LEGAL AND REGULATORY ENVIRONMENT FOR FRANCHISING

IN NIGERIA

Written By:

Gerald Ogoko

January 2017
TABLE OF CONTENTS
List of Figures & Tables……………………………………………………………………….… 1
Executive Summary……………………………………………………………………….…….. 2
SECTION 1: Legal & Regulatory Environment for Franchising in Nigeria…………….……. 3
1. Introduction………………………………………………………………………………….. 4
1.1 Franchising in Nigeria: Legal & Regulatory Environment……………………………….. 4
SECTION 2: Laws Impacting Franchising in Nigeria…………………………………………. 6
2. Laws Influencing Franchising in Nigeria…………………………………………………… 7
2.1 The National Office of Technology Acquisition & Promotion (NOTAP)………….…….. 7
2.2 The Nigeria Investment Promotion Council (NIPC)……………………………………… 8
2.3 Companies & Allied Matters Act (CAMA)………………………………………………… 8
2.4 The Foreign Exchange Act…………………………………………………………………. 9
2.5 The Competition Bill……………………………………………………………………….. 9
SECTION 3: Considerations for Registering a Franchise in Nigeria…………………….……. 11
3. Registering & Operating a Franchise in Nigeria……………………………………………. 12
SECTION 4: Challenges & Opportunities of Franchising in Nigeria…………………….…… 15
4. Franchising in Nigeria: Opportunities & Challenges……………………………………….. 16
4.1 Opportunities of Franchising in Nigeria………………………………………………….… 16
4.2 Challenges of Franchising in Nigeria………………………………………………………. 17
SECTION 5: Conclusion & Recommendations……………………………………………….. 19
5.1 Conclusion………………………………………………………………………………….. 20
5.2 Recommendations……………………………………………………………………….….. 21
Annex 1: Relevant Provisions of Existing Laws Impacting Franchising in Nigeria……….….. 22
LIST OF FIGURES AND TABLES
Figures
Figure 1: Process Flow Chart for Registering a Franchise in Nigeria…………………..... 12
Tables
Table 1: Matrix for Registering & Operating a Franchise in Nigeria…………………….. 13

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EXECUTIVE SUMMARY

This report examines the legal and regulatory environment for franchising in Nigeria.
Franchise-specific laws typically cover one or more of the following topics: (a) pre-sale
requirements; (b) rules governing the offer and sale of franchises; (c) registration
requirements; (d) post-sale relationship between the parties; and (e) modalities or
requirements for dispute resolution. Regarding franchise-specific laws, countries can be
categorised into three namely: disclosure countries; relationship countries; and registration
countries. Nigeria belongs to the ‗registration countries‘ category; and these group of
countries do not have franchise-specific laws. Consequently, general laws provide the
framework for regulating franchise arrangements in Nigeria.
Some of the laws influencing franchising in Nigeria are: the ‗National Office for Technology
Acquisition and Promotion Act (NOTAP) Act‘; the Nigerian Investment Promotion
Commission Act; Companies and Allied Matters Act; the Foreign Exchange Act; and the
proposed Competition Bill. These laws created government agencies responsible for
enforcing their respective laws. In the absence of franchise-specific legislation, the ‗NOTAP
Act‘ acts as an ad-hoc law for regulating franchise-based transactions in Nigeria. In fact,
NOTAP currently partners the Nigerian International Franchising Association (NiFA) to
drive the franchising agenda in Nigeria. The absence of franchise-specific laws has created a
challenge to the growth of franchising in Nigeria as different agencies presume that they have
a mandate to monitor franchise-based transactions. This is the reason why the process of
registering a franchise-based business in Nigeria is fraught with multiple approvals that take a
long time to obtain due to underlying bureaucratic bottlenecks. The process of registering a
franchise-based business in Nigeria will entail seeking approvals from between five to six
government agencies. Feedback from some of the interviews obtained shows that it can take
between three to four months to obtain NOTAP approval. In extreme cases, it can take up to
six months to secure this approval. There are also operational challenges that inhibit the
growth of franchising in Nigeria. For instance, inadequate power supply adds to the
operational costs of running a franchise-based business in Nigeria.
A key finding of this report is that the main challenge faced by franchising in Nigeria is
mainly institutional in nature thus, a key recommendation for improving the environment for
franchising in Nigeria is to amend the NOTAP Act by inserting provisions for franchise-
specific legislation. Furthermore, this institutional challenge can be addressed by empowering
the NIPC to act as the lead coordinating agency for foreign investment in Nigeria, including
franchising. This approach will help in harmonizing the fees associated with registering
franchise-based businesses in Nigeria.

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\SECTION 1: OVERVIEW OF THE LEGAL AND REGULATORY ENVIRONMENT
FOR FRANCHISING IN NIGERIA

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1. INTRODUCTION

This section of the report discusses the legal and regulatory environment of franchising in
Nigeria. Franchising in Nigeria is fraught with a number of challenges. Majority of these
challenges stem from the absence of a clearly-defined legal and regulatory framework for
franchising in Nigeria. Consequently, much of what passes for franchising regulation is
derived from the following legislations: the ‗National Office for Technology Acquisition and
Promotion Act (NOTAP) Act‘; the Nigerian Investment Promotion Commission Act;
Companies and Allied Matters Act; and the Foreign Exchange Act. In addition to these laws,
the proposed Competition Bill is equally reviewed. These laws are discussed in this report
with a view to determining how it impacts the franchising environment in Nigeria.

1.1 Franchising In Nigeria: Legal and Regulatory Environment

In preparing this report, a number of visits were made to the Corporate Affairs Commission
and the National Investment Promotion Council (NIPC). Interviews with officials of both
government parastatals indicated that Nigeria does not have any franchise-specific regulation.
Nigeria belongs to a group of countries that possess laws that have a direct and indirect
impact on franchising but do not have laws that explicitly regulate franchising. Franchise-
specific laws typically cover one or more of the following topics: (a) pre-sale requirements;
(b) rules governing the offer and sale of franchises; (c) registration requirements; (d) post-
sale relationship between the parties; and (e) modalities or requirements for dispute
resolution. Regarding franchise-specific laws, countries can be categorised into three namely:
disclosure countries; relationship countries; and registration countries. Nigeria belongs to the
‗registration countries‘ category. Registration countries usually lack franchise-specific laws.
In registration countries, the laws merely spell out who and what must be registered in
connection with franchise operations, i.e. NOTAP Act and CAMA. Such laws usually require
the registration of the franchise businesses and the registration of franchise agreements.
Nigeria is not alone when it comes to countries without franchise-specific laws. Countries
such as, Germany, New Zealand, India, and most Africa countries lack franchise-specific
laws. In fact, the European Union does not have a franchise-specific policy. Nevertheless,
certain countries that do not have franchise-specific laws have extensive rules on disclosure
that apply to all contractual relationships, including franchising.
It is essential to note that just because many countries lack franchise-specific laws does not
mean that the regulatory framework for franchising is similar in most countries. While certain
countries possess a robust and comprehensive regulatory framework that support the
franchising business model, many countries –especially those in Sub-Saharan Africa- have
weak and fragile regulatory frameworks. To properly assess the legal and regulatory
environment for franchising in any country, it is essential to evaluate the quality of laws
relating to franchising, the strength and effectiveness of the agencies or ministries responsive
for enforcing laws, and existing contract enforcement mechanisms. This observation also
applies to Nigeria. Following visits to some relevant regulatory agencies, it has been
established that Nigeria lacks franchise-specific laws however the NOTAP Act addresses this
regulatory gap.
Again, it is necessary to reiterate that in the absence of franchise-specific legislation, the
NOTAP Act serves as an ad-hoc legislative and regulatory framework for managing franchise
arrangements in Nigeria. Consequently, potential franchising businesses must follow the
guidelines of the NOTAP. In fact, NOTAP is currently working with the Nigerian
International Franchising Association (NiFA) to drive the franchise agenda in the country.

