TBO- Firaol Chapter 1 - 2

Law of Traders and Business
Organizations
Chapter 1&2
Firaol T. Adugna (LL.B., LL.M.)

Lecturer, School of Law , CLG, JU.
2021

Chapter One
Introduction

Chapter Outline
1. Commerce and Commercial Code

2. Codification History of Commercial Code in
Ethiopia
3. General Orientation of the Commercial Code
4. Enactment and Objectives of the
Commercial Code

1. Commerce and Commercial Law
Business Organizations (BOs) grew from a single
individual to a group of individuals organized, first in
some sort of partnership, then in more refined type of
partnership and finally to a corporate form.
 Commerce was started in the ancient time may be
when human being begun to live in the cave.
By the time there was barter (exchange of …).
 The silent trade era:-when the Axumite’s were trading
along the Mediterranean sea.
 The Caravan Trade:-
During this time, despite the existence of such trade
movements, the state couldn’t enact a law on commerce.
1. Commerce and Commercial Law Contd.
The current prevalent forms of BO in Ethiopia have passed
through different stages of development.
The 1st BO in Ethiopia was Franco-Ethiopian Railway
Company (1984)…was intended to last for 99 years.
 It was established by virtue of a concession given to a
guy named Alfred Ilg, not by law.
 Its head office was in France, Paris and remained a
French company for all practical purposes.
The 2nd BO to appear in Ethiopia was Bank of Abyssinia
(1905) as a branch of National Bank of Egypt.
 The imperial government was entitled to 20% profit.
 Later in 1931, the government of Ethiopia bought the
company and named it Bank of Ethiopia.

1. Commerce and Commercial Law Contd.
• Then, the Agricultural and Commercial

Development Company with no existing law
than imperial decree to this effect have been
established.
• It was incorporated in Ethiopia and thus, the
first Ethiopian company.
During the establishment and operation of
these BOs there was no law. Thus, in Ethiopia
BO precedes the laws governing them.

2. Codification History of Commercial Code in Ethiopia
• With the booming of commerce and formation of the

above mentioned companies, the following
commercial laws were promulgated;
1. Law of Loan: 1924
2. Decree of Concession: 1928
3. Law of Bankruptcy:1931
4. Company Law (1933): It has similar feature to Book II
of the current and the 1960 Com C. It recognized SC,
PLC, OPP, LPP and Joint Stock Company.
It was not, however, published. It remain draft due to:
• The Italian Invasion…was not practically tested and
• It takes time to the people to get accustomed to law.

• Later in the 1950’s, during the massive codification

period, the codification commission sent an invitation
to the French Prof. (Jean Escarra) who come up with a
draft of Book II, IV and V of the 1960 Com C.
• When Pof. Escarra died in 1955, another French Prof,
Alfred Jaufrett finalized the remaining Books in the
code, Book I and III.
• Then, the code come into force in 1960 and it was
claimed to be a comprehensive code of its time.
• The code was, however, criticized for not taking in to
account the Ethiopian custom as its promulgation
period was too short (1954-1960).

• The Com C adopted in 1960 was under

revision since 1990’s.
• In 2021 the HPR approved the revision and
the code is adopted as ‘Commercial Code of
the FDRE Proclamation 1243/2013.
Reasons for Revision of the Com C:..

Material Sources of the New Code
The drafters have tried to use laws from the civil law legal system
(Western European states), Model Laws and also consider taking laws
of the states on the same economic dev’t with Ethiopia as a material
source of the New Com C. Some of these are:
 The French Commercial Code (2006)
 The German Company Law (2000)
 European Model Company Act (2007)
 The Turkish Commercial Code -2003
 The Indian Commercial Code -2006
 The Chinese Company Law-2005
 UN Commission on Int’ Trade Law (UNCITRAL Legislative Guide on
Insolvency) and etc .
 The Old Commercial Code (1960) itself and different court cases
have been used as a material source.

