Business Law PPt.pptx

Business law

1. Chapter one Introduction to law DEFINITION OF LAW What is Law? Jurists have defined law differently from different point of views. Defining the term ‘law’ is not an easy task because the term changes from time to time and different scholars define the term variously. Definition of the term may vary due to the different types of purposes sought to be achieved.  

2. Conti.. John Austin also asserted that law is the command of the sovereign backed by the threat of punishment. According to Black’s Law Dictionary law consists of rules of action or conduct. These rules are issued by an authority. In addition, these rules have binding force and are obeyed and followed by citizens. Sanction or other legal consequence may help the law to be abided by citizens

3. Conti… In general, law may be described in terms of legal order tacitly or formally accepted by the society and enforced . I t is a body of binding rules sufficient compliance of them is ensured by some mechanism accepted by community. At all law is a body of binding rules backed by sanction.

4. MAJOR THEORIES OF LAW Definitions given to the term law are as many as legal theories Different legal theories developed throughout societies. Though there are a number of theories, only four of them are dealt with here under. They are Natural, Positive, Marxist, and Realist Law theories.

5. NATURAL LAW THEORY Natural law theory is the earliest of all theories. It was developed in Greece by philosophers like Heraclitus, Socrates, Plato, and Aristotle. According to Natural law theory law is not made by person but controls all human beings of the world. Such laws do not vary from place to place and from time to time and even used to control or weigh the laws made by human beings. These laws do not made by human being as natural laws . Natural law is given different names based on its characteristics. Some of them are law of reason, eternal law, rational law, and principles of natural justice.

6. POSITIVE LAW THEORY   Positive law theory is also called, imperative or analysts law theory. It refers to the law that is actually laid down by separating “is” from the law, which is “ought” to be. It has the belief that law is the rule made and enforced by the sovereign body of the state and there is no need to use reason, morality, or justice to determine the validity of law.   According to this theory, rules made by the sovereign are laws irrespective of any other considerations. These laws, therefore, vary from place to place and from time to time. The followers of this theory include Austin, Bentham and H.L.A Hart.

7. Conti.. For these philosophers and their followers law is a command of the sovereign to his/her subjects and there are three elements in it: command; sovereign; and sanction. Command is the rule given by the sovereign to the subjects or people under the rule of the sovereign. Sovereign refers to a person or a group of persons demanding obedience in the state. Sanction is the evil that follows violations of the rule.

8. MARXIST LAW THEORY Marxists believe that private property is the basis for the coming into existence of law and state. They provide that property was the cause for creation of classes in the society in which those who have the means of production can exploit those who do not have these means by making laws to protect the private property. They base their arguments on the fact that there was neither law nor state in primitive society for there was no private property. The theory has the assumption that people can attain a perfect equality at the communism stage in which there would be no private property, no state and no law

9. REALIST THEORY OF LAW Realist theory of law is interested in the actual working of the law rather than its traditional definitions. It provides that law is what the judge decides in court. According to this theory, rules not put to use to solve practical cases are not laws but merely existing as dead words and these dead words of law get life only when applied in reality . Therefore , it is the decision given by the judge but not the legislators that is considered as law according to this theory. Hence, this theory believes that the lawmaker is the judge and not the legislative body

10. BASIC FEATURES OF LAW Analyzing the features and nature common to all laws would help us to understand the concept of law. Among these features and natures, the ones considered as essential include generality, normativity and sanction A. Generality Law is a general rule of human conduct. It does not specify the names of specific persons or behaviours . Hence, its generality is both in terms of the individuals governed and in terms of the social behaviour controlled. 

11. Conti… The extent of its generality depends on-on whom the law is made to be applicable.  Consider the following illustrations. “Every one has the right to life, liberty and the security of a person.” This law is made to be applicable to every person on this world. Therefore, it is universal. B. Normativity Law does not simply describe or explain the human conduct it is made to control. It is created with the intention to create some norms in the society.

12. Conti..   Law creates norms by allowing, ordering or prohibiting the social behavior. This shows the normative feature of the law. Based on this feature, law can be classified as permissive, directive or prohibitive . C. Sanction Each and every member of a society is required to follow the law. Where there is violation the law sanction would follow. Sanction is a penalty or coercive measure that results from failure to comply a law. The main purpose of sanction is to prompt a party (a wrong doer) to respond. In other words, sanction will make the wrong doer to think that s/he made a fault and s/he should correct it.

13. FUNCTIONS OF LAW Today the following are taken as important functions of law   A) Social control – members of the society may have different social values, various behaviours and interests. It is important to control those behaviours and to inculcate socially acceptable social norms among the members of the society. There are informal and formal social controls. Law is one of the forms of formal social controls.

14. B) Dispute settlement Disputes are un avoidable in the life of society and it is the role of the law to settle disputes. Thus, disagreements that are justiciable will be resolved by law in court or out of court using alternative dispute settlement mechanisms

15. C) Social change A number of scholars agree about the role of law in modern society as instrument to social change. Law enables us to have purposive, planned, and directed social change Flexibility of law provides some measure of discretion in law to make it adaptable to social conditions. If law is rigid and unalterable, it may not respond to changes spontaneously which may lead to resentment and dissatisfaction among the subjects and may even result into violence or revolution. Therefore, some amount of flexibility is inevitable in law

16. Business Law Business law (also known as Commercial law) is the body of law that governs business and commercial transactions. Business law encompasses the law governing contracts, sales, commercial paper and insurance, agency, employment law, and business organizations and also introduction to law and law of person. Business law may include issues such as selling, or buying a small business, managing a business, dealing with employees, or dealing with contracts, among others Business Law does not refer to a single branch of law. Rather it describes those parts of the law most closely connected with typical business activities.

17. Sources of Law Sources of law may refer to either the authority from which the laws derive their force/validity / or the material source of law which is indicating to the content or the matter of law . In short, the sources of law may be categorized as formal sources and material sources of laws F ormal source of law is referring to the source from which the rule of law derives its force and validity. It is expressing the will of the state as manifested in statute or decision of the court. The power of making all laws is the people or their representatives, and none can have any force which is derived from any other source.

18. Conti… The material source of law supplies the matter and the content of law such as custom, religion, opinion of highly qualified text writers, agreement(conventions) etc. The material sources of law again divided in to authoritative material source and persuasive material source. Authoritative material sources also called legal material sources are sources which are binding in the judicial decision in that the judges are bound to follow them for a decision they apply to a dispute before them.

19. Conti.. Treaties made under the authority of the Constitution are declared to be obligatory on courts, proclamations and regulations enacted as per the. Persuasive material sources also called historical material sources are sources not binding in a judicial decision. They influence the course of legal development but they are not speak with the authority. They are purely persuasive they include opinion of text writers, foreign laws, reports, etc.

