Why the Clock Should Not Run Out on Share Ownership

Why the Clock Should Not Run Out on Share Ownership

Jun 21 , 2025. By Yehualashet Tamiru Tegegn ( Yehualashet Tamiru (yehuala.t@ethioalliancelaw.com), partner at Ethio Alliance Advocates LLP. )

Ethiopia’s law emphasises the crucial role of formal registration and the enduring nature of ownership rights. Recognising registered shares as special movable property enjoys constitutional protections, legal precedents, and ethical principles. By explicitly excluding registered shares from limitation periods, the law comprehensively safeguards property ownership, taking into account both practical considerations and deeply rooted legal traditions, argued Yehualashet Tamiru ( yehuala.t@ethioalliancelaw.com), partner at Ethio Alliance Advocates LLP

Ownership is widely recognised as the most comprehensive right one can possess over physical property, entitling an individual to control, use, enjoy the benefits of, and ultimately dispose of the assets in question.

This complete authority comprises three core aspects: usus (the right to use the property), fructus (the right to enjoy the fruits or benefits from it), and abusus (the right to dispose of or transfer it). Together, they grant the owner a vital power to use the property as desired.

The Constitution explicitly protects the right to property as a democratic right. Under Article 40(3), the Constitution guarantees every citizen the right to own property, including the right to buy, use, and transfer ownership through legal channels such as sales or inheritance. This constitutional provision acknowledges property ownership not only as a personal entitlement but as essential for broader economic and social stability.

However, such ownership rights are subject to legal restrictions intended to safeguard public interest and protect the rights of others.

The law categorises property broadly into movable and immovable properties, the former being tangible objects that can be moved without changing their inherent characteristics. The Civil Code further differentiates between ordinary movable property, such as everyday household items, and special movable property, which includes items like corporate shares.

The transfer procedures for movable properties, including corporate shares, vary based on their classification. For ordinary movable property and bearer shares, transfer of ownership is straightforward, requiring only the physical handover of the item or the bearer document. Once delivered, ownership is presumed to be transferred unless proven otherwise.

This simplicity reflects the practical need for efficiency and flexibility in commerce.

However, transferring ownership of registered shares, such as those issued by share companies or private limited companies (PLCs), involves a more structured procedure. Unlike bearer shares, registered shares are required to undergo formal registration procedures.

Ownership of these shares is transferred only after the transaction has been recorded in the company's shareholder register. The registration details the names and addresses of the seller and buyer, the number of shares transferred, and the precise date of the transfer.

Transferring registered shares also demands a formal resolution by the existing shareholders. Such resolutions should be notarised and documented in meeting minutes. The company's Memorandum of Association should be amended to officially acknowledge the new shareholder, displaying the change clearly in company records.

This formal approach to share transfers is meant to serve several crucial policy objectives.

Registration enables clear identification of shareholders, which is vital in industries with restrictions on foreign or diaspora ownership. It helps authorities ensure compliance by clearly identifying legitimate shareholders.

It also supports revenue collection efforts, particularly in the enforcement of capital gains taxes. When shares are sold above their original value, proper documentation through registration helps track these financial gains, ensuring accurate taxation.

Registration safeguards the interests of third parties. Share Companies, unlike PLCs, may experience discrepancies between subscribed and paid-up capital. Shareholders remain legally responsible for any unpaid subscribed capital. Without a formal register, determining financial responsibilities becomes challenging.

Accurate records clarify these obligations, ensuring transparency and fairness.

Registered shares often serve as collateral in financial transactions. Legal recognition through registration provides banks and other creditors with assurance about the authenticity of ownership, which is crucial when establishing valid security interests.

The legal characteristics of registered shares closely resemble those of immovable property, especially concerning proof of ownership and formal transfer procedures. This similarity prompts an important legal question, though.

Should ownership claims (petitory actions) over registered shares be limited by time?

From a plaintiff's perspective, imposing a period of limitation can encourage timely legal action, ensuring cases are addressed promptly when evidence is fresh and reliable. For defendants, limitation periods offer protection against indefinite legal uncertainty, while courts benefit from managing their caseloads efficiently by avoiding outdated claims.

However, the argument against applying limitation periods to registered shares is compelling.

Ethiopia’s law lacks an explicit limitation period for registered shares. While the Civil Code, under Article 1192, sets a 10-year limitation for ordinary movable property whose location or ownership the owner has lost track of, it makes a clear distinction in Article 1186(2), suggesting that different rules apply to special movable property.

The absence of explicit time constraints for special movable properties, such as registered shares, implies the legislature’s intention to exclude them from limitation periods.

A precedent from the Federal Supreme Court demonstrates that no limitation period applies to disputes involving immovable property. Given the comparable formal requirements for immovable property and registered shares, this precedent logically extends to registered shares, reinforcing the position against limitation periods.

Neither do legal principles dictate that limitation periods should be narrowly interpreted. Without explicit legal provisions mandating such limits, courts should refrain from inferring them. The constitutional guarantee of property rights strengthens this position, emphasising that restrictions on fundamental rights require clear and explicit legal authorisation.

Considering the nature of property rights, it reinforces the argument against limitations. Property rights are inherently enduring and are not forfeited merely due to inactivity. For instance, shareholders maintain their ownership rights irrespective of their participation in corporate affairs or dividend collection. Therefore, inactivity alone cannot extinguish ownership rights.

Finally, moral and ethical considerations further support excluding registered shares from limitation periods. Property rights, historically upheld in Ethiopian legal tradition, emphasise lawful acquisition and protection against wrongful possession.

The ancient legal text, “Fetha Negest,” articulates this principle clearly: "Do not take the wealth of anyone by violence; do not buy from him by force either openly or by trick." Thus, allowing property ownership to lapse simply because a rightful owner has not promptly contested unauthorised possession violates fundamental ethical standards.

The comprehensive protection of ownership rights, as detailed in the constitutional and civil law, supports maintaining unlimited temporal scope for claims over registered shares. Unlike bearer shares or ordinary movable property, whose ownership claims can lapse due to lack of timely action, registered shares demand continued ownership legal protection.

PUBLISHED ON Jun 21,2025 [ VOL 26 , NO 1312]