Abstract:
To harvest the benefits of FDI, especially developing countries, allow companies incorporated
abroad to expand their business to their jurisdiction by transferring their real seat. The manner
of the allowance depends on the types of recognition rules adhered to by them. The pure version
of incorporation theory enables countries to attract more foreign companies, but it could lead to
regulatory competition race to the bottom. Almost no country in the world follows this theory.
Thus, the doctrine remains only in theory. On the other hand, the real seat theory prevents
countries from attracting foreign companies as it is inherently an obstacle to the attraction of
foreign companies. The incorporation theory subject to exception, on the other hand, is a
recognition rule which could able to avoid the negative effects of the two theories. Thus, this rule
enables countries that adopt it to attract foreign companies and harvest their benefits while the
interests of creditors, shareholders, and the general public are protected. Realizing the
regulatory obstacle nature of the real seat theory, many countries of the world cease to apply it
and replace it with incorporation theory subject to exception under the private international law
of companies. However, though it is an obstacle to the immigration of foreign companies,
Ethiopia still adheres to this theory statutorily. This legal hurdle, combined with other factors
affecting the attraction of FDI, has prevented foreign companies from migrating to Ethiopia.
Despite Ethiopia seeking to attract FDI to harvest its benefits and facilitate its economic
development in particular and becoming a middle-income country in general by 2030, it adopts
the real seat theory under the Commercial Code, which discourages the immigration of
companies incorporated abroad. After examining the legal and practical problems of foreign
companies recognition rules and the legislative text of EU as a regional arrangement and some
jurisdictions through mixed (doctrinal and empirical) research types, this study recommends
concerned bodies to reconsider the Private International law of companies for recognition of
foreign companies under the New Commercial Code of Ethiopia.
