Economy

PLC Exclusion from Capital Market Crowdfunding Sparks Concern for Startups, MSMEs

The Reporter · 2 hours ago · Read the Full Story on The Reporter

AI SUMMARY

Ethiopia's proposed crowdfunding regulatory framework has sparked concerns among industry experts who warn that restricting eligible fundraisers to share companies excludes a vast majority of startups and MSMEs.

Ethiopian Capital Market Authority held a public consultation on the draft Crowdfunding directive at Skylight Hotel in Addis Ababa.
The draft directive restricts crowdfunding eligibility strictly to enterprises incorporated and registered as share companies under the Commercial Code.
Industry experts warn this requirement risks marginalizing private limited companies, which form the predominant corporate structure for small businesses and tech startups.
Biniyam Kebede of Wegagen Capital noted that international crowdfunding models accommodate diverse corporate forms and argued the rule excludes a substantial share of MSMEs.
Behailu Tesfahun of Alpha Advocates LLP questioned whether early-stage businesses organized as PLCs can realistically leverage crowdfunding under the current legal framework.
Solomon Bekele, a senior legal adviser at ECMA, explained that the Commercial Code limits PLC membership to 50 shareholders, prohibits issuing transferable securities, and lacks mandatory board of directors requirements.
Solomon suggested that PLCs wanting to tap into alternative digital financing must convert into share companies and establish formal governance structures.
The draft directive sets annual fundraising ceilings across three tiers: ETB 10 million for Category One, ETB 25 million for Category Two, and ETB 50 million for Category Three, with an overarching ETB 50 million cumulative cap.
Individual retail investments are limited to five percent of an investor's annual net income per offering, capped at 10 percent cumulatively per annum across all platforms.
Businesses raising debt financing must provide three consecutive years of audited financial statements under AABE standards, prove ongoing profitability, positive cash flows, and submit cash-flow forecasts.
Solomon explained that mandatory credit ratings for debt offerings cannot be enforced currently due to the absence of active credit rating agencies, though international agencies have expressed interest.
The public consultation also addressed supervisory responsibilities, reporting obligations, cross-border investments, and interest-free crowdfunding frameworks before finalization.

Read the Full Story on The Reporter

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