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Walelgn: Exit Rights of Minority Shareholders in Closely Held Corporations

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Getahun Walelgn has posted “Exit Rights of Minority Shareholders in Closely Held Corporations: A Comparative Study of English, Germany and Ethiopian Laws“.

The abstract is as follows:

Closely held company form is prone to the problem of minority oppression. This is due to the nature of the firm that adopts the features of partnerships and corporate forms. When the majority becomes opportunistic, due to majority rule, there is no mechanism to tackle their action or easy exit. The shares are illiquid non-tradable. Advance planning is, practically, either prohibitively too costly or is not easy to be foreseen due to trust, confidence and optimism members inert se who either have familial, friendship or other relationships.

This oppression is unfair and economically inefficient and it will affect financial markets negatively. So corporate strategy towards minority oppression and exit right for the minority is unquestionably necessary.

Some advanced jurisdiction like England and Germany have devised different rules to this effect. Winding-up, unfair prejudice (oppression remedy), appraisal rights etc. are the most important exit rights adopted in the two systems. They adopt similar, if not the same, strategies towards the problem of minority oppression.

Ethiopian private limited company is similar to the English and Germany private limited companies. The two are two have a laws that shaped company laws of many jurisdictions and their experience is worth to be sought. If minority oppression is a problem in those jurisdictions then it is must be a big problem in Ethiopia too. This is because firstly investors using the same types of firms are seen to face similar problems. Secondly in Ethiopia where business is least developed, court system is weak and contract enforcement is weakest, investors are less sophisticated and market continuously fails government intervention in such regulatory measure is a necessity.

It is my thesis that the Ethiopian legal system should adopt those strategies and make amendment to the already existing exit rights so that the minorities will be better protected, investment promoted and economic efficiency build. Taking principles, rules and doctrines from the two systems based on the merit of, and not total alignment to one of them, is wise choice.

 

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