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This is difficult especially considering the grey area between ‗franchising‘ and ‗technology
transfer‘. The NOTAP Act is discussed in more detail in the next section which examines the
laws directly impacting franchising in Nigeria.

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\SECTION 2: LAWS IMPACTING FRANCHISING IN NIGERIA

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2. LAWS IMPACTING FRANCHISING IN NIGERIA

This section reviews some relevant laws affecting franchising in Nigeria. As already
established in this report, Nigeria lacks legislation specifically governing franchising.
Franchise relationships in the country are therefore governed by general contract law,
together with a host of other legislation that addresses issues relevant to the franchise
relationships. Some of these laws are as follows:

 The Trademarks Act 1965 (Cap T13, LFN 2004);

 The Patents and Designs Act 1970 9Cap P2, LFN 2004);
 The National Office of Technology Acquisition and Promotion Act (Cap N62, LFN
2004));
 The Nigerian Investment Promotion Commission Act (Cap N117, LFN 2004); and
 The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act (Cap F34,
LFN 2004).
 Companies and Allied Matters Act.
For the purposes of this report, the following laws are reviewed in this section: the ‗National
Office for Technology Acquisition and Promotion Act (NOTAP) Act‘, the Nigerian
Investment Promotion Commission Act; and the Foreign Exchange Act. This report also
discusses the proposed Competition Bill –though not law yet- which is expected to become
law soon especially as it has passed second reading in the National Assembly. Given the non-
existence of franchise-specific laws, the aforementioned relevant laws guide franchising
business in Nigeria. In fact, NOTAP –in partnership with NiFA- has taken the lead in
organizing seminars and workshops on requirements and critical considerations for operating
franchise-based businesses in Nigeria.

2.1 The National Office for Technology Acquisition & Promotion Act (NOTAP)
The NOTAP Act establishes the NOTAP to monitor, on a continuing basis, the transfer of
foreign technology to Nigeria and to offer for other related matters. This framework is
currently being used to regulate franchising in Nigeria in the absence of franchise-specific
regulation. NOTAP also provides advisory support with respect to fair and adequate
arbitration procedures for resolving contractual disputes between parties. NOTAP is
responsible for registering and regulating technology transfer contracts (TTCs) and uses its
criteria to evaluate such contracts. The process for registering TTCs or Technology
Transfer Agreements (TTAs) equally applies to franchise registration. Steps for
registering a TTC are as follows:
1) The registration process starts with the physical submission of the following
documents at the Director General‘s Office: Completed Application Form; Completed
NOTAP Questionnaire; Completed TAA Pre-Qualification Form; Draft copies of the
TTA to be registered; Certificate of Incorporation; Completed Monitoring Form;
Transferee/Licensee‘s Annual Report for the Last three years; Company‘s Tax
Clearance Certificate and Tax Identification Number (TIN) for the past three years;
Performance Bond/Bank Guarantee for Advance Payment where applicable;
Engineering Drawings, Feasibility Studies e.t.c; Approval/Licenses obtained from
Appropriate Authorities and Bodies‘ Transferor/Licensor Profile; and Evidence of
Intellectual Property Right (IPR) in Nigeria;
2) Assessment and evaluation of the TTA and other relevant documents by a team of
Technical Officers;

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 3) Communication of Observations to Companies and Conveying of Approval Letter;
4) Response by the Transferee Company/Organization and Payment of Applicable
Registration Fees;
5) Verification and preparation of Certificate of Registration;
6) Issuance of Certificate of Registration along with Certified Copies of the Registered
Agreement;
7) Collection of Certificate by the Transferee‘s Representative/Employee;
8) Confirmation of Reasonableness of the Approved Fee for Payment;
9) Extension of Agreement/Certificate of Registration.

2.2 The Nigeria Investment Promotion Council (NIPC) Act

The Nigerian Investment Promotion Commission (NIPC) is Federal Government Agency in
Nigeria established by the NIPC Act No. 16 of 1995 to promote and coordinate investment –
particular foreign direct investment flows- in the Nigerian economy. The NIPC is also
responsible for attracting, coordinating and monitoring all investment in Nigeria. The
Commission also maintains vertical and horizontal relationships with other Government
Agencies and the private sector for the purpose of investment facilitation in Nigeria. It
maintain liaison between investors and Ministries, Government departments and agencies,
institutional lenders and other authorities concerned with investments; and also provides and
disseminates up-to-date information on incentives available to investors.
It is necessary to note that an enterprise, in which foreign participation is permitted (i.e.
franchising), shall after its incorporation or registration with the Corporate Affairs
Commission (CAC), be registered with the NIPC. Essentially, all franchise-based
businesses must be registered with the NIPC. This requirement highlights the administrative
challenges of starting a business in Nigeria as registration may involve multiple agencies
such as the CAC, the NOTAP, and the NIPC. In cases where the franchise business involves
the sale or manufacture of food and drugs, registration with the National Agency for Food
and Drug Administration and Control may also be required.
The NIPC also has dispute resolution systems in place to address potential conflicts that may
arise between the franchisor and franchisee. When mutual resolution through the NIPC‘s
internal dispute fails, the NIPC liaises with Arbitration court to resolve the dispute. The NIPC
is also gives approval for the repatriation of funds by corporate organizations outside Nigeria.

2.3 Companies and Allied Matters Act

The Companies and Allied Matters Act (CAMA) of 1990 establishes the Corporate Affairs
Commission (CAC) to provide registration services for the incorporation of companies and
incidental matters, registration of business names and the incorporation of trustees of certain
committees, bodies and associations. The functions of the CAC include: regulation and
supervision of the formation, incorporation, registration, management, and winding up of
companies; and arrange or conduct an investigation into the affairs of any company in the
interest of shareholders and the public. The documents required by the CAC for
incorporation are as follows:
1) Memorandum and articles of association.
2) A notice of the address of the registered office of the company and the head office if
different from the registered office.
3) List of directors of the company.
4) State of the authorised share capital of the company.

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 5) Any other document required by the Commission to satisfy the requirements of any
law relating to company formation.

