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Establishing an Enterprise in Nigeria: Legal Framework

Provided by Kenna & Associates

Introduction

Establishing an enterprise entails first a decision on what you want to do, and how. Then, you must decide on the form of the enterprise. Would it be a partnership, a sole proprietorship, a company limited by shares or a not-for-profit organization?

Every enterprise in Nigeria is required by law to be registered with the Corporate Affairs Commission, and to comply with the relevant provisions of the Companies and Allied Matters Act, Chapter 59, Laws of the Federation of Nigeria 1990.

Forms of Enterprise in Nigeria

An enterprise may take one of the following forms:

  • A Private company limited by shares
  • A Public limited company;
  • An Unlimited liability company;
  • A Company limited by Guarantee;
  • A Partnership/Firm;
  • A Sole Proprietorship;
  • An Incorporated Trustees;

Registration Requirements

The Companies and Allied Matters Act, 1990 [CAMA] is the principal statute governing the registration of enterprises in Nigeria. The administration of CAMA is the responsibility of the Corporate Affairs Commission (CAC), with headquarters in Abuja, and zonal offices all over the country. The functions of the CAC among other things include the following: -

The regulation and supervision of the formation, incorporation, registration, management and winding up of companies;

the establishment and upkeep of a suitable and well equipped Companies Registry;

the conduct of investigation into the affairs of any company where the interests of shareholders and the public so demand; etc.

Types of Companies and Enterprises

Under the CAMA, the following types of companies exist:

(a) Company limited by shares: This is a company having the liability of its members limited to the amount (if any), unpaid on the shares respectively held by them.

(b) Company limited by guarantee: This is a company without a share capital. It is a not-for-profit company where the liability of its members is limited to such amount as the members respectively undertook to contribute to the assets of the company in the event of its being would up. Due to the tax exemption and other benefits granted this type of company, the Consent of the Attorney General of the Federation is required for the registration.

(c) Unlimited Company: This is a company where the members’ liability is not limited to any particular amount.

Each of these primary types of companies may be a private or a public company. A private company is one, which places restriction on transfer of shares by members, and limits its membership to 50 persons. It is also prohibited from inviting the public for subscription to its shares or debentures. On the other hand, a public company has no such restrictions as its shares can be freely traded on. It can be listed or unlisted. It is usually listed when it is quoted on the Stock Exchange.

Business Names - for Sole Proprietors, Partnerships & Firms

Business Names: This is the name or style under which any business is carried on, whether in partnership or otherwise. The expression firm is used when 2 or more persons have entered into a partnership with a view to carrying on business. Business names are to be registered under CAMA where the name consists of an addition to a person’s name. E.g. "John Smith" is not required to be registered, but "John Smith & Co" requires registration.

Sole Proprietorships: This is a one-owner business, and should be registered with the CAC as a Business Name under Part B of CAMA.

Partnership/Firms: This has the same format as a registered sole proprietor, except that there is more than one person involved. Please note that there is currently (as at June 2000) no provisions in CAMA for what is known as limited liability partnerships ("LLP") as is practice in some jurisdictions. However, the Partnership Laws of most states in the Federation provide for the registration of limited liability partnerships. Here there are two kinds of partners – the general partners who carry the risk and liability of the business, and the limited partner, whose level of liability is limited to a defined amount. This model makes for better access to finance by a partnership in the sense that a financier could provide capital not only in the form of debt, but also in the form of equity, and since the financier is not involved in the day to day running of the partnership, it becomes desirable to financier that his/ its liability is not open-ended.

Registration of Business Names

The procedure for the registration of a Business Name for use by a "sole proprietor" or "partnership/firm" essentially involves the submission of a duly completed Application Form to the CAC signed by the appropriate persons. This form which must disclose certain particulars must be accompanied by a number of documents as follows: -

  • reservation of Name Form;
  • the proposed name
  • the general nature of the business or proposed activities;
  • the full address of the principal place of business and every other subsidiary place of business;
  • where the registration to be effected is that of a firm; the present forenames and surnames, nationality, age, sex, occupation and usual residential address of each of the individuals who are the intending partners, and the corporate name and registered office of such corporation which is an intending partner as the case might be;
  • the proposed date of commencement of the business or activities;
  • Passport size photographs or the owners.
  • Certificates of professional qualification where the business is of a professional nature.
  • Where one of the partners is a non-Nigerian and intends to work in Nigeria, evidence of his immigration status.

It should be noted that additional information and supporting documents may be required in the case of a firm or an individual carrying on business on behalf of another individual, firm or corporation whether as a nominee or trustee and in the case of a firm or individual carrying on business as general agent for another concern or overseas entity and not having a place of business in Nigeria.

Incorporated Trustees

This is used for establishing not-for-profit organizations popularly referred to as Non-Governmental Organizations (NGOs). It is used for the establishment of social, scientific, educational, religious, cultural and other similar bodies. The organization is required to appoint Trustees who will then be registered as the "Incorporated Trustees of XY Educational Support Foundation".

Reservation of Name

The law allows the promoters of a new enterprise to apply to it to determine whether or not the proposed name is available for use, and if so to reserve it for a period of sixty days.

