Corporate Law: Starting and Managing a Business in Nigeria

Corporate Law: Starting and Managing a Business in Nigeria

Ramos Hanifah Oreoluwa 

Fountain University

   Starting a business in Nigeria can be both rewarding and challenging, but navigating the legal landscape is crucial for long-term success. Corporate law encompasses the legal principles and regulations that govern the formation, operation, and dissolution of corporate entities. Understanding corporate law is crucial for entrepreneurs and business managers because it ensures that their businesses are legally compliant. They can make informed decisions and protect their businesses from legal risks, fostering long-term growth and stability.

Are you interested in starting or managing a business in Nigeria? Then, you must read this article before starting a business in Nigeria. In this article, we will be sharing the legal requirements for starting and managing a business.  

For the purpose of this article, we will be citing the CAMA 2020. The Companies and Allied Matters Act (CAMA 2020) is the law governing the registration and affairs of all forms of businesses, such as sole proprietorships, partnerships, limited liability companies, and cooperative societies.

Overview: Legal Requirements

- Registration with the Corporate Affairs Commission (CAC)

- Registration with the Nigerian Investment Promotion Commission (NIPC)

- Registration with the Federal Inland Revenue Service (FIRS)

- Obtaining a business permit, work permit, or expatriate quota

- Statutory licenses and permits

Setting Up a Legal Entity in Nigeria:

Every business requiring legal recognition in Nigeria must successfully adhere to the following steps to set up a legal entity within Nigeria:

Registration with the Corporate Affairs Commission (CAC):  

The first step is to register your business with the Corporate Affairs Commission (CAC). The CAC is a government agency responsible for registering businesses in Nigeria. Under CAMA 2020, businesses can be registered in various forms, including business names, limited liability companies, or limited liability partnerships.  

For individuals who want to start a business, registering as a private limited liability company is advisable. This option is suitable because it is a separate legal entity that bears the liability of the company, and the members’ liability is limited to the number of unpaid shares. In short, a private limited liability company is a suitable option when it comes to risk bearing.  

Section 35 of CAMA provides the required documents for incorporation. These are as follows:  

  (a) The memorandum of association and articles of association  

  (b) The notice of the address of the registered office of the company and the head office  

  (c) A statement in the prescribed form containing the list and particulars of the persons who are to be the first directors of the company, together with their consent  

  (d) A statement of the authorized share capital signed by at least one director  

  (e) Any other document required by the commission to satisfy the requirements of any law relating to the formation of a company  

  (f) A statutory declaration in the prescribed form by a legal practitioner stating that the requirements of this Act for the registration of a company have been complied with, which shall be produced to the Commission. The Commission may accept such a declaration as sufficient evidence of compliance.

Registering with the CAC is an important step in starting a business. A registered business is legally approved to engage in business activities.

- Registration with the Nigerian Investment Promotion Commission (NIPC):  

The NIPC was established by the Nigerian Investment Promotion Commission Act. This commission regulates foreign investment in Nigeria. According to the Act, every company with foreign participation must register with the NIPC before commencing business.

- Registration with the Federal Inland Revenue Service (FIRS):  

The FIRS, established by the Federal Inland Revenue Service (Establishment) Act, is a body that controls and administers federal taxes in Nigeria. Every business must register and open a tax file with the FIRS and obtain a Tax Identification Number (TIN).  

This step is very important when starting a business because every business must pay taxes to the federal government. Failure to remit the appropriate tax to the FIRS is a punishable offense known as tax evasion.  

Businesses that apply for a license to practice in a particular sector are required to have a tax identification number, tax clearance certificate, and value-added tax numbers in their application.

Obtaining a Business Permit, Work Permit, or Expatriate Quota:  

These permits are exclusive to businesses that are completely owned by foreigners. This requirement does not extend to businesses jointly owned by a foreigner and a Nigerian. These permits allow foreigners to operate their businesses in Nigeria. To obtain these permits, you can go to the Department of Citizenship and Business at the Ministry of Interior Affairs. The permits you can apply for include:  

  - Expatriate Quota Permit: For companies that need to employ foreigners in leading or management positions  

  - Work Permit: Applied for separately to enable foreign companies to reside and operate in Nigeria  

  - Combined Expatriate Residence Alien Card (CERPAC) Permit: Serves the purpose of a work permit and is issued by the Comptroller General of the Nigerian Immigration Service or a Comptroller of Immigration Services in a state  

Statutory Licenses and Permits:  

There are other permits that are necessary to obtain before starting a business in certain industries. For example, a company producing pure water must have a permit from the National Agency for Food and Drug Administration and Control (NAFDAC).

Starting a business in Nigeria can be tasking, but maintaining a business is more challenging, especially in its first ten years. A study shows that one out of 25 businesses that started together in Nigeria survives after 10 years, while about 80% fail within the first 5 years.  

These businesses may have failed for various reasons. Let’s narrow it down to how many businesses fail because of a breach of legal obligations.  

According to TheCable.ng, on October 31, 2023, the Lagos Inland Revenue Service announced the closure of 34 companies and hotels for non-payment of consumption and personal income taxes totaling about N356.12 million.  

Further investigation revealed that about 6 companies were actively filing annual reports, 17 companies out of the 34 appeared inactive on the CAC record, and about 9 out of the 34 companies were found to be unregistered with the CAC, raising questions about their existence and legitimacy.

This is just a snippet showing that non-compliance with the requirements listed above is one of the reasons for the inability to maintain a business.  

Hence, to maintain a business, there has to be continuous compliance with the regulations from the law, such as registering your business, paying your taxes, getting your business licensed if need be, and much more.  

To continue managing a business in Nigeria, you have to follow the legal obligations expected of that business. There are factors aside from the breach of legal obligations that make maintaining a business difficult, such as inflation, poor leadership skills, lack of market, and others.  

Managing a Business in Nigeria from a Legal Perspective

- Corporate Governance and Compliance:  

Corporate governance refers to the principles that guide actions, whereas corporate compliance refers to the set of practical actions that must be taken to participate in the business environment. Compliance can be seen as adherence to applicable rules and regulations. Any company that wants to survive must draft structures, meet government regulations (governance), and comply with those structures and regulations (such as annual filings of taxes, paying taxes, etc.).

- Employee Relations:  

Employees can also determine the lifeline of companies. From a legal perspective, there are different labor laws, such as the Labour Act, Trade Dispute Act, Trade Union Act, etc., affecting the relationship between a business and its employees. Always comply with these laws to maintain your business and avoid legal consequences that could harm your business. For instance, the minimum wage is 70,000 naira; a business cannot employ someone below this minimum wage. Otherwise, it may cause trouble for your business.  

- Intellectual Property Rights:  

Intellectual property (IP) gives you legal protection over your innovations, creations, and brand. By protecting your unique brand, you can maintain your business and ensure that no other business can take your business.  

There are different ways to protect your business in Nigeria, such as copyrights, patents, trademarks, and trade secrets. You can go to the Federal Ministry of Industry, Trade, and Investment to register your intellectual property.

These are some ways to maintain your business in Nigeria. In light of this, it is important to understand and comply with the corporate laws in Nigeria.

Please, before you start a business, consult a legal practitioner. Hire a lawyer to help you register your business and fulfill all the legal requirements for starting a business.

By understanding the legal landscape, entrepreneurs can position their businesses for long-term success and stability in Nigeria’s dynamic market.