20. Classifications of Laws Classification of law refers to the systematization of the law based on subject matter. Hence, grouping laws based on various respects taking some commonalities into account. For a scientific and systematic study of law , the law can be classified into: Public Vs. Private International Vs. Domestic Substantive Vs. procedural Civil Vs. C riminal

21. Public versus Private Law Public law addresses the relationship between persons and their government, and between various governments. They are public in the sense that the interest of the public at large is at stake as represented by the government. E.g. The Constitution, the Criminal Law, Tax law, Administrative Law Private law governs direct dealings between persons. When persons deal or affect other persons, such as in a contractual relationship, the law governing these relationships is classified as private law E.g. Family law, contract law, property law, agency law, commercial law, succession law, tort law

22. International Vs Domestic law International law is the principle of laws which governs the relations between countries (States) and sometimes States and international organizations. It concerns about sovereignty, trade, and communications, and boundary disputes, use of ocean and water bodies and so on. National laws (Domestic Laws) are those laws, whether of public or private nature applied inside a country. So it includes all laws within a country .

23. Substantive and Procedural Law Substantive law includes all laws that define, describe, regulate and create legal rights and obligations. This body of law establishes acts and situations producing effect at law E.g. Right to marry, right to vote, right to privacy Procedural law It sets out the methods of enforcing the rights established by substantive law. Questions about how a lawsuit should begin, what documents need to be filed, which court will hear the suit, which witnesses can be called, how the judicial proceedings is conducted, and so on are all questions of procedural law E.g . Civil, Criminal Procedure and evidence law

24. Civil versus Criminal Law Civil law is concerned with the duties that exist between persons or between citizens and their government (the latter as a ordinary legal person), excluding the duty not to commit crimes. Criminal law is always public where as civil law is sometimes public and sometimes private. Criminal law, in contrast to civil law, is concerned with wrongs committed against the public as a whole . In a criminal case, the government seeks to impose a penalty on an allegedly guilty

25. Chapter 2: The Law of Persons In this chapter, we will address : The Meaning of Person Commencement of Personality in Natural Persons Commencement of Personality Before Birth Commencement of Personality in Artificial Persons Attributes of Legal Personality The Termination of Personality

26. The Meaning of Person The term person encompasses all beings bearing rights and duties. Yet, there can be human beings who are not considered as persons or holders of rights and there can be persons or holders of rights and duties who are not human beings. So what do we mean by a person according to the law? Any one who(which) is legally vested with rights and duties. There are two types of persons: Natural Person; include all human beings who are the subjects of rights and duties from birth unto death. Legal person – include beings, which are given rights and duties by the operation of the law. legal persons are entities other than natural persons that are endowed with legal personality by virtue of the law. they are also called artificial, juristic, fictitious, juristic and moral persons. They include associations, share companies, private limited companies, government organizations etc .

27. Commencement of Personality in Natural Persons As a rule, in the case of human beings, personality commences or starts at the moment of birth(Refer Art 1 of Civil Code, Ethiopia). In other words, a human being becomes capable of having rights and duties from the moment of birth. Exceptionally, personality is granted to an unborn or merely conceived child up on the fulfillment of three conditions:   the child is born alive ; the child must be born viable The conceived child interest shall demand this recognition

28. Conti.. Viability refers to the ability to live or the potential of surviving. The law takes certain presumptions to settle questions of what baby is viable and what is not. The law irrebutably presumes that a child that lives for 48 hours after its birth is viable, so that no contrary evidence can be admitted to disprove this presumption. if a child dies before 48 hours following its birth due to a disease he caught in its mother's womb or due to other congenital biological deficiencies, it will be conclusively deemed not viable. However , external factors that may have caused the death of the child before 48 hours can be used to disprove the presumption of non-viability.

29. Capacity of Physical Persons Enjoyment and exercise of rights are not the same. To enjoy rights means to have, to hold rights. A physical person enjoys rights, holds rights or is the subject of rights starting from the time of birth. And the law presumes capacity. Every physical person is capable of performing all the acts of civil life unless he is declared incapable by law .( Art. 192 T he law presumes that every physical person is capable of exercising a right. Capacity is the ability to make or exercise a juridical act. Juridical acts are acts which are legally binding and enforceable by law. A ll persons enjoy rights without exception, but all persons do not have the same capacity to exercise rights. Some persons are incapable of exercising rights. The law calls these persons incapable persons.

30. Incapacity of Physical Persons   Incapacity of physical person is an exception to the rule that every physical person is presumed to be capable of exercising a civil acts . General incapacity is based on the age or mental condition of persons or on sentence passed upon them; and special incapacity which is based on nationality. General incapacity, therefore, includes minors, insane and infirm persons, judicially interdicted and legally interdicted persons . A. Minors A minor is a person of either sex who has not attained the full age of eighteen years. minors are taken as incapable to engage in juridical acts.

31. B . Insane and Infirm Persons Insane persons are persons who are not capable to understand the importance of their actions as a consequence of their insufficient mental development, mental disease or senility whereas , infirmity includes feeble-minded, drunkards or habitually intoxicated persons and prodigals shall be assimilated to such persons in appropriate cases. Insane persons may be of notorious or non notorious. Notorious insane persons are persons who are an inmate of a hospital or of an institution for insane persons or of a nursing home as a result of his mental condition for the time for which he remains an inmate . non notorious insanity of a person shall be deemed where he lives in a community whose number is below two thousand inhabitants and when his movement is restricted by those who are around him as required by his mental conditions.

32. C. Judicially Interdicted Persons The court may sometimes interdict certain categories of individuals due to their mental or physical problem . So the law steps in to protect the interests of persons with mental problem as a consequence of insanity, infirmity, senility and the like. Judicially interdicted persons will lose the authority to exercise rights and duties as of the date of their interdiction. But they exercise rights and duties they hold through guardians if the interest pertains to the personality of the incapable person and through tutors where the interest is a proprietary one.

33. D. Legal interdiction This kind of incapacity emanates from the law due to the commission of a certain crime. A person will be legally interdicted as a result of the pronouncement of a legally prescribed punishment for the violation of criminal law. The prescribed sentence will deny the person the capacity to carryout economic affairs. A legally interdicted person retains capacity over his personality interests and thus no guardian is necessary. special incapacity which is based on nationality

34. Commencement of Personality in Artificial Persons Legal personality is an artificial or fictitious creation of law. These artificial persons acquire legal personality in different mechanisms. An artificial person such as associations, share companies, private limited companies or public sectors become persons or beings capable of having rights and duties either of the following conditions: 1. Upon the enactment of establishment proclamation or regulation with no other conditions attached to it . 2. Registration in the commercial register. Once the entities get legal personality they are recognized as equal before the law with the human person.

35. Attributes of Legal Personality The following are some the most important features of artificial persons: Having a name : Names affect the legal position of a person. Names are mechanisms of identifying the civil identity of a specific person in the society and of the legal status . Legal Standing -They can sue and be sued during their own name. Since artificial persons have their own legal existence distinct from their associates, they can sue and be sued in their own name. Juridical Acts- Artificial persons can conclude certain juridical acts like contracts in their own name. 4 . Discharge Legal Duties- They pay tax in their own name as opposed to the names of their associates or members. 5 . Own and Administer Property- They can administer their property in their own name.

