A reform that excludes founding shareholders from additional revenues aside from their due dividends is underway, with a bill that governs the formation, management and dissolution of share companies put forth by the Ministry of Trade & Regional Integration (MOTRI).

Incorporating as a private shareholding company entails a founding member size not to exceed 50, where they will be spared from scrutiny by an auditor when they finish formation.

Inconsistency of laws regarding share companies has hindered their development and wider acceptance in the country, with officials hoping that the new wave of policies and directives will counteract the underdeveloped private sector scratching at liberalization.

Jirata Nemera, head of licensing at the Ministry, is part of the committee behind the bill. He prefers not to comment on the draft as consultations are still ongoing with stakeholders.

In a bid to bolster the implementation of the commercial proclamation ratified two years ago, a distinction between share companies that are formed with founders' contributions (private share company) and those founded with the intention of collecting capital through issuing shares (public share company) is laid out by the new directive.

The bill prohibits claims of investment return, profit margins and payback period during advertisements. Companies are obligated to develop websites within six months of the formation, while a cap is put on administrative costs not to exceed five percent of the total incorporation capital.

Yehualashet Tamiru, a corporate lawyer, suggested that the draft directive is necessary to update the governance of share companies in Ethiopia. He highlighted how marketing the value of share companies implies that lucrative returns are looming before the business even makes a profit, leading to exaggerated promises and speculation.

"This is a common yet unethical practice," he told Fortune.

The legal expert underscored that regulation into share premium prices has been a long time coming. He cited instances in which several founding members have managed to squeeze out share premium prices into their pockets, meaning the difference between par values and market values and leaving shareholders hanging.

All share prices below 100 Br will need to update their price to meet the mark within two years. In-kind contributions such as land, vehicles or intellectual property during formation are required to be backed by proof of ownership while internal rules and guidelines formed before the ratification of the commercial proclamation two years ago will continue to be binding.