3. General Orientation of the Commercial Code
Based on whether a commercial code, primarily, governs
persons (traders) or their acts (acts of commerce), it may
adopt either a Subjective, objective or Mixed Approach.
1. Subjective Approach
A subjective commercial code regulates community of
persons called as traders/Bos and not their acts.
2. Objective Approach
If a commercial code adopts an Objective A, it will regulate
acts known as acts of commerce no matter who the persons
carrying out those acts.
It lists acts known as acts of commerce and regulates them.
In the 1960 Com C, although the drafters opted for a
Subjective A, the code as it was promulgated were mixed.
(5+10). The same applies to the New Com C.

Monopolistic or Dualistic System?
States may use a single code to govern both civilians and traders or
may do so by adopting a separate codes.
1. Monopolistic System: It is when a state use a single code to
govern both civilians and traders. E.g. Switzerland
2. Dualistic System: Two separate code for traders and other
civilians. E.g. France and Ethiopia
 In such case, the codes governing traders (Com c) and civilians (Civil
Code) will not be completely separate. There is an interrelationship
between them.
Art. 1 of the Com C reads:
“Unless otherwise provided in this Code, the provisions of the Civil Code
shall apply to persons and business organizations carrying on a trade.”
According to Prof. Jaufret “the only purpose for the existence of
commercial law is to supplement the civil laws.”

4. Enactment and Objectives of the Commercial Code
Power to Enact Commercial Law

 Art. 55/4 + 52/1 of the FDRE Constitution ... HPR
A commercial code must be uniform to establish one
economic community…hence…
Objectives of the commercial Code
The whole commercial code is interested/aimed:
 To regulate status of person who take part in
business activities (traders and BOs)
 To regulate commercial transactions to which these
persons are a party.

Chapter Two
Traders and Business

Traders
Part One

Traders: Defined
• Businesses are operated by persons, whether physical
or juridical. However, sole businesses or sole
proprietorships can only be run by physical persons.
• Physical persons who operate a sole business are
referred to as traders.
1. Who are traders under the commercial code?
2. What are the conditions attached to the definition
of traders under art. 5 of the code (+ve definition)?
3. Are the list of acts of commerce under art.5
exhaustive or limitative?
4. Who are excluded as trader by the –ve definition
given to traders?

Traders: Defined Contd.
1. Positive Definition
It is a direct explanation of who a trader is. Such explanation
can be found under Arts. 5, 9, 42, 54
• In defining traders, the Com C stipulates two conditions:
1. General conditions: a physical person will become a trader if he/she
operates a business:
1. Professionally: as his principal calling
2. For gain (profit): not to pass time or not as a recreational activity
2. Special Conditions: the activities in which the person engages,
professionally and for gain has to be within the list of art. 5… acts of
commerce.
Is there a difference between the new and the old Com C in relation
to acts of commerce listed under art.5?
Is the list under art.5 of the New Com C exhaustive or illustrative?
Should it be so? Why?

Positive Defn Contd.
• In the old Com C the drafter’s intention was to make the
list exhaustive at the risk of having a long list but to avoid
subjective interpretation in the absence of such listings.
• Even though, the list under art 5 of the Com C was meant
to be exhaustive, it was later broadened by a subsequent
legislations.
• Drafters of the new Com C prefer to list certain acts and yet
to make it open ended.
• Thus, list of acts of commerce under the New CC is
illustrative as it reads “Persons who professionally and for
gain carry on, among others, any of the following
activities as trade shall be deemed to be traders:”

Positive Defn Contd.
The following are traders:
 Holding Companies? (Art 9)…are traders
What about SC and PLCs?
The Old code states that SC and PLCs are always
commercial in nature and are traders whether or
not they carry acts of trade under art. 5.
 Commercial Agents (42)
 Commercial Brokers (54)
 Commission Agent (58)

2. Negative Definition (Arts 6-8)
Refers to an exclusion of activities in which if a person engages
would not be considered as a trader.
Accordingly, the following are excluded from being regarded as a
traders:
1. Small Scale-Works (6/1/2+ 5(4)(5)/33/34/36 & 37)
2. Agriculture (farming & breeding) and Forestry (Arts 8):
why?
i. To incentivize them…encourage
ii. Political game: to make them lower price of their pdts
iii. Our agriculture is not large scale & is only means of
subsistence…
iv. Traders needs to keep books & accounts, a requirement w/c
probably these persons (farmers) cannot fulfill.