36. Termination of Personality N atural person In principle, the death terminates natural personality. Exceptionally, the declaration of absence. If a certain person is disappeared and no news of him has heard for two years any interested party may apply to the curt for the declaration of absence. If once the court declares that the person is absent the absentee is considered dead. Artificial Persons may terminate their personality in either of the following ways: By the operation of the law; By the agreement of the members of the Body Corporate; Lapse of time according to the Constituent Document(CD)

37. Chapter 3: Law of Contracts Law of contract refers to the body of rules governing the formation , performance and enforcement of contracts. In Ethiopian Law, contract is defined to be “an agreement whereby two or more persons as between themselves create , vary or extinguish obligations of proprietary nature.”(Ref. Art 1675 of Civil Code).

38. The Essential elements of a Contract Article 1678 of the Civil Code provides requirements that should be fulfilled to conclude a contract validly: The parties involved must have capacity to contract. There must be an agreement, i.e. consent reached at by a process of offer and acceptance . The agreement must have sufficiently defined, lawful and possible objec t. The contract must be concluded in special form such as writing whenever needed by law.

39. Formation of Contract Validity Requirements of a valid Contract A valid contract is formed if it fulfills the following yardsticks that the state uses to check whether or not persons have made a contract. They are called validity requirements or elements of a valid contract and include: Capacity; Consent ; Object and Form, if any . Article 1678 CC While all contracts are expected to fulfill the requirements of capacity, consent and object; form is required only for few contracts . That is why it is phrased as ‘form, if any’.

40. 1. capacity hope you are familiar with the concept of capacity from your law of persons course. so, what is capacity? Is there distinction between capacity of natural persons and of artificial persons? In general, we can say capacity, in both cases, is the power to enter into legal transactions. Regarding the capacity of natural persons, which is the concern of this course; Minors, judicially interdicted persons (Insane & infirm) and legally interdicted persons cannot enter into a contract. when a legally interdicted person enters into a contract which he was prohibited from such is not limited to incapacity but also extends to illegality as per Art 1716. There are also some special incapacities such as nationality and functions of persons that prohibit the person from entering into a contract as provided under Art. 194 of the CC.

41. 2. Consent Consent is a declaration of intention to be bound by an obligation . A person has to express his willingness (agreement) to create an obligation on himself, or give up some or all of his proprietary rights. Consent is one of the defining features of individual autonomy and freedom of contract. We cannot imagine a contract without the valid consent of the parties to the contract. as addressed in the opening of the 1 st chapter too, mere domestic or social agreements are not usually intended to be binding and, therefore, are not contracts. This is because these agreements or promises are only moral agreements or promises which lack state backing for their enforcement . A binding contract, however, is usually in the nature of a commercial bargain, involving some exchange of goods or services for a price.

42. Conti.. The consent given in any contract shall be free and full. It should be free from defects like duress, frauds, lesion, and mistakes . Consent is a defect-free mutual agreement by the contracting parties There must be a willingness( intention) on the part of the contractants to make their undertaking legally binding. If the consent expressed in the form of offer and acceptance does not indicate what the offeree or the offeror really intended , then, there exists defect in consent . The common causes of defect in consent are: Wrong information w/c comprises mistake , false statement and fraud ; Threat w/c comprises duress , reverential fear , threat to exercise a right & Lesion. The defect in consent may be a cause for invalidation of contract

43. Communication of Consent Consent is expressed either in the form of offer or acceptance which are ways of communicating one’s own intention to be bound by an obligation . Offer or acceptance is declared to another person by ordinary ways of communication which are: Oral, when the offeror uses his voice to tell to the offeree the contents of the offer Written, all the elements of offer are reduced in writing on a paper or electronics Signal normally in use or by conduct (Art.1681 (1). Conduct e .g earnest

44. Offer Offer An offer is a proposal to enter in to a legally binding obligation. offers must be definite and certain. offer must be communicated to the beneficiary. Article 1687(a), Civil Code Offer differs from declarations of intention such as newspaper ads, catalogues, circulars, tariffs, price lists, display of goods, etc. These are said to be invitation of offers and not offers.

45. Acceptance Acceptance Constitutes a positive response(assent) to the terms of the offer. It has be in exact conformity with the terms of the offer. Otherwise, it becomes a defective acceptance or a new-offer (counter-offer). Acceptance and offer are usually made in written or oral form. . However, they may be made by signs and conduct . NB. In case of distance contracts/ by telephone/mail, etc/, the place of reception of the offer or the place of sending the acceptance is where the contract is made.

46. 3. Object of a Contract Object (obligation) The object of a contract refers to the obligations to perform something. Where a car is sold, it is the seller’s obligation to hand over or convey the car to the buyer. The buyer’s obligation to pay the price. The object of the contract must be sufficiently defined, legal and moral and possible. A contract whose object is not sufficiently defined, illegal or impossible are of no effect or void i.e. non-existent from the very inception and creates no legal rights whatsoever.

47. 4.Form of a Contract Form is the outward appearance of the contract.Form is not always neccesary element. The law requires writing for the following contracts. Contracts relating to immovable‘s. Article 1723, Civil Code Contracts made with public administration Article 1724, Civil Code Contracts of guarantee Article 1725, Civil Code Contracts of insurance Article, 1725, Civil Code Contracts of loan where the amount lent exceeds birr five hundred Article 2472, Civil Code Failure to comply with such a requirement entails the nullity of the contract. the contract is not said to comply with the formal requirement of written form unless it is attested by at least two witnesses. The witnesses must also be capable

48. Consequences of Validity Requirements Validity requirements also known as elements of contract, as addressed above, are consent, object, capacity and form . Generally a contract that misses any of these elements is either void or voidable. A contract is said to be void when the object or form elements are missed . If t he object is unclear (undefined), unlawful, impossible or immoral, the contract is said to be void contract . Likewise, if the especial form prescribed by law or agreed by parties is not complied with , the contract is said to be void contract . On the other hand, a contract is said to be voidable if it contains defect in consent or capacity (Art.1808 (1).

49. Effect of Contracts The two major principles of contract are freedom of contract and sanctity of contract. Sanctity of contract indicates that parities are bound by their agreement. There is Latin saying “pacta sunt servanda ’ which means that a person is bound by his words.There is also an equivalent Ethiopian proverb, ‘ failure to keep a word is worse than losing a descendant Effect of a contract implies that it becomes the law of the parties.So , effects of contract are interpretation, performance, variation and non-performance.

50. Interpretation of Contract Since a contract is a law, it may be interpreted.A law is interpreted when it is vague,silent,illogical,ambiguous,andcontradictory.So interpretation is giving meaning to the provisions of the contract. If the provision of the contract is clear, there is no need to interpret (Art 1733). Law is an express intention of the legislators. Interpretation is, therefore, searching the intention of the parties (Art. 1734(1).

51. Variations of Contracts   Variation is making amendments to the provisions of a contract. Variation makes change on the object of the contract. Variation of Contract is equivalent to amendment of law. Variation normally becomes necessary because of fundamental changes in circumstance that the parties or the legislator does not want to tolerate. Minor changes are always expected and may not lead to variation of Contract. Contract may be varied by the parties, legislator and judiciary .  

