Partnership termination and liquidation in Ethiopia can occur in two ways: termination without court intervention if partners agree to dissolve or the purpose/term expires, or termination by court order for good cause such as serious partner disputes or duties not being fulfilled. The liquidation process involves converting assets to cash, settling all liabilities, and distributing any remaining cash to partners according to their agreement or equally if not specified. The commercial code of Ethiopia outlines the specific procedures and responsibilities of partners/liquidators during termination and liquidation of a partnership.

2. Partnership Termination and liquidation in Ethiopia
BY: FITSUM ABEGAZ AYELE
Termination or dissolution of partnership
Dissolution or termination of partnership takes place where there is change in relation of partners
due to retirement, expulsion etc. of partners. In dissolution of partnership the business of the firm
does not come to an end and it continues as before.
Article 261 of the commercial code of Ethiopia stipulates that the court may order the expulsion
of a partner for good cause and the partnership shall continue as between the remaining partners
on the other hand, the dissolution of partnership between all the partners of the firm is called
‘dissolution of the firm’ that is in case of dissolution of the firm, partnership between all the
partners comes to an end. The asset of the firm are realized and the business is closed down.
Methods under which a partnership firm can be terminated
The Ethiopian commercial code addresses the issue of dissolution as one important aspect of a
company life.
A partnership firm may be terminated by any of the following two methods
A. Termination without the order or intervention of the court
The commercial code of Ethiopia addresses the dissolution of partnership under law or by
agreement under Article 217 states that “any business organization shall be dissolved:
- Where its purpose has been achieved or cannot be achieved.
- Where the partners agree to dissolution prior to the expiry of the term for which the
business organization was formed and
- Where the term for which the business organization was formed expires.”
In this case termination of partnership takes place by agreement of all the partners or when all the
partners or all the partners but one are declared insolvent or when the business of the firm, by the
happening of an event becomes unlawful and on the happening of certain contingencies that is on
the expiry of the term fixed.
B. Dissolution or termination with the order of the court
Termination by the court is set under Article 218 of the commercial code of Ethiopia. This article
states that a business organization may be dissolved for good cause by the court on the application
of a partner.
In such case the court presumes the existence of good cause where a partner seriously fails in his
duties or becomes through infirmity or permanent illness or for any other reason incapable of
carrying out his duties or where serious disagreement exists between the partners.

3. In such case of a partner may apply for judicial dissolution. Such jurisdiction of the court for
dissolution is created in consideration of public interest as well as for the protection of private
rights, that it cannot be excluded by the provision in the statues of the partnership.
Termination with the order or intervention of the court also takes place in the following ways:
1. Insanity of a partner: when a partner has become of unsound mind, any partner or next
friend of the partner may petition to the court for the dissolution of the firm and the court
may issue an order for dissolution of the firm.
2. Permanent incapacity: when a partner, other than the partner suing, is guilty of misconduct
which is likely to affect prejudicially the carrying on the business, the court may order the
dissolution of the firm.
3. If the business of the firm cannot be carried on except at a loss, even if the firm was
constituted for a fixed period and that period has not expired.
The commercial code of Ethiopia addresses the death, incapacity or bankruptcy under Article 260.
This article states that a partnership shall be dissolved where one of the partners dies or is no longer
able, under the law to be a partner.
Liquidation or winding up of partnership
Partnership liquidation results in the conversion of all partnership asset in to cash, the payment of
all liabilities and the distribution of the remaining cash to the partner.
Liquidation of partnership is stated under article 265 of the commercial code of Ethiopia. This
article stipulates that “after dissolution, the winding up shall be carried out by one or more
liquidators appointed under the partnership agreement or by all the partners. If the agreement of
partners fail the court shall appoint liquidators”
Stapes taken during liquidation process are:
- Converting non cash assets into cash
The commercial code of Ethiopia addresses the power of liquidators under article 267. This article
states that “The liquidators shall take all steps necessary to complete the winding up of the
partnership they may sell the property of the partnership, represent the partnership in legal
proceedings and may compromise or refer to arbitration any matters in issue.”
- Recognizing gains and losses and liquidating expenses incurred during the liquidation
period
If there is a gain or loss on liquidation after all claims have been met distribute the net gain or loss
on liquidation to the partners in accordance with their income sharing agreement if they have.
- Settling all liabilities
The liquidators shall pay the creditors of the partnership, where necessary calling upon the partners
for contributions. They shall settle with the partner’s debts which they hold against the partnership
and restore to partners property whose use only was contributed to the partnership.

4. - Distributing cash to partners
Article 270 of the commercial code of Ethiopia stipulates that where there is a surplus after all
claims have been met and contributions returned, the surplus shall be distributed among the
partners where the assets are insufficient to repay contributions after repayment of debts, expenses
and advances, the loss shall be distributed among partners.
The distribution of profits and losses is to be made among the partners in equal shares, where no
other proportion has been specified in the partnership agreement.
Reference:COMMERCIAL CODE OF THE EMPIRE OF ETHIOPIA PROCLAMATION
No. 166 OF 1960. BERHANENA SELAM P.INTING PRESS OF H.I.M. HAILE SELASSIE I -
17-9-52 - NO. 2071-52 – 5000.
PREPARED BY: FITSUM ABEGAZ AYELE
DEC 2016