• 2. Negative Definition Contd.
3. Handicraftsmen (Art 7): what are the
conditions?
4. Commercial Employees (Art 27): they work
(non-manual) for the trader…e.g Accountant
5. Commercial Travellers (36): Represent the
trader in the same domicile where the head
office of the bss situates…not a trader
6. Commercial Representative (37): rep/t the
trader in a different city…not a trader
2. Negative Definition Contd.
7. Bodies Corporate under public law (Arts. 4+24-26) such as:
 Administrative bodies
 Religious Institutions
 CSO and
 Cooperative societies
 Associations (24)
These organs will not be considered as a trader even if they
carry out acts under article 5 (4/1) and the Co C will not be
applicable to them.
However, if any of them become a share holder in a trader
BO, the laws applicable to shareholders will apply to them
(Art. 4/2).
How about public enterprises? Are they subject of the Com C?
See art. 4/3/….are subject of the code, but not a trader.
Right to Become a Trader
Everyone has the right to become a trader. T/F?
 According to Arts 41/1 of the Con, 21/1 of New Com C and
16 of the Civil C, it is true that every person is free to
exercise any activity, including trade as a matter of
principle.
However, the general right to engage in any trade activity can
be restricted because of the following requirements or
conditions. These are:
1. Capacity (Minority, Interdicted Persons| Arts. 10-14)
Persons incapable under the civil code may not carry on any
trade (10/1).
 A tutor cannot carry on a trading activity as a matter of
principle, but it is left for another law to decide whether a
tutor can continue running an already existing trade of the
minor or the interdicted person (11/2)

Right to Become a Trader Contd.
• Incapacity, both minority and interdiction,
cannot be raised as a defense unless such
incapacities are registered (14).
• An emancipated minor can carry out acts of trade
(12).
2. Married Persons (Arts 15-20): Unless there is an
objection from the other spouse, any married
person can carry on a trade as though he/she were
unmarried (15).
 If there is objection and the objection is
registered (Arts 16+103), then only the trading
spouse will be liable from his/her personal ppty.

Right to Become a Trader Contd.
3. Exclusions not to be a trader: egs.
 Associations (24 of the New Com C+404 of the
CC)
 Ordinary PP under the Old Com C cannot carry
acts of trade… Now the form itself is removed.
4. Monopoly: It limit not the right to be a trader but
the options on which to trade.
 For instance: Until recently investment in
telecom service was only reserved for the
government.

Obligations of Traders
• Like it entitle rights, being a trader is not without
certain obligation that needs to be discharged.
• Thus, a trader have the following main obligations:
1. Registration (Art 82-89 of The NC+ Art 5 of Commercial
Reg & Licensing proc. 980/2016)
No person is allowed to engage in trade without registration
(82/1).
Why registration is mandatory? What are it purposes?
 Promote legal business & restrain illegal trade
 Helps in providing the public a reliable info about the business
 It serves evidentiary role
 BO s will get legal personality after registration (7/1 of the Pr)

2. Keeping Books and Accounts (61-81 N Com C)
Books: correspondences-incoming and outgoing letters
should be kept for at least 10 years (66)
Why 10 years?...the civil code 1845 obligation is barred
only after 10 years (PL).
Accounts: It involves keeping of financial statements such
as profit and loss and balance sheet.
Purposes of Keeping B& A
 Helps the gov’t in determining tax
 Serves as an evidence
 Helps the owner to control his employees

3. Business License (22-32 of Proc 980/16)
No person shall engage in a business activity
without having a valid business license (22/1).
The trader has to renew his license annually
(27/1).

