LEGAL AND REGULATORY FRAMEWORK FOR SETTING UP BUSINESS IN NIGERIA

A. LEGAL FRAMEWORK FOR CONDUCTING BUSINESS ACTIVITIES 1. 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 Nigerian should take all steps necessary to obtain local incorporation of the Nigerian branch or subsidiary. Business activities may be undertaken in Nigerian as a: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Private or Public Limited Liability Company; Unlimited Liability Company; Company Limited by Guarantee; Foreign Company (branch or subsidiary of foreign; Company; Partnership/Firm; Sole Proprietorship; Incorporated trustees; Representative office

2. THE COMPANIES AND ALLIED MATTERS ACT AND INCORPORATION PROCEDURE

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 undertaken by the CORPORATE AFFAIRS COMMISSION (CAC), which undertakes the administration of the Companies Act, and its functions include: (i) The regulation and supervision of the foundation, incorporation, registration, management and winding up of companies;
1

(ii) (iii)

The maintenance of a Companies Registry; The conduct of investigation into the affairs of any company in the interest of shareholders and the public.

2.1 Minimum Share Capital and Disclosures in Memorandum of Association

The minimum authorized 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-allia that the subscribers shall take amongst them a total number of shares of a value not less that 25 per cent of the authorized capital and that each subscriber shall write opposite his name the number of shares he takes. However, minimum share capital of N10 million is required for companies needing business permit/NIPC registration, expatriate quota or pioneer status. 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.

2.3 Membership of the Company Prohibition of Trust

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.

2.3.1 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.

2.4 Disclosures to be published in Company Correspondence and Business Premises

Every company is obliged to disclose on its letterhead paper used in correspondence, following particulars: (i) Name and company/enterprise;
2

(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.

3. OPERATIONS OF FOREIGN COMPANIES IN NIGERIA

A non-Nigerian may invest and participate in the operation of any enterprise in Nigerian. However, a foreign company wishing to set up business operations in Niger 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 incorporated, the foreign company may not carry on business in Nigerian 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 names 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 register with the Nigerian Investment Promotion Commission (NIPC) before commencing formal operations. The new company may also apply to NIPC for other investment approvals (e.g. expatriate quota) and other incentives.

3.1 Exemption 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 foreign company belongs to one of the following categories: (a) foreign companies invited to Nigerian by or with the approval of the Federal Government of Nigerian to execute any specified individual project;

(b) (c) (d)

foreign companies, which are in Nigerian 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.

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 Federal Executive Council may think fit.

B. FOREIGN INVESTMENT REQUIREMENT AND PROTECTIONS 1. PRINCIPAL LAWS ON FOREIGN INVESTMENTS

The principal laws regulating foreign investments are, the Nigerian Investment Promotion Commission Act No. 16 of 1995 and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act No. 17 of 1995. 2. DEREGULATION OF EQUITY STRUCTURE IN NIGERIA ENTERPRISES Effectively, the Nigerian Enterprises Promotion (Repeal) Act 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.

3. THE NIGERIAN INVESTMENT PROMOTION COMMISSION ACT NO. 16, 1995 (NIPC ACT)

This Act established the Nigerian Investment Promotion Commission (NIPC) as the successor to industrial Development Coordination Committee (IDCC).

3.1. 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 especially established, among other things, to: (a) coordinate, monitor, encourage and provide necessary assistance and guidance for the establishment and operation of enterprises in Nigerian; initiate and support measures which shall enhance the investment climate in Nigerian for both Nigerian and nonNigerian investors; promote investments in and outside Nigerian through effective promotional means; collect, collate, analyse and disseminate information about investment opportunities and sources of investment capital and advise on request, the availability, chance or suitability of partners in joint-venture projects; register and keep records of all enterprises to which the NIPC Act legislation applies; identify specific projects and invite interested investors for participation in those projects; initiate, organize and participate in promotional activities such as exhibitions, conferences and seminars for the stimulation of investments; maintain liaison between investors and Ministries, government departments and agencies, institutional lenders and other authorities concerned with investments;

(b)

(c) (d)

(e) (f) (g)

(h)

(i) (j) (k)

provide and disseminate up-to-date information on incentives available to investors; assist incoming and existing investors by providing support services; evaluate the impact of the Commission in investment in Nigerian and recommend appropriate remedies and additional incentives; advise the Federal Government on policy matters, including fiscal measures designed to promote the industrialization of Nigerian or the general development of the economy; and

(l)

(m) perform such other functions as are supplementary or incidental to the attainment of the objectives of NIPC Act.

3.2. Provision Relating to Investments

Notable amongst the provisions relating to investment are the following: A non-Nigerian may invest and participate in the operation of any enterprise in Nigerian; An enterprise, in which foreign participation is permitted, shall after its incorporation or registration, be registered with 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 authorized dealer, in freely convertible currency of: Dividends or profits (net of all taxes) attributed to the investment; Payments in respect of loan servicing where a foreign loan has been obtained; and 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.
6

3.3. Priority Areas of Investment

The NIPC issues guidelines and procedure, which specify priority areas of investment and prescribes incentives and benefits, which are in conformity with Government policy. The preferred sectors for investment are; Agriculture and Agro-allied; Solid Minerals Tourism; Information and Communications Technology; Power & Energy Mnaufacturing

3.4. Incentives for Special Investment

For the purpose of promoting identified strategic major investment, the NIPC may in consultation with appropriate Government agencies, negotiate specific incentive package for the promotion of investment

4.