52. PERFORMANCE OF CONTRACTS Performance is the carrying out of the obligations imposed by a contract. Who shall perform? The obligations under the contract may be carried out by the debtor , by a person authorized by the debtor , by law or by court . Article 1740(2), Civil Code. As a rule, the debtor is not required to perform the obligations personally himself. Performance must be personal where there is express agreement to this effect and where the creditor shows that this is essential to him.

53. To whom shall contract be performed The person qualified to receive performance is only the creditor, or somebody authorized by the creditor or by the court or law. Article 1741, Civil Code. Performance made to a person unqualified to receive it is invalid unless the creditor confirms it or such performance benefited him. Article 1743(1), Civil Code. Exceptional situations: The performance can become valid though it has been made to a person unqualified to receive it if the creditor confirmed it later. Performance made to a person who appears to be the creditor without doubt is valid. Article 1743(2), Civil Code

54. Time of performance parties are advised to determine time of performance. So performance should be made at agreed time (Art.1756 (1). However the law still plays the gap filling role. As indicated under Art. 1695(1) the law remedies the deficiency of the agreement of the parties. Therefore; where there is no contractually agreed time, contract should be performed when either the debtor Art.1756 (2) or the creditor demand performance (Art.1756 (3).

55. Place of performane If the parties determine the place of performance, their agreement is respected. But where no place has been agreed, a permissive provision of the law stipulates that performance shall take place at the place where the debtor had his normal residence at the moment of concluding the contract. This general rule is excepted regarding specific things. If no agreement is made to the contrary, performance in respect of a definite thing shall be made at the place where such thing was situated at the time when the contract was concluded.

56. Non-Performance of a Contract A contract lawfully formed must be performed by the parties. Failure to perform according to the terms or conditions made in the contract results non performance .Non performance of contract is therefore breach of contractual obligation.Where parties do not perform obligations according to the terms of the contract (time, place, size, quantity or quality, etc.), it amounts to non performance .

57. Conti… As a rule , the giving of default notice is a necessary prerequisite or precondition for seeking remedies of non-performance. Article 1772, Civil Code . Default notice is demanding the debtor to perform his obligations. In the default notice the creditor sets a time limit after which he will no longer accept performance of the contract. The period fixed must be reasonable . Article 1774(1), Civil Code

58. Conti.. The giving of default notice is not necessary in the following four circumstances: When the obligation is that of not to do type. Article 1775(a), Civil Code. if the debtor has declared in writing that he will not perform his obligation(Article 1775(c), Civil Code). If the contract states that the debtor would be in default up on lapse of the time fixed in the contract with out the need to give default notice. Article 1775(d), Civil Code if the obligation the debtor assumed may only be performed only within a fixed period of time but the debtor allowed it to lapse. Article 1775(b), Civil Code

59. Remedies for Non-performance Forced Performance : Two conditions must be satisfied before forced performance is ordered: the creditor must have special interest in the forced performance of the obligations. Article 1776, Civil Code the forced performance must not affect the personal liberty of the debtor. 2. Cancellation of the Contract: Cancellation differs from invalidation both in its causes and effects. A contract is invalidated when it is not lawfully formed. However, a contract is cancelled not because it was not lawfully formed but due to failure on the part of one of the party to carry out his obligation.

60. Conti… Cancellation can be done either by the court or unilaterally(by one party Unilateral cancellation is possible if: i. If there is cancellation clause in the contract ii. the period of grace, the reasonable time and the fixed -time for the performance of the obligation lapses. Article 1787, Civil Code iii. the debtor performance becomes impossible. Iv. the other party informed him in writing that he is not going to perform his obligations. Article 1789, Civil Code.

61. 3 . Damages or compensation: The plaintiff will be awarded compensation for damage only where he proves: he suffered damage the damage was caused by the defendant’s non-performance of a contractual obligation. The defendant , on the other hand may avoid liability to pay damage only where he establishes: the precise cause of his non-performance that the cause was a force majeure.

62. CHAPTER FOUR:- LAW OF AGENCY An agency relationship exists when one party, called the agent , agrees to represent or act for another party, called the principal . The principal has the right to control the agent’s conduct in matters entrusted to the agent. An agency may be engaged to accomplish a single task or to carry out several tasks . Agency is the fiduciary relation that exists between two persons so that one shall act on the behalf and subject to the control of the other.

63. Sources of Agency The sources of agency under Ethiopian civil law are two: the law and contract. Even though the origin may be different, it is ultimately sanctioned by the rules of law and produces effect at law. In the majority of cases, agency undertakings originate from contracts

64. Agency by Operation of the Law The law intervenes, in the absence of formal agreement between parties, One instance where agency arising from the law operates is representation of persons with legal incapacity ., incapable persons such as minors, judicially interdicted persons and legally interdicted persons cannot perform juridical acts by themselves. An agency also arises by law in cohabitation, i.e. it may occur in family relationships, as between husband and wife. Agency by operation of law may also occur in emergency situations.

65. Contracts the vast majority of agency relationships have their creation in contracts, i.e. agreements between the agent and the principal. The preliminary relationship is contractual in nature, and the parties to such contract can define the scope of the authority of the agent and are free to determine the details of their engagement.

66. Types of Authority The two ways of agency authorization are general and special agency . In General agency,the law states that agency expressed in general terms only confers upon the agent authority to perform acts of management. acts of management as comprising the collection of debts, the discharge of debts, investment of income, leases for terms not exceeding three years, and any other acts done for the preservation or maintenance of property. Special agency confers on the agent authority only to conduct the affairs specified by the contract of agency, and of course their natural consequences attached to the specifically enumerated acts by usage or custom

67. Effects of Agency As a juristic act involving multiple relationships, agency undertakings produce various distinct legal effects.The effect regarding liability relationships among the various parties involved in agency vary depending on the sorts of authorization.It is also equally breathtaking to consider the right-duty correlation between the principal and the agent.

68. Duties of the Parties to the contract of Agency There are respective rights and duties as between these parties. Rights and duties are correlates, and there cannot exist a right without a corresponding duty. Thus, rights of the principal carry duties of the agent and rights of the agent carry duties of the principal .. Duties of the Agent a ) Duty of notification :. b) Duty of Loyalty: - c ) Duty of obedience and Diligence d ) Duty of Accounting e) Duty of Non-delegation

69. Duties of the Principal a ) Remuneration b ) Duty to Advance Money c ) Duty of reimbursement d) Duty of Indemnification and Compensation: e ) Agent’s Lien right

70. Termination of Agency Relationship Agency may terminate either by operation of the law or the actions of the parties. Termination by Law Where there is no agreement to the contrary, the death or declaration of absence or incapacity or bankruptcy of either the agent or the principal will result in the extinguishment of the legal bond. Termination by the Parties There is little doubt that the agent and the principal can, by mutually agreeing through contractual faculty, terminate their agency relationships.They are free to bilaterally agree to part company. This is an extension of their freedom of contract .