BUSINESSES
Articles 106-171
Part Two

Business: Meaning and Nature
• Business as defined by the code is ‘an incorporeal
movable consisting of all movable property brought
together and organized for the purpose of carrying
out any of the commercial activities in Art.5 of this
Code’ (106/1)
• ‘የንግድ መደብር ማለት ግዙፍነት የሌለው ተንቀሳቃሽ
ንብረት ሆኖ በዚህ ሕግ አንቀፅ 5 የተጠቀሱትን የንግድ
ሥራዎች ለማካሄድ የተሰበሰቡና የተደራጁ የሚንቀሳቀሱ
ንብረቶችን ሁሉ ያካትታል፡፡
• Thus, Business is an incorporeal movable thing.
 Its in corporeality is its ultimate feature irrespective
of the existence of corporeal elements.
 Business mainly consists of goodwill/maqaa
gaarii/መልካም ስም (109/1).
Business: Meaning and Nature
• Corporeal elements that make up bss include
equipment and goods (ሸቀጣ ሸቀጦች) (110).
• Is it always mandatory for a business to have
corporeal? –ve…brokers
• The business premises (immovable) cannot
form part of business.
• Business by itself is an object of property and
therefore can be made subject of sale, lease
or mortgage.

Traders and Business
What is the interrelationship between trader and
business?
 Every trader operates a business (107/1).
Is the vice versa true? Can we say every business is
operated by traders?
 A trader may operate business in the capacity of
owner, usufructuary and lessee(107/3).
But in such cases, whom to consider as a trader? The
owner, the lessee or the usufructuary?
 In such cases it is the one who actually operates the
business that will be considered as a trader (107/3).

Business Contd.
 A business may consist of one principal business
or of a principal business with branches or
agencies which shall be deemed to be part of the
business.
• In such case, if branch is sold does it amounts to
sale of a business?
Where a branch or agency is sold or let out for hire
without the principal being sold or let out for hire,
such sale or lease shall be deemed to be a sale or
lease of a business (108/2).
 In such cases, the business will become two and
this implies existence of two traders.
Elements of Business (109-111)
1. A business consists mainly of a goodwill (109/1)
Goodwill: is a value derived from traders and consumers
relations.
Is the definition provided by art 112 on goodwill really a
definition?
It depends on consumer patronage, whether a consumer likes
or not your pdt/services.
 Goodwill appear in the public’s attention in the form of a
trade mark, trade name, trade secret, industrial design
and etc.
• While some wants to share your good will others need to
damage it by misleading or false discrediting statements.
• Hence, good will needs legal protection.

Protection of Goodwill
When a trader’s goodwill is interfered with, the
trader can use the ff two courses of action (114/1)
1. Institute a legal proceeding based on the legal or
contractual prohibitions specified under arts: 29,
39, 53, 118, 131, 166,167 and etc.
2. To bring an unfair competition claim under art
2057 and sought pmt of damages.
 What is considered as a commercial unfair
competition?
 What elements has to be fulfilled in order to say
there is commercial unfair competition?
Commercial Unfair Competition
• Commercial Unfair Competition has two implicit ideas:
Unfairness & Competition.
1. Competition: It presuppose existence of competitors.
Competitors are traders who are trying to reach the same
customers.
 Inherent in the idea of competition, there are three
elements:
i. The competitors must be selling similar pdts …atleast
substitute goods
ii. In the same market/area
iii. At the same time

Commercial Unfair Competition Contd.
2. Unfairness: in relation to what makes a competition unfair,
the old Com C have a detailed provision while the New CC
chooses to leave the matter regulated by another law (114/2).
Thus, it is must look at Trade Competition and Consumer
Protection procl.n 813/13. According to the proclamation, a
competition is unfair, among others if there is:
 Any act that causes or is likely to cause confusion with
respect to another business person or its activities…pdts
E.g. Adidas vs Adibas
 Any act of disclosure/use of information of another
business person w/t their consent
 Any false or unjustifiable allegations that discredits or is
likely to discredit another business person or its activities
 Disseminating to customers false or equivocal information