INVESTMENT PROTECTION ASSURANCE

4.1. The NIPC Act provides that: (a) No enterprise shall be nationalized 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. 4.2. 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 that makes provision for: (a) payment of fair and adequate compensation, and

(b)

a right of access to the courts for the determination of the investors interest of right and the amount of compensation to which he is entitled.

4.3 Compensation shall be paid without undue delay, and authorization given for its repatriation in convertible currency where applicable 4.4. Apart from the investment guarantee assurances of the NIPC Act countries are welcome to execute and enter into bilateral Investment Promotion and Protection Agreements (IPPA) with the Nigerian government

5. CHECKLIST OF STEPS FOR ESTABLISHING NEW COMPANIES IN Nigerian WITH FOREIGN SHAREHOLDING Stage A
1. Establish partners/shareholders and their respective percentage shareholding in the proposed company. 2. Establish name, initial authorized 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, specify 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 Nigerian, enabling them to act as its Agents in executing incorporation and other statutory documents pending the registration with NIPC (i.e. formal legal status for foreign branch/subsidiary operations). 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
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

An established company proceeds to apply for grant of business

permit/NIPC registration, expatriate quota or pioneer status as desired. The following are requirements and fees for respective applications:
I. Grant Of Business Permit/NIPC Registration Requirements: i. Formal Application Letter to Executive Secretary ii. Minimum Share Capital Requirement - N10million iii. Duly completed NIPC Form I iv. Certificate of Incorporation v. CACs Forms C02 and C07 vi. Memorandum and Articles of Association vii.Tax Clearance Certificate viii. Certificate of Capital Importation (for foreign enterprise) ix. Evidence of Acquisition of Business Premises (Tenancy or Lease Agreement) x. Joint venture Agreement (where applicable) xi. Approval from appropriate professional body (where applicable) xii.Feasibility Report Fees: i. NIPC Form I ii. Collection of Business Permit Certificate II. Expatriate Quota N25, 000 N25, 000

Requirements: i. Formal application letter to Executive Secretary ii. Minimum Share Capital Requirement - N10 million iii. Duly completed NIPC Form I iv. Certificate of Incorporation v. CACs Forms C02 and C07 vi. Memorandum and Articles of Association vii.Tax Clearance Certificate Viii. Certificate of Capital Importation ix. Evidence of acquisition of Business Premises (Tenancy or Lease Agreement) viii. Feasibility Report ix. Technical Service Agreement x. Evidence that personnel required is not likely to be available in Nigeria xi. Training Programme for Nigerians xii.Management succession schedule. xiii. Schedule of names, address, qualifications and positions to be occupied by expatriate. xiv License, Permit /Certificate from relevant Government Agencies/Department/Ministries/professional bodies for the operation of the project; Evidence of work at hand, its duration and value attached to the contract(s) if company is engaged in building, civil engineering, constructions, etc. (original to be presented for sighting); Proposed annual salaries to be paid to the expatriates to be recruited indicating designation, names, job description and qualifications (CV and copies of credentials of expatriate are to be attached); Fees: i. Processing fee - N25, 000 ii. Payment for each quota position approved - N10, 000

10

III. Pioneer Status Incentive The benefit of a Pioneer Status Certificate is that the holder (i.e. the company) is exempted from payment of tax for a specified number of years (5 years in urban area and 7 years in rural area). Requirements: i. Formal application letter to Executive Secretary ii. Minimum Share Capital Requirement - N10million iii. Duly completed NIPC Form II iv. Certificate of Incorporation v. CACs Forms C02 and C07 vi. Memorandum and Articles of Association vii.Tax Clearance Certificate viii. Evidence of acquisition of machinery; (Form M) ix. Evidence of acquisition of Business Premises (Tenancy or Lease Agreement) x. Feasibility Report xi. Joint Venture Agreement (where applicable) xii The Company must not be more than one year old from commencement of production. xiii. Joint venture must attain a minimum qualifying capital expenditure of N5 million. Fees: i. NIPC Form II N20, 000 ii. Processing Fee N50, 000 iii. Collection of Approval letter N30, 000 iv. Application for Extension free v. Approval of Pioneer Status Extension N50, 000 IV. Technical Service Agreement This is a form of technical co-operation agreement in which a party will agree to offer technical services to a company for the payment of a fee. Details and terms of such agreements are normally worked out between the parties involved but such agreements should be registered with the National Office for Technology Acquisition and Promotion (NOTAP).

11

Stage D
1. Having obtained the requisite NIPC approvals, the non-resident shareholder must act with dispatch to import its foreign equity holding in the company. To ensure prompt importation of the foreign equity components, the NIPC may register company 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 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 accompanying spouses and children (if any).

6. MEANING OF NIPC REGISTRATION AND EXPATRIATE QUOTA

6.1. NIPC Registration confers 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, EXPECT in cases where companies qualify for and are granted PUR Quota (i.e. Permanent Until Reviewed) position.

12

6.2. The Current Regulation on the Appointment of Foreign Directors

The promoters of business ventures in Nigerian 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 Registration 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 directors fees are remittable subject to satisfactory evidence that the taxable amounts on such fees have been paid.

13