71. Chapter 5: Law of Sales Law of sales is a branch of business law that regulates the relationship between the buyer and seller of goods. Definitio n :- A contract of sale is a contract whereby one of the parties, the seller , undertakes to deliver a thing and transfer its ownership to another party, a buyer , in consideration of a price expressed in money which the buyer undertakes to pay him. Article 2266, Civil Code Price or consideration is another requirement of contracts of sale. The price must be stated in money. The requirement of consideration or price distinguishes contract of sale from barter because there is no price in money. It also distinguishes contract of sale from donation , as there is no consideration in the latter.

72. As a contract, sale must fulfill the permanent requirements of a valid contract: capacity , consent and object . There must be an offer and acceptance for the formation of sales contract. The consent of the parties , which is expressed through offer and acceptance, should also be free from defect. Mistake , fraud, duress, unconscionable nature of the contract undue influence renders contract of sale invalid. The obligations of both the buyer and the seller must be defined, lawful and possible . If the parties to the contract of sale fail to comply with these requirements the contract would be invalid

73. The Object of Contract of Sales The object of contract of sale includes: corporeal chattels , movables , intrinsic parts or elements of immovables , which can be separated and transferred as corporeal movable. Article 226(1) and Article 2268(1) of the Civil Code. Corporeal chattel(Movables) are things which have material existence and can move themselves or be moved by man without losing their individual character.

74. Object…. Movables Things- also include: Things which are part of the immovable that can be separated therefore are considered as movables, and are the intrinsic elements of an immovable such as trees, crops on the land, and materials of building under demolition or products of quarry. Claim and other incorporeal rights embodied in securities to bearer and natural forces of an economic value such as electricity .

75. Object…. the law of sales does not apply to the following: Money – Money cannot be sold or brought but is exchanged. Chose in action- these are intangible things such as credit accounts and cannot be the subject matter of sales since they are assigned or negotiated rather than sold. They are governed by contracts in general. Immovable – Immovable things such as land and buildings are not the subject matter of sales contract.

76. Fundamental characteristics of sales transaction It transfers ownership: - Ownership in economic and legal terms represents the fullest right a person would have over a property. It is an onerous act: - A contract of sale is not a liberality; it is always made for consideration. Parties engage in a sale transaction to get some benefit. It is a commutative act: - The contract of sale is bilateral – the obligation it entails is divided between the parties thereto. Trading parties and mercantile thing : the thing that is subject matter of sale must be that within commerce. This manifests the prohibition of slavery or the sale of one’s own organs. It involves the fixing of a price: - A characteristic of the contract of sale is the price

77. Effects of sales contract Performance and Obligations of Parties to Sale Contract The normal effect of every contract is performance. Sale contract is no exception on this regard. Performance is realized through the imposition of certain obligations on both the seller and the buyer. The parties to the contract of sale have their own respective obligations to discharge. Obligations of the Seller The most noticeable obligations of the seller in a typical sale transaction are delivery, transferring ownership, providing warranties, and other incidental duties.   1. Obligation to Deliver the Thing Delivery consists in the factual handing over (the conveying) of the thing to the future owner. The delivery that transfers possession over the thing can be made in three ways. i.e. actual delivery of the thing itself , constructive possession , and handing over of the documents representing the thing.

78. 2. Obligation to Transfer Ownership:-   It is a rule of legal significance that the seller shall take all the necessary steps for transferring to the buyer unassailable rights over the thing (Art 2287, Civil Code). The seller is obliged to warrant the buyer any such dispossession which he might suffer in consequence of third parties exercising a right they enjoyed at the time of the contract.   3. Obligation to give Warranty Against Defects and Non-conformity A sale contract carries with it a warranty both against defects and non-conformity to the contract. the seller shall guarantee to the buyer that the thing sold conforms to the contract and is not affected by defects

79. Obligations of the Buyer   The obligations of the buyer are paying the price (the main obligation), taking delivery of the thing, and other obligation contractually imposed upon him.   1. Obligation to Pay the Price The obligation is usually discharged quite easily by a cash payment. But it may be also made by cheques , bank accounts, special banking facilities, credit card payments or even payment in foreign currencies are modes of paying the price.   The place of payment is in principle that fixed in the contract. Where the contract is silent payment is made at the address of the seller business address. In the absence of a contractual provision, the principle is sale for cash on delivery. Payment is simultaneous with delivery, but the buyer should be granted the opportunity to examine the thing for defects or non-conformities so as to avoid a dispute where payment has taken place and the seller refuses to repair defects.  

80. 2. Duty to Take Delivery Where the delivery consists in that of a thing conforming to terms of the contract, the buyer should take it. The buyer has a duty to cooperate in the delivery process and he may not obstruct the sale by blocking the delivery. The obligation to take delivery includes active performance of procedures necessary or even customary for carrying out the delivery. He has to cooperate with the seller, for example, in indicating the color, size or other important attributes of the thing.

81. Common Obligations of the Parties The priority is given, like always, to a contractual term that is fixed by the parties. If there is no agreement, the law imposes certain obligations on both parties based on circumstances. By common obligations of the parties, Thus, the seller and the buyer have obligations:- To transfer of risk, expenses, and preservation of the thing may be borne by either of the parties depending on differences in time, nature and other attending circumstances.

82. CHAPTER SIX:- Law Of Banking , Insurance and Negotiable Instruments Banking The term bank refers to an institution that deals in money and its substitutes and provides other financial services. Banks accept deposits, make loans, and derive a profit from the difference in the interest rates paid and charged respectively. Some banks also have the power to create money. A bank must always have cash balances on hand in order to pay its depositors upon demand or when the amounts credited to them become due.

83. Economic Significance of Banking Firstly , banks are intermediaries between depositors and borrowers thereby promoting savings. Secondly , they encourage industrial progress and business expansion through funds channeled to investors. Thirdly , banks exercise considerable influence on the level of economic activity through their ability to create or manufacture money in the economy and fourthly, the various utility functions performed by banks like accepting and discounting bill of exchange and collection of dividends and interests on behalf of customers are of great economic significance for the economy.

84. Types of Banks 1. Central Banks It refers to a bank that is entrusted with the power of regulating the size of a nation’s money supply, the availability and cost of credit, and the foreign-exchange value of its currency . Under Ethiopian context, these powers are entrusted to The National Bank of Ethiopia (NBE). It is established by order No 30/1963 and reconstituted by the Monetary and Banking Proclamation No 83/1994 as an autonomous organ, which is engaged in the provision of regular banking services to the government and other banks and insurance companies’. T he main purpose of the bank is to foster monetary stability financial system and such other credit and exchange conditions as are conducive to the balanced growth of the economy of Ethiopia.

85. 2. Commercial Banks Commercial banks are banks with the power to make loans that, at least in part, eventually become new demand deposits. When a borrower receives a loan, his checking account is credited with the amount of the loan; total demand deposits are thus increased until the loan is repaid .. 3 . Saving Banks A savings bank is a financial institution that gathers savings and that pay interest or dividends to savers. Except for the commercial banks, these institutions do not accept demand deposits.