2.4 The Foreign Exchange Act

The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1995 provides for
the establishment of an autonomous foreign exchange market and dealings in the market.
Section 21(1) of the Act provides conditions for importing capital into Nigeria. In this
respect, a person who imports foreign currency in excess of US$10,000 or its equivalent in
cash and not by means of a bank draft, mail or telegraphic transfer and deposits the foreign
currency into a domiciliary account with an authorised dealer shall only make cash
withdrawals from the account. The foreign currency referred to here –which has been
imported into Nigeria in cash- shall only be exported from Nigeria in cash.
It is also necessary to note that for the purpose of determining and monitoring the flow of
foreign currencies into Nigeria, an authorised dealer (i.e. financial institution) shall,
notwithstanding any other requirement, notify the Central Bank of Nigeria of any cash
transfer to or from a foreign country of a sum greater than US$10,000 or its equivalent and
the Central Bank shall furnish thereon returns to the Minister of Finance and Minister of
Trade & Investment on a quarterly basis. Again, it is equally important to note that
repatriation of funds –in foreign currency- outside Nigeria requires approval from the
NIPC and the CBN. The current restrictive currency regime 1 places strict restrictions
on the size of funds –especially in foreign currency- that can be repatriated outside
Nigeria.
2.5 The Competition Bill
The ‗Competition and Consumer Protection Bill of 2015‘ seeks to address the gap of the non-
existence of a competition and antitrust law in Nigeria. This bill serves as a legislative
intervention into the market environment. It will empower relevant government agencies to
play the role of an umpire in what may conveniently be regarded as a market jungle, where
financial might is right and profits can be made by unscrupulous manufacturers, often at the
expense of the consumer.
The Competition Bill is an Act that will repeal the Consumer Protection Act (i.e. CAP C25,
LFN, 2004) and establish the Federal Competition and Consumer Protection Tribunal for the
development and promotion of fair, efficient, and competitive markets in the Nigerian
economy. This tribunal is expected to adjudicate over every conduct prohibited under the
Act. This bill –which has scaled second reading in the National Assembly- will also facilitate
access by all citizens to safe products, secure the protection of rights for all consumers in
Nigeria and other related concerns. For the avoidance of doubt, this bill lists out the
particular acts to be prohibited by the proposed Act. They include:
a) Directly or indirectly fixing a purchase or selling price of goods or services, this is
subject to Section 108 of the Act;
b) Dividing markets by allocating customers, suppliers, territories or particular types of
goods and services;
c) Limiting or controlling the production or distribution of any goods or services,
markets, technical development or investments, subject to Section 109 of the Act;

1
Imposed by the current administration to control the decline in foreign exchange reserves stemming from the
fall in crude oil prices.

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 d) Engaging in collusive tendering;
e) Making the conclusion of an agreement subject to acceptance by the other parties of
supplementary obligations which by their nature or according to commercial usage,
have no connection with the subject of such agreement.
In closing this section, it is important to note that franchisors and franchisees are
expected to fulfil their tax obligations in a timely and accurate manner. For the
franchisor, the Companies Income Tax Act imposes withholding tax on royalty payments to
non-resident (i.e. foreign) franchisors at the rate of 10%, and this shall be the final tax paid by
the non-resident franchisor. The withholding tax is required to be withheld by the franchisee
from income for services and then remitted periodically to the relevant authority. The
franchisee, on the other hand, is subject to the following taxes: 30% income tax; 2% tertiary
education tax on its profits; and 5% for Value added tax (VAT).
For both franchisors and franchisees, it is also important to ensure that the royalties paid on
the franchise agreement are priced at arm‘s length, to ensure compliance with Nigeria‘s
‗transfer pricing regulations‘.

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\SECTION 3: CONSIDERATIONS FOR REGISTERING AND OPERATING A
FRANCHISE IN NIGERIA

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3. REGISTERING AND OPERATING A FRANCHISE IN NIGERIA

This section outlines steps and processes for registering and operating a franchise in Nigeria.
A process flow chart (Figure 1) and activity schedule (Table 1) are used to highlight critical
requirements of this process.
Figure 1: Process Flow Chart for Registering a Franchise Business in Nigeria

Register with the CAC

Yes Open Bank Account

Obtain TIN
from FIRS

Secure
NOTAP
approval

Register
with NIPC

Food or Yes Secure NAFDAC

Drugs approval
Business?

Obtain SON
approval for
technology-
based franchise
businesses

Franchise business
operational

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 Table 1: Matrix for Registering and Operating a Franchise in Nigeria
s/ Activity Description
n Efficiency
1 Register the legal entity with the CAC
 Reserve a unique, i.e. name search.
 Prepare the requisite incorporation
documents & pay the stamp duty.
 Sign the declaration of compliance
(Form CAC4).
 Register the company and pay fees.
2 Register with the NOTAP
 Complete NOTAP Application form.
 Fill NOTAP Questionnaire.
 Complete & submit franchise
agreement.
 Submit Incorporation document.
 Secure NOTAP approval.2
3 Register with NIPC
4 Secure Tax Identification Number (TIN)
from the FIRS
5 Secure NAFDAC approval (note: NAFDAC
approval is only required for food & drug-
based businesses).
2
At the earliest, it takes about 2 months to obtain NOTAP approval.
3
Until the compliance issues with respect to the regulation and NOTAP guidelines are resolved one way or the other,
Connected Taxable Persons whose transfer prices are subject to regulatory approvals may continue to be caught in the
regulatory crossfires of the FIRS and NOTAP.
Challenges
-It takes between 20 to 25 days to
complete the CAC registration process.
-The CAC‘s online system usually
experiences downtime hence, most
people depend on lawyers to complete
the process on time.
-It takes a long time to secure NOTAP
approval for agreements, i.e. about 2
months.
-Difficulty in securing tax deductions
for R&D conducted in Nigeria.
-Delays in securing work permits for
expatriates.
-Restrictions on importation of certain
commodities, inputs etc.
-Registration forms are difficult to
understand hence, there are applications
containing errors.
-Lack of clarity on the applicable
transfer price.
-Delays in registering with NIPC.
-Government continues to impose trade
barriers against foreign competition.
-NIPC‘s internal dispute resolution
mechanism is slow.
-Weak advisory support provided to
foreign investors.
-NIL, i.e. it is essential to note that
obtaining the TIN signifies registration
with the FIRS.
-Delays in securing NAFDAC approval,
i.e. bureaucratic bottlenecks with
securing the approval.
-Lack of clarity on NAFDAC‘s
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Enablers
-Hire a lawyer for this process can
get the incorporation document
obtained in 15 days.
-Ensure that you have all the
documents required to speed up the
registration process.
-Secure all the documents required
for the NOTAP approval.
-Hire the services of a commercial
lawyer to provide advisory support
for the registration process.
-Simplify the registration forms, i.e.
the forms can be complex to
populate.
-Strengthen the relationship
between the NIPC and the Federal
Ministry of Justice to improve
NIPC‘s internal dispute resolution
mechanisms which may apply to
contractual disputes which may
arise from franchise agreements.
-Secure company incorporation
document as a condition for
obtaining the TIN.
-Engage the services of a tax
consultant to ensure that tax
obligations are clear from the
inception stage of the business. Tax
consultant should provide guidance
on the Nigerian tax code and taxes
applicable to the franchise-based
business.
-Secure the services of a
commercial lawyer to facilitate the
registration processes.
Opportunities for Improving
-Improve the online/IT infrastructure
for CAC‘s business registration portal.
-Introduction and use of electronic
workflow.
-Automate the process for payment of
stamp duties.
--Streamline the document
requirements and simplify the
approval process.
-Streamline processes for securing
work permits for expatriates.
-Create special instruments or
considerations to support importation
of certain inputs and commodities for
franchise-based businesses.
-Amendment of the NOTAP Act to
accommodate franchise-specific laws.
-Simplify guidelines for registering
and monitoring franchise agreements
or contracts.
-Need to harmonize fees payable by
franchise-based businesses under the
license agreement as stipulated by the
NOTAP guidelines and that payable
under the regulation.3
- Interagency conflict between
NOTAP and the FIRS.
-Strengthen NIPC‘s dispute resolution
mechanism.
-Empower or strengthen the NIPC‘s
role as an FDI inflow coordinating
agency.
-Need to streamline or harmonize
registration processes for foreign
investment inflows.
-Need for stronger coordination
between NIPC and the following
agencies: NOTAP; FIRS; NAFDAC;
and SON.
-Need to harmonize the tax code for
subsidiaries and franchise-based
businesses, i.e. interagency conflict
between NOTAP guidelines and the
FIRS tax code.
-Address the issue of multiple
taxation, i.e. franchise-based
businesses –in addition to the federal
taxes- may be liable for state-level
taxes.
-Need to streamline the
documentation processes for imports.
-Need to create a single platform –
domiciled to the Nigeria Customs

