nip c regulatory framework for setting up business in nigeria

7/29/2019 Nip c Regulatory Framework for Setting Up Business in Nigeria

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LEGAL AND REGULATORY FRAMEWORK FOR SETTINGUP BUSINESS IN NIGERIA

A. LEGAL FRAMEWORK FOR CONDUCTING BUSINESSACTIVITIES

1. METHODS OF CONDUCTING BUSINESSAll business enterprises must be registered with the Registrar-General of

the Corporate Affairs Commission (Registrar of Companies). A foreigninvestor wishing to set up business operation in Nigerian should take allsteps necessary to obtain local incorporation of the Nigerian branch or

subsidiary. Business activities may be undertaken in Nigerian as a:

(i) Private or Public Limited Liability Company;(ii) Unlimited Liability Company;

(iii) Company Limited by Guarantee;(iv) Foreign Company (branch or subsidiary of foreign;

Company;

(v) Partnership/Firm;(vi) Sole Proprietorship;(vii) Incorporated trustees;

(viii) Representative office

2. THE COMPANIES AND ALLIED MATTERS ACT ANDINCORPORATION PROCEDUREThe Companies and Allied Matters Act, 1990 (the Companies Act) is theprincipal law regulating the incorporation of businesses. Theadministration of the Companies Act is undertaken by the CORPORATE

AFFAIRS COMMISSION (CAC), which undertakes the administration of theCompanies Act, and its functions include:

(i) The regulation and supervision of the foundation,

incorporation, registration, management and winding up ofcompanies;


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(ii) The maintenance of a Companies Registry;(iii) The conduct of investigation into the affairs of any company

in the interest of shareholders and the public.

2.1 Minimum Share Capital and Disclosures inMemorandum of AssociationThe minimum authorized share capital is N10,000 in the case of privatecompanies or N500,000 in the case of public companies. TheMemorandum of Association must state inter-allia that the subscribers

shall take amongst them a total number of shares of a value not lessthat 25 per cent of the authorized capital and that each subscriber shall

write opposite his name the number of shares he takes. However,minimum share capital of N10 million is required for companies needingbusiness permit/NIPC registration, expatriate quota or pioneer status.

The law permits and acknowledges the roles of attorneys and other

relevant professionals in facilitating business transactions provided, ofcourse, that this agency arrangement is disclosed.

2.3 Membership of the Company Prohibit ion of TrustThe Companies Act prohibits notice of any trust, express, implied or

constructive and such shall not be entered on the register of members orbe receivable by the CAC.

2.3.1 SharesAll categories of company shares to carry one vote. Shares with

weighted voting right are prohibited. All shares (i.e. whether ordinary orpreferential) issued by a company must carry one vote in respect of each

share.

Consequently, preference shareholders are entitled to receive notices andattend all general meetings of the company and may speak and vote onany resolution before the meeting.

2.4 Disclosures to be published in CompanyCorrespondence and Business Premises

Every company is obliged to disclose on its letterhead paper used in

correspondence, following particulars:

(i) Name and company/enterprise;


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(ii) Address;(iii) Registration/Incorporation Number;

(iv) Names of Directors and Alternate Directors (if any)In addition, the law requires companies/enterprises to ensure that the

Certificate of Registration be displayed in conspicuous positions at theirprincipal and branch offices.

3. OPERATIONS OF FOREIGN COMPANIES IN NIGERIAA non-Nigerian may invest and participate in the operation of any

enterprise in Nigerian. However, a foreign company wishing to set upbusiness operations in Niger should take all steps necessary to obtain

local incorporation of the Nigerian branch or subsidiary as a separateentity in Nigeria for that purpose. Until so incorporated, the foreigncompany may not carry on business in Nigerian or exercise any of the

powers of a registered company.

The foreign investor may incorporate a Nigerian branch or subsidiary bygiving a power of attorney to a qualified solicitor in Nigeria for this

purpose. The incorporation documents in this instance would disclose thatthe solicitor is merely acting as an agent of a principal whose namesshould also appear in the document. The power of attorney should be

designed to lapse and the appointed solicitor ceases to function upon theconclusion of all registration formalities.