86. 4 . Investment Banks Investment bank is a firm that originates, underwrites, and distributes new security issues of corporations and government agencies. The major responsibility for setting the public offering price rests on the investment bank because it is in close contact with the market, is familiar with current interest rates and yields, and is best able to judge the probable demand for the issue in question. 5. Development Banks It refers to a national or regional financial institution designed to provide medium- and long-term capital for productive investment, often accompanied by technical assistance, in less-developed areas.

87. Major Banking Transactions 1 . Deposit of Funds 2 . Transfer 3 . Deposit of Securities 4. Hiring of Safes 5. Discount 6. Lending 7 . Documentary Credit

88. Negotiable Instruments Definition of Negotiable Instruments The word negotiable means ‘transferable by delivery’ and the word ‘instruments’ means a written document by which a right is created in favor of a person. Thus, the term negotiable instrument literally refers to a document containing rights that can be transferred by delivery. Similarly, Article 715(1) of Ethiopian Commercial Code of 1960 defines the term negotiable instruments as any document incorporating a right to an entitlement in such a manner that it is not possible to enforce or transfer the right separately from the instrument.

89. Nature & Purpose of Negotiable Instruments The main purpose of negotiable instruments is facilitation of commercial transactions. Commercial instruments are substitutes for money and are used as means of performance of money obligations. Dealing with them reduces the risk of loss or theft and the ease with which they can be transferred creates convenience which will in turn facilitate business. Transferable securities have the purpose of raising capital in the form of contributions made by purchase of shares and bonds, which is used for starting new businesses or expansion of existing businesses thereby increasing the production of goods and services in the country.

90. Commercial Instruments Definition Commercial instruments are negotiable instruments incorporating rights for payment of a specified amount of money. They are issued and negotiated on the basis and with the purpose of performing an obligation that can be performed by payment of a certain amount of money. Hence, they are used as a substitute for money Article 732(1) of the Commercial Code of Ethiopia defines commercial instruments as negotiable instruments setting out on entitlement consisting in the payment of a sum of money. Sub-Article (2) of the same Article provides that bills of exchange, promissory notes, checks, travelers’ checks and warehouse goods deposit certificates are the types of commercial instruments recognized under the Ethiopian law.

91. Types of Commercial Instruments Bills of Exchange Bills of exchange are negotiable instruments incorporating an unconditional order, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a certain sum in money to or to the order of a specified person. a bill of exchange must contain; The term “bill of exchange” An unconditional order to pay a certain sum in money The name of the person who is to pay ( the drawee ) The time of payment The place of payment The name of the person to whom or to whose order payment is made or an indication that it shall be payable to bearer The date when and the place where the bill is issued. The signature of the person who issues the bill (drawer)

92. Promissory Notes A promissory note is defined as a document incorporating an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person or to bearer. Thus , a promissory note must contain; The term “promissory note” An unconditional promise to pay a sum certain in money The time of payment The place of payment The name of the person to whom or to whose order payment is to be made or a statement that the note is payable to bearer The date when and the place where the note is issued The signature of the person who issues the instrument These requirements should be observed for promissory note to be negotiable instrument.

93. Checks A check is the most widely used form of commercial instrument. It is bill of exchange drawn on a bank and payable on demand. Therefore , since check is defined by reference to a bill of exchange, most provision governing bills of exchange are applicable to check. The check is an unconditional order in writing, addressed by one person, the drawer, to a banker, signed by the drawer, requiring the bank to pay, on demand, a sum certain in money to or to the order of specified person or to bearer. It is also important to note that a drawer of a bill of exchange and a check or the maker of a promissory note may antedate or postdate it, provided that he has not committed a fraud. In other words, unless the drawer or maker intended to jeopardize the interest of the payee by causing the rights contained in the instrument to lapse, the mere fact of antedating or post dating an instrument does not make it invalid .

94. Certificates of Deposit A certificate of deposit is a form of commercial instrument issued by a bank. It is an instrument containing an acknowledgement by a bank that it has received a sum of money on deposit and a promise to repay the sum of money . When a person deposits money in a bank he will be given the document showing the deposit of money which could be withdrawn by the depositor or the holder of the certificate. Under our law, a certificate of deposit is not considered as a commercial instrument. It is not even mentioned in our law but in common law countries, it is treated as a commercial instrument because it serves as means of payment of money similar to other type of commercial papers.

95. Insurance Insurance may be defined in various ways. Firstly , from the point view of an individual it may be defined as a risk transfer mechanism or an economic device whereby a person, called the insured/assured transfers a risk of a possible financial loss resulting from unforeseeable events affecting property, life or body to a person called the insurer for consideration. Secondly, from the point of view of the insurer, insurance may be defined as a mechanism through which a risk is distributed among the group of persons who are exposed to the same type of risk, i.e., persons who bear the risk of suffering a financial loss as a result of events affecting property, life or body.

96. Definition of contract of insurance A contract of insurance is a contract whereby one party undertakes, in return for a consideration called a premium, to pay to the other party called insured a sum of money on the happening of a certain event (death or attainment of a certain age, or injury) or to indemnify the other party against a financial loss arising from the loss or damage to property or from incurring civil liability. The party which promises to pay a certain amount of money to, or to indemnify, the other party is called the insurer. The document containing the terms and conditions of the contract of insurance is called the insurance policy, and the insured is therefore, also referred to as a policyholder. A contract of insurance must be made in writing what is called an insurance policy

97. . Art 654 of the Commercial Code of Ethiopia defines insurance as follows: Insurance (policy) is a contract whereby a person, called the insurer, undertakes, against payment of one or more premiums, to pay to a person, called the beneficiary, a sum of money where a specified risk materializes. Insurance is a social security scheme that developed because of the existence of risks. Risks are evident especially in the business world where persons may be exposed to huge losses as a result of the materialization of the risk. Such a phenomenon may discourage people from venturing on sectors that may entail risk or the business sector might have been generally endangered.

98. Conti… Insurance policy had succeeded in responding to the abovementioned problem. Insurance makes a person work without fear and thus increase production and productivity. Individuals perform more in a risk free or risk controlled environment. Insurance helps to budget money for unknown loss . If a person is insured, he pays money to the insurance company at a continuous interval. The periodic payment, called premium , can be taken as a budgeting in advance for an uncertain risk.

99. Insurable Interest Any party purchasing insurance must have a “sufficient interest” in the insured item to obtain a valid policy. Insurance laws determine sufficiency of items for insurance coverage. A person is said to have insurable interest where he has a vested interest in the subject matter of insurance to whom the advantage may arise or prejudice may happen. There must be an economic link to the claim of insurance. The insured should be benefited from the existence of a thing or an interest insured or should be prejudiced by its destruction upon materialization of the risk.

100. B asic rights and obligations of the parties Both the insurer and the insured do bear some duties to one another. The insurer guarantees the insured against the risks specified in the policy, and must pay the agreed amount within the time specified in the policy or when the risk insured against occurs at the time specified in the policy. But the insurer is automatically exempted from the duty if the losses or damages covered by the policy are caused by the negligent or intentional fault of the insured himself.