6 Secure approval from the
Organization of Nigeria (SON)
7 Open official bank account
4
It is essential to note that FORM M is usually required for clearing goods through customs. FORM M is usually obtained
from the CBN through the Single Window platform which is domiciled at the Nigeria Customs Service (NCS).
evaluation criteria for food & drug- Service (NCS)- for processing
based businesses. documentation and approvals for
-NAFDAC officials often require bribes imports.4
to hasten the approval process.
-Requirements for the registration of
trademarks tend to conflict with those of
the Nigeria Copyright Commission.
-NAFDAC approval is required for food
& drugs-based businesses that import
their inputs or raw materials.
Standards -Delays in obtaining the SON approval -Register on the NCS‘s Single -Need to harmonize the relationship
and SONCAP certificate. SONCAP Window Platform. between SON and the NIPC.
certificate will be required for franchise- -Clarify guidelines for obtaining SON
based businesses that import their inputs approval.
or raw materials. -Upgrade the Single Window platform
- to address delays associated with
customs clearance.
NIL, i.e. as soon as company has been -Secure TIN. NIL
registered with the CAC and TIN is -Register for Bank Verification
obtained, this process is straightforward. Number (BVN).
However, there are restrictions on dollar
deposits and transfers from domiciliary
accounts.
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\SECTION 4: CHALLENGES AND OPPORTUNITIES OF FRANCHISING IN
NIGERIA

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4. FRANCHISING IN NIGERIA: OPPORTUNITIES AND CHALLENGES

This section of the report discusses the opportunities and challenges of franchising in Nigeria.
This information should benefit foreign investors and intending franchisors seeking to
penetrate the Nigerian market. Although previous sections of the report discussed the
regulatory and legal environment of franchising in Nigeria, this section highlights useful
information that investors should be aware when adopting franchising as a market entry
strategy.
The earliest form of franchising in Nigeria bordered on ‗products marketing‘, mainly of
Petroleum Products (i.e. Texaco, Mobil, Agip etc) and automobile (Toyota, Peugeot, Ford
etc) and beverages (i.e. Coca Cola etc). This is changing as in recent times, franchising has
increased significantly, especially in the fast food sector (e.g. Tantalizers, Domino‘s Pizza,
Johnny Rockets, KFC etc), many of which are small indigenous franchisors. Increased
sensitization by the National Office for Technology Acquisition & Promotion (NOTAP) and
the Nigerian International Franchise Association (NiFA). Information from the
aforementioned franchises and other existing ones shows that there is significant demand for
franchised goods and services in Nigeria.

4.1 Opportunities of Franchising in Nigeria

Nigeria‘s franchise market is in the infancy stage however analysts consider it a potential
market in excess of US$100bn in annual revenue from products and services. It is a growth
market for franchise-based business models. Consequently, British franchisors can seize the
opportunity for first-mover advantage in Nigeria using their wealth of experience, technology
expertise, and managerial know-how. The Nigerian economy became the largest African
economy following the 2013 GDP rebasing exercise. Nigerian is the 13th largest producer
of crude oil 2.4million bbl/day in 2013 and has the 2nd largest crude oil reserves in Africa
with 37.2 billion barrels. It also has large deposits of iron ore, tin, columbite, coal, biobium,
lead, zinc, bauxite etc. There is also a huge service sector supporting the oil and gas value
chain and a significant market and population for goods and services. According to the 2013
Doing Business Report by PriceWaterHouseCoopers (PWC), industries showing significant
growth opportunities and potentially attractive for British franchisors include:

 Consumer goods and the retail industry (i.e. growth in online shopping).
 Real estate due to high population5, urban migration, and a growing middle class.
 Information and Communication technology (ICT).
 Food and Agriculture.
 Infrastructure, i.e. power and transportation.
Again, Nigeria is considered the trading hub of West Africa. Nigeria is a member of the
Economic Community of West African States (ECOWAS) and adopts the ECOWAS Trade
Liberalization Scheme (ELTS) and the Common Exchange Tariff (CET) which provide
exemptions from custom duties and taxes on goods that meet the ―Rules of Origin‖ from any
of the ECOWAS countries.
Although majority of franchise-based businesses in Nigeria are concentrated in the fast foods
sector, the following sectors carry potential opportunities for British franchisors:

5
Nigeria has a population in excess of 180mn. Furthermore, the middle class in Nigeria make up 23% of the population in
Nigeria and earn a minimum monthly income of N75, 000 or US$7,000 per annum.

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  Construction materials/real estate.
 Automotive products/services.
 Educational services.
 Health/beauty/nutrition/fitness.
 Purified water.
 ICT.
 Catering/entertaining outfits.

