Problems Associated With Contribution In-kind In The Formation Of Companies In Ethiopia

Companies in Ethiopia can be formed by contributions of cash or in kind. There are different problems that would arise by the mere fact that there is contributions in-kind. Thus, if there is contribution in kind, regulation of the same is important in order to ensure that the value placed on it is not overstated, that is, there is a need to ensure that the consideration is not overvalued. If not, actual risk would exist that the MoA would mislead creditors as to the capital value of the company.rnTo avoid the effects, Ethiopian commercial code adopted revaluation scheme by directors and auditors in Share Company. Revaluation by directors and auditors is not blamable by itself it is rather making the contributor liable for the valuation which invites several problems. Further, the time in which revaluation would be conducted appears long. Under PLC, all members are jointly and severally liable for overvaluation indiscriminately which is painful.rnTherefore, it is recommended that initial valuation should be conducted by an independent expert(s) with all responsibility at least to reduce some of the issues without affecting the scheme of revaluation by directors and auditors.

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