum of assciation should be registered on the cvommercvial register.

As provided in the directive, the procedure of conversion begins upon submitting an authenticated minute adopted by two-third majority votes representing the share capital of the former Business Organization. The conversion will result in the need for authentication of a new Memorandum of Association and changing of Tax Identification Number in the name of the converted Business Organization. Ultimately, the Ministry issues a new Commercial Registration Certificate and Business License in the name of the converted Business Organization.

The Directive addresses specifically the conversion of a Sole Proprietorship into a One-Member PLC. For a conversion from a sole-proprietor to a One-Member PLC to take place, a sole proprietor is required to present a Tax Clearance Certificate and a Unilateral Declaration, in addition to meeting the criteria applicable for a PLC. Practically speaking even though it is not clearly put in the directive the ministry of revenue audits any business organization that applies for conversion and issues a clearance for the conversion before the minute of the conversion is authenticated.