The locally incorporated branch or subsidiary company must then registerwith the Nigerian Investment Promotion Commission (NIPC) before

commencing formal operations. The new company may also apply toNIPC for other investment approvals (e.g. expatriate quota) and other

incentives.

3.1 Exemption to the General RuleWhere exemption from local incorporation is desired, a foreign companymay apply in accordance with section 56 of the Companies Act, to the

National Council of Ministers for exemption from incorporating a localsubsidiary if such foreign company belongs to one of the followingcategories:

(a) foreign companies invited to Nigerian by or with the approval of

the Federal Government of Nigerian to execute any specified

individual project;


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(b) foreign companies, which are in Nigerian for the execution of aspecific individual loan project on behalf of a donor country or

international organization;(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 anyother body or person, where such contract has been approved by

the Federal Government.

The application for exemption from disclosing certain details about

the applicant is to be made to the Secretary of the Government of

the Federation (SGF). If successful, the request of the applicant isgranted upon such terms and conditions, as the Federal ExecutiveCouncil may think fit.

B. FOREIGN INVESTMENT REQUIREMENT ANDPROTECTIONS

1. PRINCIPAL LAWS ON FOREIGN INVESTMENTSThe principal laws regulating foreign investments are, the Nigerian

Investment Promotion Commission Act No. 16 of 1995 and the ForeignExchange (Monitoring and Miscellaneous Provisions) Act No. 17 of 1995.

2. DEREGULATION OF EQUITY STRUCTURE IN NIGERIA

ENTERPRISESEffectively, the Nigerian Enterprises Promotion (Repeal) Act No. 7 of 1995has 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 psycothropicsubstances.

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


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

Committee (IDCC).

3.1. Functions and PowersThe Nigerian Investment Promotion Commission (NIPC) is an Agency ofthe Federal Government with perpetual succession and a common seal,

which is especially established, among other things, to:

(a) coordinate, monitor, encourage and provide necessaryassistance and guidance for the establishment and operationof enterprises in Nigerian;

(b) initiate and support measures which shall enhance the

investment climate in Nigerian for both Nigerian and non-Nigerian investors;

(c) promote investments in and outside Nigerian through effectivepromotional means;

(d) collect, collate, analyse and disseminate information aboutinvestment opportunities and sources of investment capital

and advise on request, the availability, chance or suitability ofpartners in joint-venture projects;

(e) register and keep records of all enterprises to which the NIPC

Act legislation applies;

(f) identify specific projects and invite interested investors forparticipation in those projects;

(g) initiate, organize and participate in promotional activities suchas exhibitions, conferences and seminars for the stimulationof investments;

(h) maintain liaison between investors and Ministries, government

departments and agencies, institutional lenders and other

authorities concerned with investments;


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(i) provide and disseminate up-to-date information on incentivesavailable to investors;

(j) assist incoming and existing investors by providing support

services;

(k) evaluate the impact of the Commission in investment in

Nigerian and recommend appropriate remedies and additionalincentives;

(l) advise the Federal Government on policy matters, including

fiscal measures designed to promote the industrialization ofNigerian or the general development of the economy; and

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

3.2. Provision Relating to InvestmentsNotable amongst the provisions relating to investment are the following:

- A non-Nigerian may invest and participate in the operation of

any enterprise in Nigerian;

- An enterprise, in which foreign participation is permitted, shallafter its incorporation or registration, be registered with NIPC;

- A foreign enterprise may buy the shares of any Nigerianenterprise in any convertible foreign currency;

- A foreign investor in an approved enterprise is guaranteed

unconditional transferability of funds through an authorizeddealer, in freely convertible currency of:

Dividends or profits (net of all taxes) attributed to theinvestment;

Payments in respect of loan servicing where a foreign

loan has been obtained; andThe remittance of proceeds (net of all taxes) and

other obligations in the event of sale or liquidation of

the enterprise or any interest attributable to theinvestment.


