INCORPORATING A
BUSINESS ENTERPRISE: Methods of Conducting
Business
Legal Framework for Business Activities
Methods
of Conducting Business
All business enterprises must be registered with the Registrar-General of
the Corporate Affairs Commission (Registrar of Companies). A foreign
investor wishing to set up business operation in Nigeria should take all
steps necessary to obtain local incorporation of the Nigerian branch or
subsidiary. Business activities may be undertaken in Nigeria as a :
(i) Private or Public limited liability company;
(ii) Unlimited liability company;
(iii) Company limited by guarantee;
(iv) Foreign Company (branch or subsidiary of foreign company)
(v) Partnership/Firm;
(vi) Sole Proprietorship;
(vii) Incorporated trustees;
(viii) Representative office;
INCORPORATING A BUSINESS ENTERPRISE: The Companies
& Allied
Matters Act
Legal Framework for
Business Activities
The Companies and Allied
Matters Act and Incorporation Procedures
The Companies and Allied Matters Act, 1990 (the Companies Act) is the
principal law regulating the incorporation of businesses. The
administration of the Companies Act is under-taken by the CORPORATE
AFFAIRS COMMISSION (CAC) and its functions include:
(i) the regulation and supervision of the formation, incorporation,
registration, management and winding up of companies.
(ii) the maintenance of a Companies Registry;
(iii) the conduct of investigation into the affairs of any company in the
interest of share-holders and the public.
Minimum
Share Capital and Disclosures in Memorandum of
Association
The minimum authorised share capital is N10,000 in the case of private
companies or N500,000 in the case of public companies. The Memorandum of
Association
must state inter-alia that
the subscribers “shall take amongst them a total number of shares of a
value not less than 25 per cent of the authorised capital and that each
subscriber shall write opposite his name the number of shares he takes.”
The law permits and acknowledges the roles of attorneys and other relevant
professionals in facilitating business transactions provided, of course,
that this “agency arrangement is disclosed".
Membership of the
Company - Prohibition of Trusts
The Companies Act prohibits “notice of any trust, express, implied or
constructive” and such shall not be entered on the register of members
or be receivable by the CAC.
Shares -
All categories of company shares to carry one vote. Shares with “weighted”
voting right are prohibited. All shares (i.e. whether ordinary or
preferential) issued by a company must carry one vote in respect of each
share.
Consequently, preference shareholders are entitled to receive notices and
attend all general meetings of the company and may speak and vote on any
resolution before the meeting.
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:
(i) Name of the company/enterprise;
(ii) Address;
(iii) Registration/Incorporation Number;
(iv) Names of Directors and Alternate
Directors (if any)
In
addition, the law requires companies/enterprises to ensure that the
Certificate of Registration be displayed in conspicuous positions at their
principal and branch offices.
INCORPORATING A BUSINESS ENTERPRISE: Operations of
Foreign Companies
in Nigeria
Legal Framework for
Business Activities
Operations
of Foreign Companies in Nigeria
A non-Nigerian may invest and participate in the operation of any
enterprise in Nigeria. However, a foreign company wishing to set up
business operations in Nigeria should take all steps necessary to obtain
local incorporation of the Nigerian branch or subsidiary as a separate
entity in Nigeria for that purpose. Until
so incorpo-rated, the
foreign company may not carry on business in Nigeria or exercise any of
the powers of a registered company.
The foreign investor may
incorporate a Nigerian branch or subsidiary 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
and the appointed solicitor ceases to function upon the conclusion of all
registration formalities.
The locally incorporated
branch or subsidiary company must then apply to the Nigerian Investment
Promotion Commission (NIPC) for Business Permit and other requisite
permits and licences.
