| Abstract: | The biggest concern of the law during capital increase is the protection of minority
shareholders. In this regard, the Code creates some safeguards. The first protection
relates to placing the power of increasing capital in the hands of the extra ordinary
general meeting which is subject to higher quorum and majority rules. The second
protection involves pre-emptive rights of shareholders to new issue of shares in
proportion to each shareholder’s existing shareholding, which can only be
bypassed under very stringent conditions. Where pre-emptive right is bypassed,
fair valuation of new shares is provided as an alternative remedy. Other exceptional
remedies include each shareholder’s right to veto down capital increase
resolutions, or opt-out right from the increase resolution, depending on different
contexts. In terms of the authority to decide on increase, Ethiopian law recognizes
the ultimate power of the shareholders meeting to determine increase of capital,
including the amount and the manner of the increase. Contrary to many other laws
that give wider power to the board of directors to increase capital under delegation,
Ethiopian Commercial Code limits the board’s power to merely implementing the
decision of the general meeting. However, careful examination of the law indicates
that under the delegation of the general meeting, the board can do more than merely
implementing the decisions of the meeting. The law should be interpreted as
allowing delegated capital increase by the board of directors in order to introduce
efficiency in capital raising which, inter alia, may extend to the extent of
exercising discretion to bypass pre-emptive rights. With such schemes, efficiency
for the company and fairness towards minority shareholders should be balanced |