101. Conti.. The main duties of the insured under an insurance policy are the payment of a fixed premium and the disclosure of material facts. Thus , the insured pays a fixed sum, called premium, which is usually paid on a time interval. The insured is equally obliged to disclose exactly all the material facts within his knowledge. By material facts, we mean that the insurer appreciates the risks based on them and consents to enter into the policy based on that.

102. Significance of Insurance The following are some of the major benefits. Indemnification for Losses Payment of compensation by the insurer for losses permits individuals and their families to be restored to their original financial position after a loss has occurred. Reduction of Worry and Fear For instance, if family heads have life insurance for adequate amount to cover the future needs of their families, they are less likely to worry about the financial security of their dependents in the event of their premature death. Means of Loss Control Although the main function of insurance is not to reduce loss but merely to spread/distribute losses among members of the insured group, insurers are nevertheless vitally interested in keeping losses at a minimum. Enhancing Credit it makes the borrower/debtor a better credit risk because it guarantees the value of the borrower’s collateral/mortgage or pledge/, and gives the creditor /lender greater assurance that the loan will be repaid.

103. Basic Principles of Insurance 1. Principle of Utmost Good Faith It is the inherent duty of both parties to a contract of insurance to make full and fair disclosure of all material facts relating to the subject matter of the proposed insurance. 2. Principle of Indemnity The purpose of indemnity is to place the insured, after a loss, in the same position he occupied immediately before the event .( except those of life and personal accident insurances ) 3. Proximate Cause the insurer is liable only for those losses which have been proximately caused by the peril insured against . immediate, or the last cause has to be looked into, and if it is the peril insured against, the insured can recover. 4. Insurable Interest Insurable interest means some proprietary or pecuniary interest. The object of insurance is to protect the pecuniary interest of the insured in the subject matter of the insurance and not the material property as such

104. Conti.. 5. Doctrine of Subrogation The doctrine of subrogation is a corollary to the principle of indemnity and as such, it applies only to property insurances. According to the principle of indemnity, the insured can recover only the actual amount of loss caused by the peril insured against and is not allowed to benefit more than the loss he suffered. 6. Mitigation of Loss When the event insured against occurs, for example, in the case of a fire insurance policy when the fire occurs, it is the duty of the policyholder to take steps to mitigate or minimize the loss as if he were uninsured and must do his best for safeguarding the remaining property. 7 . Doctrine of Contribution The doctrine of contribution states that ‘in case of double insurance all insurers must share the burden of payment in proportion to the amount assured by each. Thus , the essential conditions required for the application of the doctrine of contribution are: 1. There must be double insurance 2.There must be either over-insurance or only partial loss 8 . Reinsurance An insurer assuming larger risk from the direct insurance business may arrange with another insurer to off load the excess of the undertaken risk over his retention capacity. Such arrangement between two insurers is termed as ‘reinsurance .’

105. CHAPTER SEVEN: LAW OF TRADERS AND BUSINESS ORGANIZATION Traders A business may be carried out by an individual operating as a sole proprietorship, by two or more persons in a partnership agreement or by company form. A trade r is defined as any person who carries on any of those or similar activities specified under Article 5 of the Commercial Code professionally and for gain . So, a sole trade is a business carried on by an individual acting in an independent way and the person who conducts such business is sole proprietor.

106. What is business? Business is defined under the Article 124 of the Commercial Code as “an incorporeal movable consisting of all movable property brought together and organised for the purpose of carrying out any of the commercial activities specified in Art.5 of this Code.” In a nutshell, the term “business” constitutes both tangible and intangible assets, including tools, equipments , raw materials, goods in stock, good will, trade name, trade mark, patent, copy right, and the right to lease of the premises. But, immovable properties cannot form part of the business

107. Business Organizations In a free market economy, business organizations are a familiar part of every day life. Business organizations run the supermarkets from which we buy our foods and attires; they supply the water, gas, and petroleum products we depend on; they publish the books and newspapers we read. We deal with them so often as consumers of their products and services that the image which the phrase “business organizations” brings to mind is usually of entity concerned with marketing and collecting payments for products and services which they have offered. It is necessary to go behind this image to get to the entities which are the subject of the Law of Business Organizations.

108. Conti.. Most , if not all, of the business organizations are legal entities which have firm-names and head office; they can acquire rights and incur liabilities, and can sue and be sued under their firm names. Business organizations, from a legal viewpoint, are undertakings with more than one member, having assets distinct from the private assets of the members and a formal system of management, which may or may not include members of the organization. Features of business organizations The first feature, initial plurality of membership, distinguishes the business organization from the business owned by one man

109. Conti… The second feature, the possession of distinct assets, is essential for two purposes: to identify the assets to which creditors of the organization can resort to satisfy their claims (though in the case of some organizations, such as the partnerships they can also compel the member to make good any deficiency), and to make clear what assets the managers of the organization may use to carry on business for the member’s benefit. The assets of an organization are brought in directly by its members by way of contribution. Contributions may be made in cash, kind, and service in all forms of business organizations other than the share company or private limited company. The third essential feature, a system of management, varies greatly. In a simple form of business organization the members are entitled to participate in the management, and each member has an equal voice in management decisions .

110. Conti… A business organization is an association established through a memorandum of association by persons who bring together contributions for the purpose of undertaking an economic activity in cooperation and of participating in the profits made(art 172/1 of the new commercial code) Exception: A joint venture is formed by an agreement concluded among members that is not disclosed to third parties. A memorandum of association is an instrument drawn up to establish a business organization.

111. The Types of B.Os There are seven types of business organization in our legal system. These are: General Partnership(GP), Limited Partnership(LP) Limited Liability Partnership(LLP ), Joint Venture(JV), Share Company(SC) and Private Limited Company(PLC ). One person private Limited Company(one man company)

112. Formation of Business Organizations A business organization has a completely different personality from the individual members It shall be formed by memorandum of association (except to joint venture) Except JV , all the others are considered legal persons. Such organizations are granted legal personality where they meet the requirement of registration in the commercial register.(Art 175 of com .code) The formation of a business organization except that of a JV shall be of no effect unless it is made in writing . i. e memorandum of association.