Exemption to the General
Rule
Where exemption from local incorporation is desired, a foreign company may
apply in accor-dance with Section 56 of the Companies Act, to the National
Council of Ministers for exemption from incorporating a local subsidiary
if such foreign company belongs to one of the following categories:
(a) “foreign companies invited to Nigeria by or with the approval of the
Federal Government of Nigeria to execute any specified individual project;
(b) foreign companies which are in Nigeria for the execution of a specific
individual loan project on behalf of a donor country or international
organisation;
(c) foreign government-owned companies engaged solely in export promotion
activities; and
(d) 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.”
The application for
exemption from disclosing certain details about the applicant is to be
made to the Secretary of the Government of the Federation (SGF). If
successful, the request of the applicant is granted upon such terms and
conditions as the National Council of Ministers may think fit.
Representative
Offices
Foreign companies may set up representative offices in Nigeria. A
representative office however, cannot engage in business or conclude
contracts or open or negotiate any letters of credit. It can only serve as
a promotional and liaison office, and its local operational expenses have
to be inflowed from the foreign company. A representative office has to be
registered with the CAC.
LABOUR, HEALTH, TRADE & ENVIRONMENTAL STANDARDS: Factories
Act
Factories Act
This Nigerian law makes general and special provisions for the health,
safety and welfare of persons employed in places statutorily defined as
“factories” and for which a certificate of registration is required by
law. It makes general provisions as to the standards of cleanliness,
crowding, ventilation, lighting, drainage of floors, and sanitary
conveniences: e.g. all factories must have potable water and washing
facilities.
In respect of safety, there
are general provisions as to the securing, fixing, usage, maintenance and
storage of prime movers, transmission machinery, other machinery, unfenced
machinery, dangerous liquids, automated machines, hoists and lifts,
chains, ropes and lifting tackle, cranes and other lifting machines, steam
boilers, steam receivers containers, and air receivers. There are in
addition to these, standards set for the training and supervision of
inexperienced workers, safe access to any work place, prevention of fire
and safety arrangements in case of fire and first aid boxes.
Also, the law provides that
adequate arrangements should be made for the removal of dust or fumes from
factories, provision of goggles to protect the eyes in certain processes
and the prevention of eating and drinking in places where poisonous or
injurious substances give rise to dust or fumes.
It is mandatory that all
accidents and industrial diseases be notified to the nearest inspector of
factories and be investigated; it is prohibited for the occupier of a
factory to make any deductions from the wages of any employee in respect
of anything to be done or provided in pursuance of the Factories Act.
Workmen's
Compensation Act
The laws provide for the payment of compensation to workmen for injuries
suffered in the course of their employment.
LABOUR, HEALTH, TRADE & ENVIRONMENTAL STANDARDS: National
Minimum Wage
National
Minimum Wage
Due
to inflationary factors, further wage increases have been recommended, and
minimum wages are about =N=5,000 per month. An employer, defined as
someone employing 50 or more persons, is required to pay the minimum wage,
defined as the total emolument payable to a worker.
All
employers and trade unions in both the public and private sectors of the
economy are permitted to make adjustments to total remuneration packages
through the process of collective bargaining. The remuneration agreed
requires the approval of the Federal Minister of Employment, Labour and
Productivity. Approval will be given where the increases are moderate,
non-inflationary and affordable. The agreed and approved remuneration will
apply from the first day of the calendar month that follows such
agreement. Back-dating of increments is not permitted.
LABOR, HEALTH, TRADE & ENVIRONMENTAL STANDARDS: Regulatory
Bodies
Regulatory Bodies
Standards Organisation of Nigeria
The Nigerian Standards Organisation Act, 1971, established as an integral
part of the Federal Ministry of Industries, the Standards Organisation of
Nigeria, to carry out among other things, the following functions:-
- to designate, establish
and approve standards in respect of meterology, materials, commodities,
structures and processes for the certification of products in commerce and
industry throughout Nigeria;
- to provide necessary
measures for quality control of raw materials and products in conformity
with the standards specifications;
- to compile Nigerian
standards specifications;
- to ensure compliance with
designated standards;
- to establish a quality
assurance system including certification of factories, products and
laboratories;
- to develop methods for
testing of materials, supplies and equipment items purchased for use by
public and private establishments;
- to undertake preparation
and distribution of standards samples;
- to establish and maintain
laboratories necessary for the performance of its functions.