4.2 Challenges of Franchising in Nigeria

Despite existing opportunities, the franchise-based business is faced with a number of
challenges. One of the challenges of franchising is limited access to funding. This situation is
worsened by the fact that most financial institutions lack understanding of the franchising
model hence, they are less likely to provide much needed funding for local entrepreneurs
intent on purchasing franchise rights. Another challenge faced by franchise-based
businesses is largely institutional in nature. For one, the lack of franchise-specific
legislation often leads to an overlap of responsibilities between different government
agencies and parastatals. Consequently, British franchisors seeking to do business in
Nigeria will require multiple approvals from different government agencies; and
securing these approvals can take a considerable amount of time as a result of
bureaucratic bottlenecks, i.e. unclear approval guidelines. Based on the information
presented in Table 1, approvals will be required from the following agencies depending on
the nature of the franchise business: the National Office of Technology Acquisition and
Promotion (NOTAP); the Nigerian Investment Promotion Council (NIPC); the Federal Inland
Revenue Service (FIRS); Standards Organization of Nigeria (SON); the Nigeria Customs
Service (NCS); and the National Agency for Food and Drug Administration and Control
(NAFDAC). Navigating the bureaucratic bottlenecks associated with obtaining approvals
from these agencies often discourages local and foreign investment in Nigeria.
In preparing this report, a number of interviews were conducted. The sample for the
interviews consisted of the following: managers of some existing franchise-based businesses
in Nigeria (e.g. Mothercare and Bateel); officials of the NIPC; CAC officials; and officials of
the Federal Ministry of Investment, Trade and Industry. Feedback from these interviews
identified some of the challenges faced by franchise-based businesses in Nigeria. Another
challenge faced by franchise-based businesses in Nigeria is the current economic recession.
Since the onset of the recession in 2016, the government has imposed strict foreign exchange
controls in a bid to stem the decline of the country‘s foreign exchange reserves. Foreign
exchange controls have affected imports and made it difficult for subsidiaries of multinational
corporations (MNCs) to repatriate capital. Many franchise-based businesses in Nigeria, such
as those in the fast foods sector, now make it difficult to access foreign exchange required to
import their inputs and finished goods. This has led to the closure of some of these
businesses. In fact, the owner and operator of the Mothercare franchise in Nigeria –which has
been operational in Nigeria for the past 15 years- is currently renegotiating the terms of the
franchise due to the difficult economic conditions.
Feedback from the interviews also reinforced the institutional challenges faced by companies
seeking to penetrate the Nigerian market through franchising. The owners and operators of
the Mothercare and Bateel franchise both expressed apprehension about franchising in
Nigeria due to the fact Nigeria is an extremely difficult environment to obtain and
manage a franchise. In fact, the owner of the Bateel franchise noted: ―the multiple approvals

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required from different federal government agencies is what discourages many people from
the franchising‖. Furthermore, inconsistencies in government policies and regulatory
guidelines also present a challenge to franchising. In fact, some officials of regulatory
agencies usually ask for bribes to facilitate the approval process; and this situation poses
reputational risks to franchisors and franchisees.6 For instance, the franchisee of Bateel is yet
to begin operations due to delays associated with the process of securing NOTAP approval.
In fact, the Bateel franchisee remarked: ―it‘s been six months since I started the NOTAP
approval process and I am yet to secure this…..So I find myself stuck especially considering
the huge amount of money invested in obtaining the license‖.
Although the main challenges to franchising in Nigeria are largely institutional in nature, it is
equally important to note that there are operational challenges that can derail the success of
any business enterprise including franchising. One of such operational challenges is the
―epileptic power supply‖. At present, power generation in Nigeria fluctuates between 1,500
and 3,000MW despite having an energy demand of 100,000MW according to the 2013 Doing
Business in Nigeria Report by PWC. Lack of power supply adds to the operational costs of
doing business in Nigeria.
Having highlighted the opportunities and challenges of doing business in Nigeria, the next
section presents the conclusion and recommendations for this report.

6
Corruption in the approval process for franchising adds to the transactional costs of business entities in Nigeria .

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\SECTION 5: CONCLUSION AND RECOMMENDATIONS

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5. CONCLUSION AND RECOMMENDATIONS

This section of the report presents the conclusion and recommendations for this report. The
conclusion is based on findings from discussions in previous sections of the report. The
recommendations suggest ways of addressing the challenges of franchising in Nigeria
together with meaningful approaches for navigating the institutional challenges associated
with franchising in Nigeria.

5.1 Conclusion

Nigeria lacks franchise-specific legislations thus, franchise relationships are governed by

general contract law together with a host of other legislations such as the NIPC Act, NOTAP
Act, Foreign Exchange Act, CAMA Act etc. At present, franchise-specific businesses are
primarily governed by NOTAP which has extended its mandate of regulating technology
transfer to franchising. The existence of multiple laws influencing franchising acts as an
impediment to its growth. Consequently, Nigeria may either require franchise-specific
legislation or at best, insert provisions for it in the current NOTAP Act. In reviewing the laws
governing franchising in Nigeria, a number of steps were identified to secure much needed
approval. The critical steps for registering and operating a franchise in Nigeria are as follows:

 Register business or company with the Corporate Affairs Commission (CAC).

 Obtain Tax Identification Number (TIN) from the Federal Inland Revenue Service
(FIRS).
 Open bank account.
 Secure approval from the National Office on Technology Acquisition and Promotion
(NOTAP).
 Register with the Nigeria Investment Promotion Council (NIPC).
 In the case of food or drugs-based businesses, secure approval from the National
Agency for Food and Drugs Administration and Control (NAFDAC).
 In the case of product-based businesses, secure approval from the Standards
Organization of Nigeria (SON).
Franchising in Nigeria is fraught with certain difficulties. Major hurdles include delays in
obtaining approvals of multiple agencies such as NOTAP, NAFDAC, and CBN; poor
enforcement of intellectual property rights; slow adjudication of contractual disputes etc. The
main challenge facing franchising is largely institutional in nature. For one, the lack of
franchise-specific legislation often leads to an overlap of responsibilities between different
government agencies and parastatals. Consequently, British franchisors seeking to operate a
business in Nigeria will require multiple approvals from different government agencies; and
securing these approvals can take a considerable amount of time as a result of bureaucratic
bottlenecks. Lack of clarity on regulatory guidelines presents compliance challenges to
potential and existing franchises in Nigeria. For instance, franchise-based businesses face
compliance challenges when it comes to the issue of how NOTAP and FIRS treat the issue of
‗transfer pricing‘. Until the compliance issues with respect to the regulation and NOTAP
guidelines are resolved one way or the other, ‗Connected Taxable Persons‘ whose transfer
prices are subject to regulatory approvals may continue to be caught in the regulatory
crossfires of the FIRS and NOTAP.
Another challenge facing franchise-based businesses concerns restrictions on foreign
exchange transactions. CBN-imposed foreign exchange restrictions discourage franchising as
it restricts capital outflows (i.e. increases the cost of making remittances to the franchisor)

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and increases the cost of doing business in Nigeria. For one, some franchise-based businesses
operating in Nigeria rely on importing inputs or raw materials to support their operations.
This situation has led to below optimal productivity or in extreme cases, the closure of many
businesses in Nigeria.
Some of the challenges faced by franchise-based businesses are equally faced by other non-
franchise entities however, Nigeria presents enormous opportunities for potential British
franchisors. Some of these opportunities are as follows: large market size; growing middle
class; growing taste for foreign commodities etc. Sectors showing significant growth
opportunities and attractive for franchising include: health and beauty products;
pharmaceuticals; real estate; educational services; ICT; purified water; food; and
entertainment.

5.2 Recommendations
Based on the findings from discussing the legal and regulatory environment for franchising in
Nigeria, the following recommendations provide suggestions for addressing institutional
bottlenecks stifling the growth of franchising:

 The Nigerian government should invest in improving the IT infrastructure for the
CAC‘s business registration portal. This includes automating the process for the
payment of stamp duties.
 Amend the NOTAP Act by inserting provisions for franchise-specific legislation.
Furthermore, there is need to simplify the NOTAP approval forms and streamline
registration guidelines.
 The absence of franchise-specific legislation often leads to interagency conflict and
regulatory crossfires that intensify the lack of clarity in the regulatory space for
franchising in Nigeria. This challenge can be addressed by empowering the NIPC to
act as the lead coordinating agency for foreign investment in Nigeria, including
franchising. This approach will help in harmonizing the fees associated with
registering franchise-based businesses in Nigeria.
 Potential franchisors should engage the services of a commercial lawyer and tax
consultant –with the requisite institutional knowledge- to facilitate registration
procedures and navigate underlying bottlenecks associated with the process.