Minimum Share Capital Requirements & Disclosures

The minimum share capital required of a private company is N10,000, and for a public company, it is N500,000. This requirement seems inadequate with the value of the naira having changed drastically between 1990 (when the law was made) and today. The Memorandum of Association of the company must state that the subscribers "shall take amongst them a total number of shares of a value of not less than 25 per cent of the authorised share capital and that each subscriber shall write opposite his name the number of shares that he takes".

Taking cognizance of the need for business expediency, the CAMA allows Attorneys, Accountants, to hold shares for promoters, provided the fact of such shares held on trust is disclosed in the Memorandum & Articles of Association. A number of foreign investors in order to expedite the incorporation process, give Powers of Attorney to local professionals to incorporate companies for them and to obtain the relevant statutory licences and approvals for the establishment of enterprises in Nigeria.

One Vote per Share

Non-voting shares and Shares with "weighted" voting rights have been prohibited. All shares (i.e. whether ordinary or preferential) issued by a company must carry one vote in respect of each share.

Disclosures to be published in Company Correspondence and Business Premises

Every company is obliged to disclose on its letterhead papers used in correspondence, the following particulars:

  • Name of the company/enterprise;
  • Address;
  • Registration/Incorporation Number;
  • Names of Directors and Alternate Directors (if any).

This disclosure requirement is a spirited effort to ensure the authenticity of correspondence by genuine companies and as mush as possible to check the activities of fake and non-existing companies. In addition, the law requires companies/enterprises to display their Certificates of Incorporation/ Registration in conspicuous positions at their principal and branch offices. Non-disclosure attracts both criminal and civil consequences on the part of the company, its directors and other officers responsible for the non-disclosure.

Foreign Companies in Nigeria

A non-Nigerian is at liberty, and indeed encouraged to invest and participate in the operation of any enterprise in Nigeria. However, the promoters or investors would have to register a company in Nigeria. This company will be a separate and distinct entity from its parent company. Until so incorporated, a foreign company may not carry on business in Nigeria or exercise any of the powers of a registered company. This does not mean however that a company not registered in Nigeria cannot sue or be sued for goods or services delivered. Infact, it can sue and be sued.

A foreign investor may incorporate a Nigerian branch or subsidiary of the parent company by giving a Power of Attorney to a qualified solicitor in Nigeria for this purpose. The incorporation documents in this instance would, disclose that the Solicitor is merely acting as an "agent" of a "principal" whose name(s) should also appear in the document. The Power of Attorney should be designed to lapse, thus indicating that the appointed Solicitor shall be cease to function upon the conclusion of all registration formalities. When this is accomplished, the locally incorporated branch or subsidiary company must then apply to the Nigerian Investment Promotion Commission ("NIPC") for a Business Permit, Expatriate Quota, and other requisite approvals and licences.

Exceptions to the General Rule

Where exemption from local incorporation is desired, a foreign company may apply in accordance with Section 56 of the Companies Act, to the National Council of Ministers for exemption from incorporating a local subsidiary if such a foreign company belongs to one of the following categories:-

  • "foreign companies invited to Nigeria by or with the approval of the Federal Government of Nigeria to execute any specified individual project;
  • foreign companies which are in Nigeria for the execution of a specific individual loan project on behalf of a donor country or international organization;
  • foreign government-owned companies engaged solely in export promotion activities, and;
  • engineering consultants and technical experts engaged on any individual specialist project under contract with any of the Governments in the Federation or any of their agencies or with any other body or person, where such contract has been approved by the Federal Government.

Representative Offices

A foreign registered company can set up a Representative Office in Nigeria. However such an office cannot engage in business. It can only serve as a promotional point. Even then a Representative Office has to be registered with the CAC.

Registering a Company: Basic Requirements

In registering a company the following should be delivered to the Corporate Affairs Commission: -

  • Availability/Reservation of Name Form
  • Memorandum & Articles of Association duly stamped by the Commissioner for Stamp Duties, and duly subscribed to by at least two Nigerians or persons of foreign nationalities who have been granted Business Permit. However, in the absence of a Business Permit a foreign investor could authorize a Nigerian citizen or organization by means of a Power of Attorney to subscribe on its behalf pending the grant of a Business Permit;
  • Copy of Business Permit if the subscribers are of foreign nationalities;
  • Duly completed Form CAC 2.2/C.O.6 (showing the address of the company)
  • Duly completed Form CAC 2.3/C.O.7 (showing the first directors as well as Consent Letters to act as a director, duly signed by each individual director).
  • A Statement of the Authorised Share Capital, on the prescribed Form CAC 2.4 and duly stamped by the Commissioner for Stamp Duties;
  • Duly completed Form CAC 2.5/C.O.2 (showing the Share Allotments);
  • A Statutory Declaration of Compliance by a Nigerian legal practitioner engaged in the formation of the company;
  • Bank drafts for the amounts for CAC Filing fees, and stamp duties.

The CAC shall register the Memorandum and Articles of Association, unless in the opinion:

  • they do not comply with the provisions of the Companies Act; or
  • the business which the company is to carry on, or the objects for which it is formed, or any of them, are illegal; or
  • any of the subscribers to the Memorandum and Articles is incompetent or disqualified; or
  • there is a non-compliance with the requirements of any other law relating to the registration and incorporation of companies; or
  • the proposed name conflicts with or is likely to conflict with an existing trade mark or business name registered in Nigeria.

Usually, this process could take between 2 weeks to 4 weeks from filing all the requisite documents to obtaining the certificate of incorporation.


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