On
the payment of a nominal fee it is possible to obtain from the offices of
the Standards Organisation of Nigeria the prescribed standards for a
number of
products.
National Agency for Food
And Drug Administration and Control
NAFDAC was established in 1993 with functions to regulate and control the
importation, exportation, manufacturing, advertisement, distribution, sale
and use of food, drugs, cosmetics, medical devices, bottled water and
chemicals.
Drugs and Related
Products
No drug product, cosmetic or medical device shall be manufactured,
imported, exported, advertised, sold or distributed in Nigeria unless it
has been registered in accordance with the provisions of and regulations
made under a 1993 Act.
Environmental
Impact Regulation
Similar to what obtains in several other convention countries,
environmental protection is accorded a lot of prominence in Nigeria. The
Federal Environmental Protection Agency (FEPA) is charged with overall
responsibility for monitoring, supervising and coordinating Environmental
Impact Assessment (EIA).
A comprehensive Environmental Impact Assessment procedure for Nigeria, as
well as EIA guidelines for various industrial sectors has been compiled.
LABOUR, HEALTH, TRADE & ENVIRONMENTAL STANDARDS: Trade
Malpractices Decree
Trade Malpractices
Decree 1992
This Law creates certain offences relating to trade malpractices and sets
up a Special Trade Malpractices Investigation Panel to investigate such
offences. The law provides against any person who:
- falsely labels, packages, sells, offers for sale or advertises any
product so as to mislead as to its quality, character, brand, name, value,
composition, merit or safety; or
- for the purpose of sale,
contract or other dealing, uses or intends to use any weight, measure or
number which is false or unjust; or
- sells any product by
weight, measure or number and delivers to the purchaser a less weight,
measure or number than is purported to be sold,
-
advertises or invites subscription for any product or project which
does not exist.
LABOR, HEALTH, TRADE & ENVIRONMENTAL STANDARDS: Consumer
Protection Council
Consumer Protection
Council
A Consumer Protection Council has been established in Nigeria with the
objectives to:-
- provide speedy redress to consumer complaints through negotiations,
mediation and conciliation;
- seek ways and means of
removing from the market hazardous products and cause offenders to replace
such products with safer and more appropriate alternatives;
- publish from time to time
a list of products whose consumption and sale have been banned, withdrawn,
restricted, or not approved by the Nigerian government or foreign
governments;
- cause an offending
company, firm, trade association or individual to protect, compensate,
provide relief and safeguards to injured consumers or communities from
adverse effects of technologies that are inherently harmful, violent or
highly hazardous;
- organise and undertake
campaigns and other forms of activities as will lead to increased public
consumer awareness;
- encourage trade, industry
and professional associations to develop and enforce in their various
field quality standards designed to safeguard the interests of consumers;
- encourage the formation
of voluntary consumer groups or associations for consumers’ well being.
In the exercise of its
functions, the Council is empowered to:
- apply to court to prevent the circulation of any product which
constitutes an imminent public hazard;
-
compel a manufacturer to certify that all safety standards are met in
their products
FOREIGN INVESTMENT REQUIREMENTS AND PROTECTIONS:
Foreign
Investment Requirements
Principal Laws on
Foreign Investments
The principal laws regulating foreign investments are, the Nigerian
Investment Promotion Commission Decree No.16 of 1995 and the Foreign
Exchange (Monitoring and Miscellaneous Provisions) Decree No.17 of 1995.
Deregulation of Equity
Structure in Nigeria Enterprises
Effectively, the Nigerian Enterprises promotion (Repeal) Decree No. 7 of
1995 has abolished any restrictions, in respect of the limits of foreign
shareholding, in Nigeria registered/domiciled enterprises.
