Recognition Of Foreign Companies Under The New Commercial Code Of Ethiopia: Its Implication Towards Attracting Fdi

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.