The Ethiopian Capital Market Authority (ECMA) has released its comprehensive "Public Offering and Trading of Securities Directive No. 1030/2024," establishing a modern regulatory framework for the nation's capital markets. A central feature of this directive is the clearly defined and critical role of legal counsel in ensuring compliance, transparency, and investor protection. For law firms and legal practitioners, understanding these duties is paramount.

This update analyzes the key responsibilities of lawyers as stipulated in the new directive.

I. Formal Certification and Independent Legal Opinion

A primary duty for legal counsel is providing formal certification documents to the ECMA.

  • External Independent Legal Opinion (EILO): The lawyer or law firm acts as the provider of the External Independent Legal Opinion, a mandatory component of the Registration Statement. The provider must be a qualified legal practitioner or law firm registered in Ethiopia. This opinion serves as a comprehensive legal due diligence report, addressing:

    • The issuer's legal establishment and authority to issue securities.

    • Conformity of the issuer's capital structure with applicable laws.

    • Verification that all required business licenses and consents have been obtained.

    • Validation of evidence of ownership for major assets listed in the prospectus.

    • Review of material contracts, including agreements with underwriters and transaction advisors.

  • Certification of Incorporation Documents: For a "Company Under Formation," the registration application must include a draft memorandum of association accompanied by a letter from a lawyer confirming it fulfills the requirements of the Commercial Code.

II. Prospectus Preparation and Disclosure

Legal advisors are integral to ensuring that all legal aspects of the issuer and the offering are accurately disclosed in the Prospectus.

  • Legal and Regulatory Drafting: Lawyers are responsible for drafting and verifying key legal sections, including disclosures on any pending or threatened governmental, legal, or arbitration proceedings and a description of the regulatory environment in which the issuer operates.

  • Review of Public Communications: A lawyer's role extends to public-facing documents. This includes reviewing advertisements related to the public offer to ensure they avoid "extensive technical legal terminology" and are consistent with the prospectus.

  • Role as an "Expert": If a lawyer provides a statement in the prospectus in the capacity of an "Expert," they must give written consent for its inclusion. The prospectus must also detail the lawyer's qualifications and experience.

III. Advisory and Compliance Role

Lawyers serve in a continuous advisory capacity to ensure ongoing legal and regulatory adherence.

  • "Professional Party": A lawyer is defined as a "Professional Party" who advises on the registration and offering process. In this capacity, legal counsel ensures the issuer's compliance with procedural regulations, and their legal fees must be itemized in the prospectus under the "Expense of the Offer" section.

  • "Compliance Advisor": A lawyer approved by the Authority may be retained as a Compliance Advisor. This role is mandatory for a Company Under Formation for three years following its establishment. Key duties include:

    • Advising and monitoring the issuer to ensure compliance with all applicable laws.

    • Briefing the Board of Directors and management on their legal responsibilities.

    • Assisting in the implementation of sound corporate governance practices.

    • Reviewing the issuer’s ongoing information disclosures before publication.

IV. Potential Liability and Responsibility

The directive places significant responsibility on parties involved in the prospectus, which can extend to legal counsel.

  • Responsibility for Prospectus Content: Liability for inaccurate or misleading information in a prospectus extends to "each Person...who has authorized the contents or any part of the Prospectus". A law firm that drafts or formally approves sections of the prospectus could be deemed to have "authorized" that content, creating a risk of joint and several liability for losses suffered by investors.

V. Disclosure of Interests

Transparency regarding the role and interests of legal counsel is mandatory.

  • Disclosure Requirement: The prospectus must include a summary of all Professional Parties. This disclosure must specify any interest the lawyer or firm holds in the issuer and detail any material conflict of interest related to the securities offer.