The only enterprises which
are still exempted from free and unrestrained foreign participation are
those involved in:
- Production of arms and ammunition;
- production of and dealing in narcotic drugs and psycothropic substances;
The Nigerian Investment
Promotion Commission Decree No. 16, 1995 (NIPC Decree)
This decree established the Nigerian Investment Promotion Commission (NIPC)
as the successor to Industrial Development Coordination Committee (IDCC)
Functions
and Powers
The Nigerian Investment Promotion Commission (NIPC) is an Agency of the
Federal Government with perpetual succession and a common seal which is
specially established, among other things, to:
(a) co-ordinate, monitor, encourage and provide necessary assistance and
guidance for the establishment and operation of enterprises in Nigeria;
(b) initiate and support measures which shall enhance the investment
climate in Nigeria for both Nigerian and non-Nigerian investors;
(c) promote investments in and outside Nigeria through effective
promotional means;
(d) collect, collate, analyse and disseminate information about investment
oppor-tunities and sources of investment capital and advise on request,
the availability, chance or suitability of partners in joint-venture
projects;
(e) register and keep records of all enterprises to which the NIPC Decree
legislation applies;
(f) identify specific projects and invite interested investors for
participation in those projects;
(g) initiate, organise and participate in promotional activities such as
exhibitions, conferences and seminars for the stimu-lation of investments;
(h) maintain liaison between investors and Ministries, government
departments and agencies, institutional lenders and other authorities
concerned with
investments;
(i) provide and disseminate up-to-date information on incentives available
to investors;
(j) assist incoming and existing investors by providing support services;
(k) evaluate the impact of the Commission in investment in Nigeria and
recommend appropriate remedies and additional incentives;
(l) advise the Federal Government on policy matters, including fiscal
measures designed to promote the industrialisation of Nigeria or the
general development of the economy; and
(m) perform such other functions as are supple mentary or incidental to
the attainment of the objectives of NIPC Decree.
Provisions Relating to
Investments
Notable amongst the provisions relating to investments are the following:
- A non-Nigerian may invest and participate in the operation of any
enterprise in Nigeria;
- An enterprise in which foreign partici-pation is permitted, shall after
its incor-poration or registration, be registered with the NIPC.
- A foreign enterprise may buy the shares of any Nigerian enterprise in
any convertible foreign currency.
A foreign investor in an
approved enterprise is guaranteed unconditional transferability of funds
through an authorised dealer, in freely convertible currency of:
(a) dividends or profit (net of taxes) attributable to the investment;
(b) payments in respect of loan servicing where a foreign loan has been
obtained; and
(c) the remittance of proceeds (net of all taxes) and other obligations in
the event of sale or liquidation of the enterprise or any interest
attributable to the investment.
Priority Areas of
Investment
The NIPC issues guidelines and procedures which specify priority areas of
investment and prescribed incentives and benefits which are in conformity
with Government policy.
Incentives
For Special Investment
For the purpose of promoting identified strategic or major investment, the
NIPC may in consultation with appropriate Government agencies, negotiate
specific incentive packages for the promotion of investment
FOREIGN INVESTMENT REQUIREMENTS AND PROTECTIONS:
Investment Protection Assurance
Investment Protection
Assurance
The NIPC Decree provides
that:
(a) No enterprise shall be nationalised or expropriated by any Government
of the Federation; and
(b) No person who owns, whether wholly or in part, the capital of any
enterprise shall be compelled by law to surrender his interest in the
capital to any other persons.
There will be no
acquisition of an enterprise by the Federal Government unless the
acquisition is in the national interest or for a public purpose under a
law which makes provision for:
(a) payment of fair and adequate compen-sation; and
(b) a right of access to the courts for the determination of the investor’s
interest of right and the amount of compensation to which he is entitled.
Compensation shall be paid
without undue delay, and authorisation given for its repatriation in
convertible currency where applicable.