Remedies for Acts of Unfair Competition
A person/trader whose goodwill is affected by
an act of commercial unfair competition may be
entitled to the following remedies:
Payment of damages for the loss
Publication of notices designed to remove the
effect of the misleading acts/statements
Cessation of the act of unfair competition

Elements of Business (109-111) Contd.
Even if Business mainly consists of goodwill, there
are also other incorporeal constituencies of
business. These are (109/2):
1. the trade name;
2. trademark and any other designation under
which the trade is carried on;
3. the right to lease the premises in which the
trade is carried on;
4. intellectual property rights (copyrights &Patent);
5. Such special rights as attach to the business
itself and not to the trader.
Elements of Business Contd.
• In r/n to trade name and trade while the old code made a
detailed explanation, the New CC left it to be regulated by
the relevant provisions of the civil code and other laws.
A business shall normally not include the assets and debts of
the trader (111/1).
Exceptions:
 R to the lease of the premise (111/1)…E.g If Arsenal is sold
1 year after leasing Oltraford for 10 years…
 Employees (2587): if the undertaking is sold, they will
remain employees of the business
 Insurance Policy (111/2)…if any it will pass to the new
Owner
 Non-Compete duty (118+130): when there is sale of bss,
the seller has a duty refrain…. For 5 years.

Lease of Bss Premise and Sale of Business
A person may lease a premise of business. In such scenarios,
the lessor of the business premise may not in the same
building carry on similar trade to that of the lessee (116-
118).
 When there is sale of Bss, the Civil C (2266-2367) shall be
applicable (122).
 Sale of Bss has to be made in writing, if not it will be null
and void (124).
• Non-compete duty: the seller is barred from doing any act
of competition likely to injure the buyer.
Particularly, he may not carry on, in the vicinity of the
business he sold, a trade similar to the trade carried on by the
buyer (130/1). For a period of 5 years (130/2). Is such
prohibition part of the business?
 Such prohibition is considered part of business and may be
enforced by the buyer, his heirs or any subsequent buyers.
Rights and duties of Buyers and Sellers of Business
• The seller has a duty to hand over the bss (127/1)

with its constituent part, save for contrary
agreement (127/2).
• Until he is fully paid, the seller shall be secured by
a legal mortgage and shall have the right to
cancel the contract (135)
• The buyer shall pay the price (132)…unless there
is objection to the sale in w/c case he may keep
the price.
• The buyer has a duty to publish notice of sale
within one month…(136-138).
Mortgage and Lease of Business (143-155)
• Business can be mortgaged and this arrangement may
arise from law (as in 135+145) or contract(148/1)(143).
• Any person who is capable under civil law and who
owns a business may mortgage such business
notwithstanding that he does not operate it himself.
• In both legal and contractual mortgage, the mortgage
has to be in writing and registered(145/2+148).
 A person can lease his business (156/1).
 For the lease of Bss to affect 3rd party, it has to be
made in writing & published (157/1)
Since a contract of lease of Bss is to be made on personal
qualification, the lessee may not assign it w/t consent of
the lessor (163).

Contributing Business to a BO
• Can a person contribute a business, like
money cash, skill or service, in the formation
of a BO? Why/why not?
In the first place, business is an object of
property and hence subject of assignment or
transfer.
Thus, it is possible for a person to contribute
business as a contribution in another
BO…fulfilling the necessary requirements (Arts
168-171)


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Law of Traders and Business

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

1. Commerce and Commercial Code

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

• Then, the Agricultural and Commercial

Firaol T. Adugna (LL.B., LL.M.)

• With the booming of commerce and formation of the

Firaol T. Adugna (LL.B., LL.M.)

• Later in the 1950’s, during the massive codification

Firaol T. Adugna (LL.B., LL.M.)

• The Com C adopted in 1960 was under

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Power to Enact Commercial Law

Firaol T. Adugna (LL.B., LL.M.)

Traders and Business

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

• The seller has a duty to hand over the bss (127/1)

Firaol T. Adugna (LL.B., LL.M.)

Firaol T. Adugna (LL.B., LL.M.)

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