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Annex 1: Relevant Provisions of Existing Laws Affecting Franchising in Nigeria
1. The National Office for Technology Acquisition & Promotion Act (NOTAP)

The NOTAP Act establishes the NOTAP to monitor, on a continuing basis, the transfer of
foreign technology to Nigeria and to offer for other related matters.
The functions of the NOTAP are as follows:7
i. The encouragement of a more efficient process for the identification and selection
of foreign technology;
ii. The development of the negotiation skills of Nigerian with a view to ensuring the
acquisition of the best contractual terms and conditions by Nigerian parties
entering into any contract or agreement for the transfer of foreign technology;
iii. The provision of a more efficient process for the adaptation of foreign technology;
iv. The registration of all contracts or agreements having effect in Nigeria on the date
of the coming into force of this Act, and of all contracts and agreements hereafter
entered into, for the transfer of foreign technology to Nigerian parties; and without
prejudice to the generality of the foregoing, every such contract or agreement shall
be so registrable if its purpose or intent is, in the opinion of the National Office,
wholly or partially for or in connection with any of the following purposes:
a. Use of trademarks;
b. The right to utilize patented inventions;
c. The supply of technical expertise in the form of the preparation of plans,
diagrams, operating manuals or any other form of technical assistance of any
description whatsoever;
d. The supply of basic or detailed engineering;
e. The supply of machinery and plant; and
f. The provision of operating staff or managerial assistance and the training of
personnel.

1.1 General Rules Applicable to All Technology Transfer Contracts

This section focuses on identifying the evaluation criteria of NOTAP for technology contracts
and agreements. These criteria are equally used by NOTAP to evaluate contracts for
franchise-based businesses in the absence of franchise-based regulation. These criteria should
be taken into consideration especially at the registration stage for franchise-based businesses.
To satisfy the evaluation criteria of NOTAP all technology contracts/agreements must
possess the following features:
(i) They should include a provision whereby the recipient enterprise in Nigeria acquires
explicit rights for the use and exploitation of the technology in question, and the period
covering these rights should be clearly specified in the contract.
(ii) The process or products to be licensed should be clearly defined.
(iii) In cases where the Nigerian enterprise is acquiring the right to utilize a process, the
concept of know-how should be clearly expressed and defined in the contract. In this
regards, concepts such as ―technical information‖ or ―technical services' should only be
treated as complimentary to the know-how.
7
NOTAP Act 1979 No.70

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 (iv) When a technology contract involves various components, each would be evaluated
separately and the corresponding remuneration determined, not only in order to ascertain
the relative cost of each, but also to provide the basis for determining the licensor's
responsibility concerning the performance of any of the elements of the technology
package.
(v) In projects of special importance, the concept of a ―net present value‖ would be
introduced as a tool for evaluating the overall remuneration.
(vi) Where the main element of a contract relates to a technological process, the licensor is
obliged to provide process performance guarantees, in order to enable all parties
concerned to critically determine its adequacy. Whilst the process guarantees are to be
covered by licensor's financial terms (i.e. bonds, etc.) the contract document itself must
explicitly cover the rights for the use and exploitation of the technology in question, and
the duration of these rights.
(vii) If the option to pay liquidation damages is available, there should be a provision for
the Nigerian enterprise to exercise this right in an independent and unfettered manner.
(viii) To ensure a continuous flow of information between the licensor and licensee during
the life of the contract, such a contract should provide for access to the licensor's plants
and related research and development facilities.

1.2 Access to Improvements in Technology

As part of its requirements, NOTAP expects that provision would be made to give the local
recipient (i.e. Nigerian company) access to improvements on the technology acquired during
the period of the agreement.

1.3 Territorial Considerations

Under territorial considerations, two issues deserve special attention. The first is the territory
or origin of manufacture, which is normally restricted to one country. In this regards, the
degree of exclusivity (i.e. the exclusive use within a territory) to be obtained should be
clearly specified in the contract. The second relates to the territory of sales. As a general rule,
the licensee should be permitted to export to other countries. A contract may not be accepted
by NOTAP if it contains a total prohibition of the export of the products manufactured under
license.

1.4 Arbitration
In the case of commercial disputes, which are not taken to the regular courts, NOTAP expects
that the manner of selection of the arbitrators and the procedure for arbitration must be
clearly expressed in accordance with the procedures of the Arbitration and Conciliation Act
of Nigeria. 8 Unlike the NIPC which has internal dispute resolution systems, NOTAP only
advises on fair and adequate arbitration procedures for resolving contractual disputes between
parties.

8
Arbitration and Conciliation Act of Nigeria: An Act to provide a unified legal frame work for the fair and efficient
settlement of commercial disputes by arbitration and conciliation; and to make applicable the Convention on the Recognition
and Enforcement of Arbitral Awards (New York Convention) to any award made in Nigeria

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1.5 Governing Law
Technology transfer agreement must state categorically that, ―the governing law of such
agreement shall be that of Nigeria‖. NOTAP is very insistent on this clause in order to
minimize the difficulties that had been experienced in the past when some technology
transfer agreements relating to business transactions in Nigeria were governed by foreign
laws.

1.6 Duration
Under the provisions of the Act, the period of ten years is stipulated as the maximum duration
of an agreement. NOTAP will, however, register agreements or contracts with longer terms
where:
(i) The technology proposed to be transferred is complex and it is proven to its satisfaction
that the technology requires a longer duration for proper absorption, such as in Petro-
Chemical Plants, Iron and Steel processing, Space and Computer Technologies;
(ii) It is globally recognized that the technology involved is a rapidly changing one and
that the transferee requires to be kept abreast of the frequent changes/developments to
remain competitive; for example in electronics, computers and telecommunications
businesses;
(iii) The licensee is granted the permission to sub-license the technology over a period of
10 years:
(iv) It is considered to be in the national interest of Nigeria.
Note: in practice, NOTAP usually approves a three-year tenure for contracts, which may
subsequently be renewed upon the expiry of the initial term.

1.7 Registration of Technology Transfer Agreements (TTA)

The NOTAP Act provides that every agreement that provides for the use of a trademark,
patent invention, supply of technical expertise etc., and that is entered into by any person in
Nigeria with another person outside Nigeria, shall be registered with NOTAP not later than
60 days from the execution of the agreement. Franchise agreements by their nature fall within
the purview of agreements for which registration is needed under the NOTAP Act.
Section 6(2) (a)-(r) of the NOTAP Act makes provision for registration relating to franchises.
It provides that the Director of NOTAP shall not register any contract or agreement that the
Director is satisfied falls within any of the specifications identified in the NOTAP Act, such
as:9
a. Where the purpose of the agreement is the transfer of technology that is freely
available in Nigeria;
b. Where the price or other valuable consideration is, therefore, not commensurate with
the technology acquired or to be acquired;
c. Where there is an onerous or gratuitous obligation on the transferee of the technology
to assign to the transferor patents, trademarks or technical information obtained by the
transferee with no assistance from the transferor; and

9
It is necessary to note that the aforementioned provisions may be waived should the Director of NOTAP believe it to be in
the national interest to do so.

