Abstract
The capital of a company is considered as security for creditors and legal systems provide the framework to safeguard this security. This paper demonstrates overvaluation of non-cash contributions as a risk this security is to be safeguarded from. It outlines what a cmprehensive control system on non-cash contributions looks like and comparatively assesses the laws of the EC, Germany, France, England, and Ethiopia as to the mechanisms they provide to control this form of contribution. The paper shows that the three member states of of the EC have transposed the Community law on the subject of control of non-cash
contributions in a similar fashion and that they converge on a number of areas regarding their approaches to controlling non-cash contributions like definition of valid forms of tnon-cash contributions and the expert valuation , payment and disclosure requirements. The above three legal systems are selected because of their relevance to the Ethiopian law for they are the sources of the latter’s Commercial Code. Compared to these legal systems, the control system over non-csh-contributions under the Ethiopian law involves a number of matters that need addressed through amendement of the law.
Table of Contents
INTRODUCTION
1. Background
2. Statement of the Problem
3. Objectives of the Study
4. Scope of the Study
5. Methodology
6. Limitation of the Study
CHAPTER 1- COMPARATIVE DISCUSSION OF THE LAWS ON THE CONTROL OF NON-CASH CONTRIBUTIONS
Part One: The EC Company Law
1.1.1 Definition of Valid Forms of NCCs
1.1.2. Valuation and Payment of NCCs
1.1.3 Disclosure Requirements Relating to NCCs
1.1.4. The Liability Regime
1.1.5 Scope of the Control System
1.1.6 Areas of Non-application and Silence
Part Two: The German Legal System
1.2.1. Definition of Valid forms of IKCs
1.2.2. The Evaluation and Payment Phase
A. The Stock Corporation
B. The Limited Liability Company
1.2.3 The Disclosure Phase
A. The Stock Corporation
B. The Limited Liability Company
1.2.4 The Confirmation Phase
A. The Stock Corporation
B. The Limited Liability Company
1.2.5 The Liability Regime
A. The Stock Corporation
B. The Limited Liability Company
1.2.6 Scope of the Control System
1.2.6.1 Increase in Capital
A. The Stock Corporation
B. The Limited Liability Company
1.2.6.2 Amendment of the Articles- the AG and the GmbH
1.2.6.3. Indirect IKCs and Post-formation Acquisition - The AG and the GmbH
Part Three: The French Legal System
1.3.1 Definition of Valid Forms of IKCs
1.3.2 Valuation and Payment IKCs
1.3.3 The Disclosure Phase
1.3.4 The Confirmation Phase- an SA and the SARL
1.3.5 The Liability Regime: an SA and the SARL
1.3.6. Scope of the Control System
Part Four: The English Legal System
1.4.1 Definition of Acceptable Forms of NCCs
1.4.3 The Disclosure Phase
1.4.4 The Confirmation Phase
1.4.5 The Liability Regime
1.4.6. Scope of the Control System
Part Five: The Ethiopian Legal System
1.5.1. Definition of Acceptable Forms of IKCs
1.5.2. Control of IKCs in Respect of the Share Company (SC)
1.5.3 Control of IKCs in Respect of the Private Limited Company (PLC)
CHAPTER 2- CONCLUSION, RECOMMENDATIONS AND SUGGESSIONS
2.1. Conclusions
2.2. Recommendations
2.3. Suggessions
Objectives and Research Themes
This paper aims to provide a comprehensive comparative analysis of the legal control systems governing non-cash contributions (NCCs) within companies. The primary objective is to evaluate how EC law, as well as the national laws of Germany, France, England, and Ethiopia, address the risks of overvaluation and capital evasion associated with non-cash assets, with the ultimate goal of offering reform recommendations for the Ethiopian legal framework.
- Comparative analysis of legal safeguards across multiple jurisdictions.
- Evaluation of expert valuation and disclosure requirements for non-cash assets.
- Assessment of the "stock-watering" risk and mechanisms for its prevention.
- Examination of control systems during company formation, capital increases, and post-formation acquisitions.
- Identification of deficiencies within the Ethiopian Commercial Code compared to established international standards.