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3.3. Priority Areas of InvestmentThe NIPC issues guidelines and procedure, which specify priorityareas of investment and prescribes incentives and benefits, which

are in conformity with Government policy. The preferred sectors forinvestment are;

Agriculture and Agro-allied;Solid Minerals

Tourism;Information and Communications Technology;

Power & EnergyMnaufacturing

3.4. Incentives for Special InvestmentFor the purpose of promoting identified strategic major investment, the

NIPC may in consultation with appropriate Government agencies,negotiate specific incentive package for the promotion of investment

4. INVESTMENT PROTECTION ASSURANCE

4.1. The NIPC Act provides that:

(a) No enterprise shall be nationalized or expropriated byany Government of the Federation, and

(b) No person who owns, whether wholly or in part, thecapital of any enterprise shall be compelled by law tosurrender his interest in the capital to any otherpersons.

4.2. There will be no acquisition of an enterprise by the FederalGovernment unless the acquisition is in the national interest or for apublic purpose under a law that makes provision for:

(a) payment of fair and adequate compensation, and


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(b) a right of access to the courts for the determination ofthe investors interest of right and the amount of

compensation to which he is entitled.

4.3 Compensation shall be paid without undue delay, and authorizationgiven for its repatriation in convertible currency where applicable4.4. Apart from the investment guarantee assurances of the NIPC Act

countries are welcome to execute and enter into bilateral InvestmentPromotion and Protection Agreements (IPPA) with the Nigerian

government

5. CHECKLIST OF STEPS FOR ESTABLISHING NEWCOMPANIES IN N igerian WITH FOREIGNSHAREHOLDING

Stage A1. Establish partners/shareholders and their respective percentage

shareholding in the proposed company.

2. Establish name, initial authorized share capital and main objects ofproposed company.

3. EXCEPT in instances where the proposed company will be 100%owned by non-resident shareholders Prepare Joint-Venture

Agreement between prospective shareholders. The Joint-Venturemay specify; inter-alia, mode of subscription by parties, manner of

Board Composition, mutually protective quorum for meetings,specify actions which would necessitate share-holders approval byspecial or other resolutions.

4. Prepare Memorandum and Articles of Association, incorporating the

spirit and intents of the Joint-Venture Agreement.

5. Foreign Shareholder may grant a power of attorney to its Solicitors

in Nigerian, enabling them to act as its Agents in executingincorporation and other statutory documents pending the

registration with NIPC (i.e. formal legal status for foreignbranch/subsidiary operations).

6. Conduct a search as to the availability of the proposed companyname and, if available, reserve the name with the CAC.


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7. Effect payment of stamp duties, CAC filing fees and process and

conclude registration of the company as a legal entity.

Stage BPrepare Deeds of Sub-Lease/Assignment, as may be appropriate, toreflect firm commitment on the part of the newly registered company, to

acquire business premises for its proposed operations

Stage C

An established company proceeds to apply for grant of businesspermit/NIPC registration, expatriate quota or pioneer status asdesired. The following are requirements and fees for respectiveapplications:

I. Grant Of Business Permit/ NIPC Registration

Requirements:

i. Formal Application Letter to Executive Secretaryii. Minimum Share Capital Requirement - N10million

iii. Duly completed NIPC Form Iiv. Certificate of Incorporationv. CACs Forms C02 and C07

vi. Memorandum and Articles of Associationvii.Tax Clearance Certificate

viii. Certificate of Capital Importation (for foreign enterprise)ix. Evidence of Acquisition of Business Premises (Tenancy or Lease

Agreement)x. Joint venture Agreement (where applicable)xi. Approval from appropriate professional body (where applicable)

xii.Feasibility Report

Fees:

i. NIPC Form I - N25, 000ii. Collection of Business Permit Certificate - N25, 000

II . Expatriate Quota


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Requirements:i. Formal application letter to Executive Secretary

ii. Minimum Share Capital Requirement - N10 millioniii. Duly completed NIPC Form I

iv. Certificate of Incorporationv. CACs Forms C02 and C07vi. Memorandum and Articles of Association

vii.Tax Clearance CertificateViii. Certificate of Capital Importation

ix. Evidence of acquisition of Business Premises (Tenancy or LeaseAgreement)

viii. Feasibility Reportix. Technical Service Agreement

x. Evidence that personnel required is not likely to be available inNigeria

xi. Training Programme for Nigerians

xii.Management succession schedule.xiii. Schedule of names, address, qualifications and positions to beoccupied by expatriate.