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 d. Where there is an obligation therein to acquire equipment, tools, parts or raw
materials exclusively from the transferor or any other person or given source.
The process of registration of a technology transfer with NOTAP entails a number of steps
equally applicable to the registration of franchise arrangements. These steps are as follows:
i. The registration process starts with the physical submission of the following
documents at the Director General‘s Office: Completed Application Form;
Completed NOTAP Questionnaire; Completed TAA Pre-Qualification Form;
Draft copies of the TTA to be registered; Certificate of Incorporation; Completed
Monitoring Form; Transferee/Licensee‘s Annual Report for the Last three years;
Company‘s Tax Clearance Certificate and Tax Identification Number (TIN) for
the past three years; Performance Bond/Bank Guarantee for Advance Payment
where applicable; Engineering Drawings, Feasibility Studies e.t.c;
Approval/Licenses obtained from Appropriate Authorities and Bodies‘
Transferor/Licensor Profile; and Evidence of Intellectual Property Right (IPR) in
Nigeria;
ii. Assessment and evaluation of the TTA and other relevant documents by a team of
Technical Officers;
iii. Communication of Observations to Companies and Conveying of Approval
Letter;
iv. Response by the Transferee Company/Organization and Payment of Applicable
Registration Fees;
v. Verification and preparation of Certificate of Registration;
vi. Issuance of Certificate of Registration along with Certified Copies of the
Registered Agreement;
vii. Collection of Certificate by the Transferee‘s Representative/Employee;
viii. Confirmation of Reasonableness of the Approved Fee for Payment;
ix. Extension of Agreement/Certificate of Registration.

2. The Nigeria Investment Promotion Council (NIPC) Act

The Nigerian Investment Promotion Commission (NIPC) is Federal Government Agency in

Nigeria established by the NIPC Act No. 16 of 1995 to promote and coordinate investment –
particular foreign direct investment flows- in the Nigerian economy. The NIPC is also
responsible for attracting, coordinating and monitoring all investment in Nigeria. The
Commission also maintains vertical and horizontal relationships with other Government
Agencies and the private sector for the purpose of investment facilitation in Nigeria.
It is necessary to note that an enterprise, in which foreign participation is permitted (i.e.
franchising), shall after its incorporation or registration with the Corporate Affairs
Commission (CAC), be registered with the NIPC. Essentially, all franchise-based businesses
must be registered with the NIPC. This requirement highlights the administrative challenges
of starting a business in Nigeria as registration may involve multiple agencies such as the
CAC, the NOTAP, and the NIPC. In cases where the franchise business involves the sale or
manufacture of food and drugs, registration with the National Agency for Food and Drug
Administration and Control may also be required.

2.1 Functions of the NIPC

The Commission shall encourage, promote and coordinate investment in the Nigerian
economy and accordingly, shall:

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 (a) be the agency of the Federal Government to co-ordinate and monitor all investment
promotion activities to which this Act applies;
(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 opportunities
and sources of investment capital, and advise on request, the availability, choice or
suitability of partners in joint-venture projects;
(e) register and keep records of all enterprises to which this Act applies;
(f) identify specific projects and invite interested investors for participation in those
projects;
(g) initiate, organize and participate in promotional activities, such as, exhibitions,
conferences and seminars for the stimulation 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 investments in Nigeria and make
appropriate recommendations;
(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;
(m) perform such other functions as are supplementary or incidental to the attainment of
the objectives of this Act.
2.2 Establishment of an Enterprise
(1) An enterprise in which foreign participation is permitted under section 17 of this Act,
shall not commence business, except it is incorporated or registered under the Companies and
Allied Matters Act.
(2) Subject to this Act, nothing in this Act shall be construed as precluding an enterprise to
which this Act applies, from obtaining such licence, lease, permit or any other approval as
may be required for the establishment or operation of the enterprise

2.3 Registration of Enterprise with the Commission

(1) An enterprise in which foreign participation is permitted under section 17 of this Act
shall, before commencing business, apply to the Commission for registration.
(2) The Commission shall, within fourteen working days from the date of receipt of
completed registration forms, register the enterprise if it is satisfied that all relevant
documents for registration have been duly completed and submitted or otherwise advise the
applicant, accordingly.

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2.4 Investment Guarantees, Transfer of Capital, Profits and Dividends
This particular section of the NIPC Act is very important as it regulates or guides remittances
by the franchisee to the franchisor. In many cases, NIPC approval is required for subsidiaries
to make remittances to their parent company. This also applies to franchise-based businesses.
Subject to this section, a foreign investor in an enterprise to which this Act applies, shall be
guaranteed unconditional transferability of funds through an authorised dealer, in freely
convertible currency, of-
(a) dividends or profits (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 a sale
or liquidation of the enterprise or any interest attributable to the investment.

2.5 Guarantee against Expropriation

(1) Subject to subsections (2) and (3) of this section.
(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 person.
(2) There shall be no acquisition of an enterprise to which this Act applies by the Federal
Government, unless the acquisition is in the national interest or for a public purpose and
under a law which makes provision for
(a) payment of fair and adequate compensation; and
(b) a right of access to the courts for the determination of the investor‘s interest or right
and the amount of compensation to which he is entitled.
(3) Any compensation payable under this section shall be paid without undue delay, and
authorisation for its repatriation in convertible currency shall where applicable, be issued.

2.6 Dispute Settlement Mechanisms

This particular section of the Act is equally important as it provides a medium for resolving
conflicts or contractual disputes that may arise between the franchisor and franchisee. It is
equally essential to note that the NIPC has internal dispute resolution systems –including
alliances with Arbitration courts- to resolve disputes between parties.
(1) Where a dispute arises between an investor and any Government of the Federation in
respect of an enterprise, all efforts shall be made through mutual discussion to reach an
amicable settlement.
(2) Any dispute between an investor and any Government of the Federation in respect of
an enterprise to which this Act applies which is not amicably settled through mutual
discussions, may be submitted at the option of the aggrieved party to arbitration as
follows—

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 (a) in the case of a Nigerian investor, in accordance with the rules of procedure for
arbitration as specified in the Arbitration and Conciliation Act; or
(b) in the case of a foreign investor, within the framework of any bilateral or
multilateral agreement on investment protection to which the Federal Government and
the country of which the investor is a national are parties; or
(c) in accordance with any other national or international machinery for the settlement
of investment disputes agreed on by the parties.
(3) Where in respect of any dispute, there is disagreement between the investor and the
Federal Government as to the method of dispute settlement to be adopted, the
International Centre for Settlement of Investment Disputes Rules shall apply.

2.7 Assistance to Enterprise

The Commission shall provide an enterprise with such assistance and guidance as the
enterprise may require and shall act as liaison between the enterprise and the relevant
Government Departments, agencies and such other public authorities.