Excerpt from the Book
1. Background
The corporation, as a vehicle of doing business, is regarded as having played a significant role to the economic growth of nations. However, history has also witnessed corporate abuses, among others, to creditors and hence necessitated the need for protection from the risk of abuse against the capital of a company, which is regarded as a security to creditors and more important in the context of companies than partnerships since in the former case, unlike the latter in general, ’the members are liable only to the amount of their promised contributions.’
This security is usually defined as ’the amount specified in the formation instruments as the capital of the corporation, which is to be paid in or contributed to it, and to be represented by shares.’ ’In accounting terms, ’capital’ is the name for the source and not for the asset’ which is mainly laid down by the laws of states prescibing what can be validily contributed to a company for the purchase of shares. As such, there may be difference among states regarding these sources. In ’many practical instances’ the capital of a company consists of cash and non-cash contributions. Due to the very topic of the thesis, only the latter category forms the subject of this paper.
The company laws of different countries, as we shall see later, do not provide a definition of ’non-cash contribution.’ Legal systems provide either a general criterion of what constitutes a valid contribution of such a type or exclusion of certain forms of such contributions as unacceptable to a certian form of company, or both. Some legal systems, like the German Stock Company Act, thus provide the criterion that the asset must be one the economic value of which can be ascertained. What we get in the literature is also an enumeration of the types of NCCs such as trademarks, copyright, patent, goodwill, going concern, shares, claims, receivables, buildings, land, machinery, equipment, vehicles.
Summary of Chapters
INTRODUCTION: Provides the context of company capital as security for creditors, defines non-cash contributions, and outlines the research objective and scope.
CHAPTER 1- COMPARATIVE DISCUSSION OF THE LAWS ON THE CONTROL OF NON-CASH CONTRIBUTIONS: Conducts a detailed comparative analysis of the legal frameworks in the EC, Germany, France, England, and Ethiopia regarding the five phases of control for non-cash contributions.
CHAPTER 2- CONCLUSION, RECOMMENDATIONS AND SUGGESSIONS: Summarizes the findings of the comparative study and offers specific recommendations for reforming the Ethiopian Commercial Code and suggestions for future research.
Keywords
Non-cash contributions, company capital, stock-watering, corporate law, comparative legal analysis, valuation, disclosure requirements, liability regime, EC company law, German Stock Company Act, French Commercial Code, English Companies Act, Ethiopian Commercial Code, shareholder protection, creditor security.
Frequently Asked Questions
What is the fundamental focus of this research?
The research focuses on the legal mechanisms used to control non-cash contributions (NCCs) to companies, specifically addressing the risks of overvaluation that could threaten the capital security of creditors.
What are the primary thematic fields covered?
The study covers the definition of valid assets, valuation procedures, disclosure requirements, liability regimes for breaches, and the scope of control during capital increases and post-formation acquisitions.
What is the central research question?
The research examines how various legal systems (EC, Germany, France, England) control non-cash contributions and determines what the Ethiopian legal system can learn from these models to improve its own deficient framework.
Which scientific methods are applied?
The research employs a comparative legal analysis, contrasting the EC law with major national jurisdictions and evaluating the Ethiopian legal framework against these international benchmarks.
What content is addressed in the main chapters?
The main chapters detail the legal requirements for each jurisdiction, starting with the EC as a benchmark, and covering specific company forms like AG/GmbH, SA/SARL, and Share Companies/Private Limited Companies.
Which keywords characterize this work?
Key terms include non-cash contributions, corporate capital, valuation, creditor protection, and comparative company law.
How does the German law approach the control of hidden non-cash contributions?
The German law, particularly under the AktG, extends its general provisions to indirect non-cash contributions and regulates post-formation acquisitions to prevent the circumvention of statutory safeguards.
What specific recommendation does the author make for the Ethiopian legal system?
The author recommends amending the Commercial Code to include stricter control over post-formation asset acquisitions, prohibiting the substitution of cash obligations with in-kind payments, and introducing derivative rights of action for shareholders.
- Arbeit zitieren
- Yitayal Mekonnen Ayalew (Autor:in), 2010, The Control of Non-Cash Contributions to Companies, München, GRIN Verlag, https://www.grin.com/document/158070
