DOING BUSINESS IN NIGERIA (INCORPORATING A BUSINESS ENTERPRISE: Legal Framework for Business Activities)

Methods of Conducting Business: All business enterprises must be registered with the Registrar-General of the Corporate Affairs Commission (CAC) (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 :

  • 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;

INCORPORATING A BUSINESS ENTERPRISE: The Companies Allied Matters Act as Legal Framework for Business Activities
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:

  • the regulation and supervision of the formation, incorporation, registration, management and winding up of companies.
  • the maintenance of a Companies Registry;
  • 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.
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:

  • Name of the company/enterprise;
  • Address;
  • Registration/Incorporation Number;
  • 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)

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 incorporated, 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 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 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 to 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 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 Due to inflationary factors, further wage increases have been recommended, and minimum wages are about =N=5,000 about US$40.00 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. However, the wage level in the public service has been substantially increased since the restoration of democracy in 1999

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, Standards Organisation of Nigeria The Nigerian Standards Organisation Act, 1971 was established as an integral part of the Federal Ministry of Industries, 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) now converted to a full-fledged Federal Ministry of Environment, 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 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.

LABOUR, HEALTH, TRADE & ENVIRONMENTAL STANDARDS: 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 the 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: 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, now incorporated as Acts of the National Assembly.

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).