113. 1. General partnership It consists of partners who are each jointly, severally liable with the partnership itself for the obligation of the partnership A partner in a commercial partnership is considered as a trader. The general partnership needs to have a firm name consisting of the names of at least two of its partners and followed by the words 'General Partnership'. However, the partnership agreement can provide that the approval of the majority of the partners shall be sufficient. Each partner shall make a contribution in the form of money , movable or immovable property, skill, trademark , goodwill, patent, copyright, lease right, usufruct or other contributions

114. 2. Limited Partnership Limited partnership differs from general partnership in that it comprises two types of partners i.e. general partners who are fully, jointly and severally liable and limited partners who are only liable to the extent of their contributions only. Unlike general partnership, some members can have limited liability. As a result, the limited partners are not liable for the debts of the partnership beyond the funds they contributed. The limited partnership needs to have a name consisting of the general partners and followed by the words 'Limited Partnership'. The contribution is similar with that of GP

115. 3. limited liability partnership A limited liability partnership is a business organization formed by two or more persons to render professional service and services complementary thereto in which the liability of partners is limited to the amount of their contributions . Professional service shall, in the context of this partnership, mean a service provided based on a professional license granted by an appropriate organ ; Complementary service shall mean a related service that falls under one or more professions and is necessary to provide the professional service

116. 4. Joint Venture A joint venture is a business organization established by an agreement among two or more persons. It has no legal personality and its existence is unknown to third parties. Registration formalities required of other business organizations do not apply to a joint venture CHARACTERISTICS OF JOINT VENTURES Is the simplest form of business organization It is exempted from registration. It is a secret business organization. It is not made known to third parties . Its agreement need not be in writing A joint venture does not have legal personality

117. 5. Share Company(S.C) Share Company is a company whose capital is fixed in advance and divided into shares and whose liabilities are met only by the assets of the company. The establishment of Share Company requires at least five persons and there is no maximum member limitation. the company shall not have less than birr 50,000 capital. The name of the share company shall include the words “Share Company". The main tasks of the founders include to prepare various documents and to submit them to the relevant government authorities.

118. Merits of Company Financial Resource : - It helps to mobilize huge funds, required by big business because large number of members can subscribe its capital in small & affordable quantities Limited liability :- Shareholders are limited liability C. Scope of growth : - company can grow and expand at a rapid pace and faster due to huge resource. D . Professional management : -Competent & professional management is vital for targeted rates of growth E. Stability of the company: - continuity and stability of business are equally important for the success of any business. F. Positive social benefits :- a company is beneficial not only to its members, creditors but also to the public at large.

119. 6. Private Limited Company(PLC) A private limited company is a business organization whose capital is fully paid in advance, divided into shares and whose members are not liable for the debts of the company provided that they have paid up their contributions. Shares of the company shall not be open for subscription by the public. The maximum number is fifty while the minimum is two. The company shall not issue transferable securities. It needs a minimum capital of Birr 15,000 which must be paid up on registration. it is a hybrid of Share Company and Partnership. A private limited company cannot engage in banking and insurance activities

120. 7. One Member Private Limited Company Formation The OPC is formed just by one person making a unilateral declaration before the authority entrusted with the authentication of documents (Art 536/1 of com.code ). It enjoys a legal personality autonomous or separate from the person forming it (Art 534). The minimum capital shall be 15000 ETB like PLC. It is important to note here the prohibition that one person cannot establish more than on OPC although it is not clear why this is the case (Art 539). It needs also a nominee who accepted the nomination before the authority entrusted with the authentication of documents.

121. Dissolution of BOs Causes of dissolution of a company./ partnership/, common to all kinds of B.O. Dissolution by :- operation of law, statutes company/ partnership agreement of members to dissolve judicial decision for just cause

122. CHAPTER EIGHT: LABOUR LAW Labour law is essential in order to keep industrial peace to maintain harmony and cooperation for the over-all development of the country, to guarantee workers and employers to form their associations, and to strengthen and define the power and function of regulatory organs in labour related matters. Therefore , duration of contract of employment, rights and duties of the employer and the employee, grounds for suspension and termination of contract of employment and the remedies available in case of unlawful termination of contract of employment will b e covered under this chapter.

123. Definition and Concept of Labour Law Labour law is a law that governs employment relations in which the work is rendered by a party called the employee under the authority of another party called the employer in return of wage(Art 4 of the Labour Law Proc.No.1156/2019) Contract of employment as any other of contract should fulfil all the legal requirements as provided under Art 1678 of the Civil Code to be a valid contract that could be enforced in a court of law.

124. Form of contract of employment As stated under Art 5 of the Labour Law Proclamation, parties can conclude contract of employment in any form unless a special form is prescribed by the law. The special requirements that contract of employment to be made in writing includes contracts for the existence of probation period, modification of contract of employment, and the termination of contract of employment by agreement are some of the examples to be mentioned.

125. Duration of Contract of Employment and Probation Period Contract of employment may be made for definite period or for indefinite period . But still, parties have no power to determine the duration of contract of employment. In other words, they can agree on the duration of contract of employment as long as they are not in contradiction with the law . The law has provided the situations in which a contract may be made for a definite or indefinite period. Art. 9 and 10 of the labour proclamation provides that a worker may be employed for indefinite period unless and otherwise the worker falls under Art.10 of the labour law proclamation despite their contract.

126. . A worker is presumed to be employed for definite period in case of : Accordingly , a worker is presumed to be employed for definite period in case of: The performance of specified piece of work To replace a worker who is temporarily absent from work due to leave or sickness or other causes. Abnormal pressure of work Urgent work to prevent damage or disaster to life or property Seasonal work Occasional work A temporary replacement of a permanent worker who has suddenly and permanently vacated from a post. Temporary placement of a worker or the time of structural adjustment of the organization.

127. probation period A worker may be employed for a probation period in order to test his competency for the position that he is to be assigned. In such cases, the agreement should be in writing and it should not exceed 60 consecutive days . When he is proved to be unfit for the job during in the probation period, the employer may terminate the contract of employment without notice and without payment of compensation or severance pay . In the same token, a worker can terminate his contract of employment without notice during the probation period for any reason

128. Duties of the Parties Obligation of the Employer Irrespective of what are provided in the contract, the employer has the following legally imposed obligations as per Art. 12 of the labour law proclamation. To provide work, tools and materials necessary for the performance of the work To pay the worker wagers and other remunerations To respect the human dignity of the worker To take safety and health measures To give certificate of experience up on request of the worker free of charge To keep registered information about the situation of his worker To observe the provision of the law, rules and directives

129. Obligation of the Worker The worker has the following obligations; To perform his work specified in the contract in person To work as per the instruction of the employer as provided in the contract and work rules. To handle all tools and materials of the employer with due care To give proper aid when there are accident occurs to life or property in a place of work To give information about any acts which endanger his life or his work fellows and the undertaking Not to take employers property without permission Not to report for work in a state of intoxication

130. Suspension and Termination of Contract of Employment Suspension :- Suspension is the temporary cessation of rights and obligations of the parties arising out of a contract of employment and this does not mean termination. However, during the term of suspension, the worker will not perform his work and the employer will not make payment of wages . The following are valid grounds of suspension: Leave without pay by the agreement of the employer Leave for the purpose of holding office in a trade union or other social service Detention for less than 30 days National call force majeure. Financial problem

131. Termination termination is the permanent cessation of rights and obligations of the employer and employee that arises from a contract of employment and from the law. A contract of employment may be terminated by: the employer the employee agreement law Collective agreement

132. Remedies in case of Termination Where the employer terminates the contract of employment with the worker in contradiction with the law regarding termination, it will be unlawful termination. If the worker terminates his contract illegally, as said above, he shall pay one month’s wage. Whereas, if an employer is to terminate his contract without following the rules and procedures as provided in the law , he shall pay the worker severance pay, compensation and other payments as enumerated in the law if the worker is not willing for reinstatement or if the labour dispute settlement tribunal decides for dismissal with payment of compensation. He may also be obliged to make payment of severance pay and other payments if provided by the law even if the termination is legal