Apart
from the investment guarantee assurances of the NIPC Decree, countries are
welcome to execute and enter into bilateral Investment Promotion and
Protection Agree-ments (IPPA) with the Nigerian government.
FOREIGN INVESTMENT REQUIREMENTS AND PROTECTIONS: Steps For
Establishing
New Companies
Checklist of Steps For
Establishing New Companies in Nigeria with Foreign Shareholding
STAGE A
1. Establish partners/shareholders and their respective percentage
shareholdings in the proposed company.
2. Establish name, initial
authorised share capital and main objects of proposed company.
3.
[EXCEPT in instances where the proposed company will be 100% owned by
non-resident shareholders] - Prepare Joint-Venture Agreement between
prospective shareholders. The Joint-Venture may specify; inter-alia, mode
of
subscription by parties,
manner of Board Composition, mutually protective quorum for meetings,
specific actions which would necessitate share-holders approval by special
or other resolutions.
4. Prepare Memorandum and
Articles of Association, incorporating the spirit and intents of the
Joint-Venture Agreement.
5. Foreign Shareholder may
grant a power of attorney to its Solicitors in Nigeria, enabling them to
act as its Agents in executing incorporation and other statutory documents
pending the grant of Business Permit (i.e. formal legal status for foreign
branch/subsidiary operations) to the foreign shareholder.
6. Conduct a search as to
the availability of the proposed company name and, if available, reserve
the name with the CAC.
7. Effect payment of stamp
duties, CAC filing fees and process and conclude registration of the
company as a legal entity.
STAGE B
1. Obtain “Tax Clearance Certificate” for the newly registered company
2. Prepare Deeds of
Sub-Lease/Assignment, as may be appropriate, to reflect firm commitment on
the part of the newly registered company, to acquire business premises for
its proposed operations.
STAGE C
1. Prepare and submit simultaneous applications to the NIPC (on the
prescribed NIPC Application Form) for the following approvals:-
- Business Permit and Expatriate Quota;
- Pioneer Status and other incentives (where applicable)
2.
The application to the NIPC should be accompanied with the following
documents:-
- Copies of the duly completed NIPC Form;
- Copies of the treasury receipt for the
purchase of NIPC Form;
- Copies of the Certificate of Incorporation of the applicant company;
- Copies of the Tax Clearance Certificate of the applicant company;
- Copies of the Memorandum and Articles of Association;
- Copies of treasury receipt as evidence of payments of stamp duties on
the authorised share capital of the company as at date of application;
- Copies of the Joint-Venture Agreement - UNLESS 100% foreign ownership is
envisaged;
- Copies of feasibility Report and Project Implementation Programme of a
company for its proposed business. It is advisable that quotations,
letters of intent and other such documentations relating to industrial
plant and machinery to be
acquired by the company, be
forwarded either as annexes or separately. In order to discourage the
dissipation of administrative energy on speculative applications, the NIPC
favours the applicant who has demonstrated positive intention to commence
business as and when approvals are granted. Hence, the requests for
evidence of acquisition of business premises and evidence of having
sourced the plant and machinery to be utilised in the company’s
business;
- Copies of Deed(s) of Sub-Lease/Agreement evidencing firm commitment to
acquire requisite business premises for the company’s operation. By
implication, the ultimate NIPC approvals do incorporate approvals of the
industrial site locations indicated in the application;
- Copies of training programme or personnel policy of the company,
incorporating management succession schedule for qualified Nigerians;
- Particulars of names, addresses, nationa-lities and occupations of the
proposed directors of the company;
- Job title designations of expatriate quota positions required, and the
academic and working experience required for the occupants of such
positions. It is pertinent to note that expatriate quota on a “Permanent
Until Reviewed” (PUR) status is only accorded to a Managing Director,
where the non-resident shareholders own a majority of the company’s
shares, and the authorised capital of the company is N5 million and above;
- Copies of information brochure on foreign shareholder (if available) as
testimony of international expertise and credibility of the foreign
partner in the proposed line of business.