3. Foreign Exchange Act

Sections of the Foreign Exchange Act that are relevant to franchising in Nigeria are as
follows: sections 7, 10, 11, 12, 13, and 21.

3.1 Transactions in the Market

Transactions in the market shall be as in the inter-bank system, that is, between-
(a) the public and authorised dealers (i.e. commercial banks) appointed under this act;
(b) the authorised dealers appointed under this Act; and
(c) the authorised dealers and authorised buyers appointed under this Act.

3.2 Transactions permitted in the market

Transactions in the market shall be as prescribed, from time to time, by the Central Bank.
Furthermore, subject to the provision of paragraph (b) of section 11 of this Act and except
where a transaction is prohibited by law, any transaction adequately supported by appropriate
documentation shall, for the purposes of this Act, be an eligible transaction for the purchase
of foreign exchange in the market.

3.3 Transactions not permitted in the market

Nothing in this Act shall be construed-
(a) as permitting any unrestrained or general dealing in foreign currencies on terms
inconsistent with the provisions of this Act;
(b) to imply that transactions relating to goods, services or items absolutely prohibited by
any enactment or law may be conducted in the market.

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3.4 Importation and Exportation of Foreign Currencies
Based on this particular provision:
a) No person shall be required to declare at the port of entry into Nigeria any foreign
currency unless its value is in excess of US$5,000 or its equivalent.
b) Foreign currency in excess of US$5,000 or its equivalent, whether being imported
into or exported out of Nigeria, shall be declared on the prescribed form for reasons of
statistics only.

3.5 Repatriation of Funds

Any foreign currency purchased from the market may be repatriated from Nigeria and shall
not be subject to any additional approval.

3.6 Importation and Exportation of the Naira

The importation and exportation of the naira shall remain prohibited except as permitted
under guidelines issued, from time to time, by the Central Bank.
3.7 Importation and Exportation of Foreign Currency in Cash
For the importation and exportation of foreign currency in cash, the following provisions
apply:
a) A person who imports foreign currency in excess of US$10,000 or its equivalent in
cash and not by means of a bank draft, mail or telegraphic transfer and deposits of foreign
currency in a domiciliary account with an authorised dealer shall only make cash
withdrawals from the account.
b) The foreign currency referred to in the previous section which has been imported into
Nigeria in cash shall only be exportable from Nigeria in cash.
c) For the avoidance of doubt, no authorised dealer shall permit or in any way facilitate
the withdrawal of the foreign currency referred to in subsection (a) by any means other
than cash.

3.8 Duty to Report International Transfer of Funds

For the purpose of determining and monitoring the flow of foreign currencies into Nigeria, an
authorised dealer shall, notwithstanding any other requirement contained in any enactment or
law, notify the Central Bank of Nigeria of any cash transfer to or from a foreign country of a
sum greater than US$10,000 or its equivalent and the Central Bank shall furnish thereon
returns to the Minister of Finance on a quarterly basis.

4. Companies and Allied Matters Act

Sections of the CAMA Act that are relevant to franchise-based businesses in Nigeria are as
follows:

4.1 Registration
(1) The Commission shall register the memorandum and articles unless in its opinion‐
(a) they do not comply with the provisions of this Act; or

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 (b) the business which the company is to carry on, or the objects for which it is formed, or
any of them, are illegal; or
(c) any of the subscribers to the memorandum is incompetent or disqualified in accordanc
e with section 20 of this Act; or
(d) there is noncompliance with the requirement of any other law as to registration and inc
orporation of a company; or
(e) the proposed name conflicts with or is likely to conflict with an existing trade mark or
business name registered in Nigeria.
(2) Any person aggrieved by the decision of the Commission under subsection (1) of this sect
ion, may give notice to the Commission requiring it to apply to the court for directions and th
e Commission shall within 21 days of the receipt of such notice apply to the court for the dire
ctions.
(3) The Commission may, in order to satisfy itself as provided in subsection (1) (c) of this sec
tion, by instrument in writing require a person subscribing to the memorandum to make and l
odge with the Commission, a statutory declaration to the effect that he is not disqualified und
er section 20 of this Act from joining in forming a company.
(4) Steps to be taken under this Act to incorporate a company shall not include any invitation
to subscribe for shares or otherwise howsoever on the basis of a prospectus.
(5) Upon registration of the memorandum and articles, the Commission shall certify under its
seal‐
(a) that the company is incorporated;
(b) in the case of a limited company, that the liability of the members is limited by shares
or by guarantee; or
(c) in the case of an unlimited company, that the liability of the members is unlimited; and
(d) that the company is a private or public company, as the case may be.
(6) The certificate of incorporation shall be prima facie evidence that all the requirements of t
his Act in respect of registration and of matters precedent and incidental to it have been comp
lied with and that the Association is a company authorised to be registered and duly registere
d under this Act.

4.2 Effect of Ultra Vires

(1) A company shall not carry on any business not authorised by its memorandum and shall n
ot exceed the powers conferred upon it by its memorandum or this Act.
(2) A breach of subsection (1) of this section, may be asserted in any proceedings under secti
ons 300 to 313 of this Act or under subsection (4) of this section.
(3) Notwithstanding the provisions of subsection (1) of this section, no act of a company and
no conveyance or transfer of property to or by a company shall be invalid by reason of the fac
t that such act, conveyance or transfer

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was not done or made for the furtherance of any of the authorised business of the company or
that the company was otherwise exceeding its objects or powers.

(4) On the application of‐

(a) any member of the company; or
(b) the holder of any debenture secured by a floating charge over any of the company‘s
property or by the trustee of the holders of any such debentures, the court may prohibit,
by injunction, the doing of any act or the conveyance or transfer of any property in breach
of subsection (1) of this section.
(5) If the transactions sought to be prohibited in any proceeding under subsection (4) of this
section are being, or are to be performed or made pursuant to any contract to which the comp
any is a party, the court may, if it deems the same to be equitable and if all the parties to the c
ontract are parties to the proceedings, set aside and prohibit the performance of such contract,
and may allow to the company or to the other parties to the contract compensation for any lo
ss or damage sustained by them by reason of the setting aside or prohibition of the performan
ce of such contract but no compensation shall be allowed for loss of anticipated profits to be
derived from the performance of such contract.

4.3 Foreign Companies intending to carryon business in Nigeria

(1) Subject to sections 56 to 59 of this Act, every foreign company which before or after the
commencement of this Act was incorporated outside Nigeria, and having the intention of
carrying on business in Nigeria, shall take all steps necessary to obtain incorporation as a
separate entity in Nigeria for that purpose, but until so incorporated, the foreign company
shall not carryon business in Nigeria or exercise any of the powers of a registered company
and shall not have a place of business or an address for service of documents or processes in
Nigeria for any purpose other than the receipt of notices and other documents, as matters
preliminary to incorporation under this Act.
(2) Any act of the company in contravention of subsection (1) of this section shall be void.

(3) Nothing in this section shall affect the status of‐

(a) any foreign company which before the commencement of this Act was granted exempt
ion from compliance with Part X of the Companies Act 1968;
(b) any foreign companies exempted under any treaty to which Nigeria is a party.

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