1. ESTABLISHMENT AND OPERATIONS OF A PUBLIC ENTERPRISE
Chapter Four
ESTABLISHMENT AND OPERATIONS OF A PUBLIC ENTERPRISE
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

2. Public Enterprises and Cooperatives
Establishment of PE
Why? There has to be a rational to establish a public enterprise
Feasibility study has to be conducted: on the commercial nature of the enterprise
Its disadvantage to the society has to be studied. It includes impacts on social, environmental, etc matters.
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015
Belaynew Ashagrie, College of Law, Haramaya University

3. The procedure to establish PE
Governing Law: Proclamation No 25/92
Determination of capital (Art. 5): authorized and paid-up capital
Issuance of legislation (Art. 6): to give personality. It is established through Regulation by Council of Ministers. It is similar to memorandum of association (MoA) in case of business organizations (BO).
Art. 6(2), (6) and (9) are not found in MoA.
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

4. Capital of PE (Arts 19-22)
Authorized capital: total capital. It has to be paid within 5 years from the date of its establishment.
Paid up capital: the amount deposited in a bank at the time of formation. It should not be less than fourth of the total capital.
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

5. Capital of PE (Arts 19-22) Increase or reduction of capital
Increase of capital in Share Company:
By issuing another shares OR increasing the par value of shares (Art 464, Comm. C)
By amending the MoA (Art.462 cum 423,Com C)
Reduction of capital in Share Company: due to
losses (Art 486, Com. C);
For reasons given by auditors and approved by meeting (Art 484 cum 375(2);
Reducing the par value of shares OR by exchanging old shares for a lesser number of new ones, (Art 487 cum 489, Com. C).
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

6. Name and Trademark of PE
Trade name: Art. 23(1) defines it as “the name under which the enterprise carries on its activities and it shall clearly designate such activities.” Art. 135 of the Comm. C. defines trade name as “it is the name under which a person operates his business and which clearly designates the business.” Name of an enterprise is mandatory. It is mandatory for other private businesses too. See the restrictions of trade name under Art. 24(3) of Commercial Registration and Business Licensing Proclamation No 686/10
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

7. Name and Trademark of PE
Trademark is optional for a PE. The same for private businesses.
Trademark is “the name, designation, emblem or any other distinctive sign used by an enterprise to distinguish its goods or services.” (Art. 25 of Proclamation. No. 25/92)
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

8. Name and Trademark of PE
Art. 2(12) of Trademark Proclamation No 501/2006 defines trademark as “any visible sign capable of distinguishing goods or services of one person from those of other persons; it includes words, designs, letters, numerals, colours or the shape of goods or their packaging or the combinations thereof.” See Art 6(1) of Trademark Proclamation for the restrictions of trademark.
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

9. Operational Requisites and Mechanisms of PE
Objectives of PE
Financial and Commercial objectives
Production and Productivity objectives
Marketing and Service objectives
Development objectives
Growth objectives
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

10. Accounting and Auditing of PE
PE is required to keep books of accounts following generally accepted accounting principles (GAAS).
Reserve funds: These are all profits preserved for the undertaking and not forming part of the capital, and profits not distributed as dividends. It includes legal reserve, supplementary reserve, optional reserve, free reserve funds. (See Art. 453 et. seq.)
It is imposed by law; as such it is mandatory. It is also applicable for companies.
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

11. Accounting and Auditing of PE
Payment of tax (Art. 30): a PE has to pay tax to the government.
It is used to increase public treasury.
It is used to control financial status of the PE
There are also exemptions from payment of tax. (Art. 30(2))
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

12. Accounting and Auditing of PE
Payment of State Dividends (Art. 31): as an owner of the PE, the state is legitimately entitled to receive dividends on the capital it has invested in public enterprise.
The Proclamation as well as the Distribution of Profits of Public Enterprises Regulation No.107/2004 provide for the payment of state dividend.
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

13. Auditing of Accounts of PE (Art. 32-34)
The correctness of the accounts of PE is to be verified by an external inspection system.
The supervising authority of PE appoints auditors outsiders to the enterprise so that the latter would make an objective scrutiny of the accounts kept by the enterprise.
The supervising authority carries out the appointment when such power is not given to the Auditor General under other laws, and must ascertain that the external auditors so appointed satisfy the criteria set by the Auditor General and that they are free from any form of influence.
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015

14. Auditing of Accounts of PE
The power, duties and liabilities of auditors are similar to those of share companies under the Commercial Code, and are indeed cross-referred to the application of the latter via the provisions of Art 34 of the Public Enterprises Proclamation No.25/92.
Thus, making the necessary changes, Articles , 378 and 380 Commercial Code govern the powers, duties and liability assumed by auditors in the investigative process of public enterprise accounts.
Belaynew Ashagrie, College of Law, Haramaya University
3/18/2015