Legal Update on the Mergers, Divisions, Conversions, and Dissolutions of Civil Society Organizations Directive No. 936/2022
Purpose: Directive No 936/2022 on the Mergers, Divisions, Conversions, and Dissolutions of Organization came into effect on 22nd December 2022 with the main aim of implementing the provisions of the Organizations of Civil Societies Proclamation No. 1113/2019 regarding mergers, divisions, conversions, and dissolutions of civil society organizations. It begins by providing a statement to ensure that the purpose of the merger, division, and transformation of organizations is to achieve better benefits for society, especially to protect the interests of the users.
Merger: With regard to merger, the Directive states that any organization may merge with one or more organizations under a new name or under the name of one of the merging organizations by making a merger agreement in accordance with the provisions of the Civil Societies Proclamation. The rights and obligations of the previous organizations as well as their employees shall be transferred to the merged organization. It also stipulates that the liabilities of each organization shall be transferred to the new organization unless there is a prior agreement to this effect. The new organization created by the merger should register at the Authority for Civil Society Organizations by submitting a registration application and essential documents which includes the resolution of each organization passed by the governing body empowered by the bylaws to carry out the merger, articles of association and certificate of incorporation of each organization, consent of representatives of merging organization, bank statement and current audit report of each organization, and a statement of assets and liabilities and an inventory of assets of each entity.
Division: Article 8 of the Directive provides that any organization may be divided into two or more organizations according to the organization’s articles of association or by the decision of the organization’s governing body. Unless there is a specific agreement to this effect, each organization created by the division shall be an equal participant in the obligations and rights of the previous company. Issuance of a certificate of registration by the Authority ends the existence of the former organization. The Directive also states that a civil society organization that has matured or payable debts must obtain the consent of the financiers or creditors and guarantors before the organization is divided.
A decision to divide the organization cannot be passed without obtaining the consent of the creditors if the organization that is intended to be divided is unable to fulfill its obligations. The new organization created by the division shall be registered by the Authority after submitting an application for registration and essential documents including a resolution to demerge the organization, a statement of asset and liability, articles of association, and a certificate of registration, the current audit report before the demerger, list of creditors (if any) and also a list of employees.
Conversion: Pursuant to Article 10 of the Directive, an organization may be transformed into another type of organization pursuant to its articles of association or by the decision of the organization’s governing body. The Directive provides the procedures required of a foreign organization to transform or convert into a local organization. Accordingly, when an organization based in a foreign country and operating in Ethiopia is transformed into a local organization, the provisions of the Civil Society Organizations Proclamation No. 1113/2019 shall apply to the transformed organization as appropriate. There are certain documents required when submitting an application for registration to the Authority. Some of them are a statement of assets and liabilities, a statement or agreement showing that the rights and obligations of the former organization have been transferred to the changed organization; a bank statement and current audit report, a list of creditors, name of and logo of the changed organization.
Dissolution: A civil society organization may be dissolved for reasons specified under Article 83 (1) and (2) of the Proclamation. Some of the reasons are: a decision to dissolve the organization by a competent organ under their bylaws, failure to submit a report within the time specified by the Proclamation, failure to take corrective measures after proven violation of the Proclamation and other laws and suspension by the Director General of the Authority due to non-remedial action, if the organization obtained a certificate of registration by deception or fraud and the same is verified by the Authority and the board decides to dissolve the organization. The Authority will appoint an auditor to inspect the properties of the organization. When the organization’s accounting operations are completed, the Authority will cancel the organization from the register. The property of the organization will finally be transferred to another civil society organization according to its articles of association or bylaws or by the decision of the governing body of the organization.
Finally, the Directive obligates the organization to inform the media and publish its decision to merge, divide or transform the organization. The head of the organization may also notify the known donors or beneficiaries of the organization in writing in addition to the media.
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