STAGE D
1. Having obtained the requisite NIPC approvals and Business Permit
Certificate, the non-resident shareholder must act with despatch to import
its foreign equity holding in the company. To ensure prompt importation of
the foreign equity components, the NIPC may grant Business Permit but
defer approvals for Expatriate Quota and Pioneer Status and other
applicable investment incentives, until evidence of capital importation is
produced.
2. After obtaining
Certificate of Capital Importation from the bank, the NIPC is to be
notified of this fact with the supporting documentation, in order for it
to resume processing of pending approvals that might have been deferred on
such ground.
3.
As soon as expatriate quota position are granted and the respective
individuals to fill the quota positions are recruited, the company must
embark on steps to obtain work permit and residency status for the
expatriate employees and their accom-panying spouses and children (if
any).
The
Difference Between ‘BUSINESS PERMIT’ and ‘EXPATRIATE QUOTA’
Business permit, as the
name connotes, is the permanent authorization for the local operation of
businesses with foreign investments either as branch/subsidiary of a
foreign company or otherwise.
Expatriate quota is the
official permit to a company, conveying permission for the company to
employ individual expatriates to specifically approved job designations,
and also specifying the permissible duration of such employment. The
expatriate quota forms the basis of work permits for expatriate
individuals employed ( whose qualifications must fulfill the criteria
established for the particular quota position). Expatriate quota positions
are usually granted for 2-3 years subject to renewal, EXCEPT in cases
where companies qualify for and are granted not more than one (1) “PUR”
Quota ( i.e. Permanent Until
Reviewed) position.
The Current Regulation
on The Appointment of Foreign Directors
The promoters of business
ventures in Nigeria are free to appoint directors of their choice, either
foreign or Nigerian, and the directors may be resident or non-resident.
The application to the NIPC must reflect the names of the proposed
Nigerian and foreign directors (with an indication of resident and
non-resident directors). The Business Permit Certificate consequently
issued following such application usually reflects the respective names of
the proprietors of the company, as well as the directors representing each
proprietor or co-proprietor.
Payments of foreign
directors’ fees, are remittable in the same manner as dividends accruing
to the foreign company. However, since such fees are taxed at source (5%
as a withholding tax), each foreign director’s fees are remittable
subject to satisfactory evidence that the taxable amounts on such fees
have been paid.
Pioneer Status (Tax
Holiday) Advantages to a Company
The Industrial Development
(Income Tax Relief) Act, Cap. 179 Laws of Nigeria, 1990, declares a number
of industries as pioneer industries. Thus, any company whose products fall
within the categorised industries could be conferred with Pioneer Status.
This
designation is not necessarily a reflection that a company was pioneer per
se in the industry, as several companies within the same pioneer industry
classification could qualify for Pioneer Status. Where the activities of a
company include the production of pioneer and non-pioneer products, the
tax relief available on conferment of Pioneer Status would be restricted
to income derived from
pioneer products only.
Under the current industrial policy, conferment of Pioneer Status accords
a company relief from income tax liability for a period of up to 5 years
(tax-holiday status).
Finally, it should be noted
that even if a company’s activities and/or products are classified
within pioneer industries, the grant of Pioneer Status is not automatic.
The criteria for granting Pioneer Status are related and/or based on the
following considerations:-
(i) the amount of
underlying capital investment in a company (N5 million and above) must be
verifiable by physical inspection and supported by a report of the
Industrial Inspectorate Division of the Federal Ministry of Industries,
before a Pioneer Certificate is granted.
(ii) the socio-economic
advantages of a company’s activities to the Nigerian economy as set out
in its Feasibility Study is also an important consideration.
Without
prejudice to these conditions, NIPC is empowered to confer Pioneer Status
and other investment incentives, in any other deserving
circumstance as the Council of NIPC may approve.
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