xivLicense, Permit /Certificate from relevant Government

Agencies/Department/Ministries/professional bodies for theoperation of the project;

Evidence of work at hand, its duration and value attached tothe contract(s) if company is engaged in building, civil

engineering, constructions, etc. (original to be presented forsighting);

Proposed annual salaries to be paid to the expatriates to be

recruited indicating designation, names, job description andqualifications (CV and copies of credentials of expatriate areto be attached);

Fees:i. Processing fee - N25, 000

ii. Payment for each quota position approved - N10, 000


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II I. Pioneer Status IncentiveThe benefit of a Pioneer Status Certificate is that the holder (i.e. the

company) is exempted from payment of tax for a specified number of

years (5 years in urban area and 7 years in rural area).

Requirements:i. Formal application letter to Executive Secretaryii. Minimum Share Capital Requirement - N10million

iii. Duly completed NIPC Form IIiv. Certificate of Incorporation

v. CACs Forms C02 and C07

vi. Memorandum and Articles of Associationvii.Tax Clearance Certificateviii. Evidence of acquisition of machinery; (Form M)ix. Evidence of acquisition of Business Premises (Tenancy or Lease

Agreement)x. Feasibility Report

xi. Joint Venture Agreement (where applicable)xii The Company must not be more than one year old from

commencement of production.

xiii. Joint venture must attain a minimum qualifying capitalexpenditure of N5 million.

Fees:i. NIPC Form II - N20, 000ii. Processing Fee - N50, 000

iii. Collection of Approval letter - N30, 000iv. Application for Extension - free

v. Approval of Pioneer Status Extension - N50, 000

IV. Technical Service AgreementThis is a form of technical co-operation agreement in which a party will

agree to offer technical services to a company for the payment of a fee.

Details and terms of such agreements are normally worked out between

the parties involved but such agreements should be registered with theNational Office for Technology Acquisition and Promotion (NOTAP).


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Stage D1. Having obtained the requisite NIPC approvals, the non-resident

shareholder must act with dispatch to import its foreign equityholding in the company. To ensure prompt importation of the

foreign equity components, the NIPC may register company butdefer approvals for Expatriate Quota and Pioneer Status and other

applicable investment incentives, until evidence of capitalimportation is produced.

2. After obtaining Certificate Importation from the bank, the NIPC is tobe notified of this fact with the supporting documentation, in order

for it to resume processing of pending approvals that might havebeen deferred on such ground.

3. As soon as expatriate quota position are granted and the respectiveindividuals to fill the quota positions are recruited, the company

must embark on steps to obtain work permit and residency statusfor the expatriate employees and their accompanying spouses andchildren (if any).

6. MEANING OF NIPC REGISTRATION AND

EXPATRIATE QUOTA

6.1. NIPC Registration confers permanent authorization for the localoperation of businesses with foreign investments either asbranch/subsidiary of a foreign company or otherwise.

Expatriate quota is the official permit to a company; conveying permission

for the company to employ individual expatriates to specifically approvedjob designations, and also specifying the permissible duration of such

employment.

The expatriate quota forms the basis of work permits for expatriate

individuals employed (whose qualifications must fulfill the criteriaestablished for the particular quota position). Expatriate quota positions

are usually granted for 2-3 years subject to renewal, EXPECT in caseswhere companies qualify for and are granted PUR Quota (i.e.Permanent Until Reviewed) position.


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6.2. The Current Regulation on the Appointment ofForeign DirectorsThe promoters of business ventures in Nigerian are free to appointdirectors of their choice, either foreign or Nigerian, and the directors may

be resident or non-resident. The application to the NIPC must reflect thenames of the proposed Nigerian and foreign directors (with an indication

of resident and non-resident directors). The Registration Certificateconsequently issued following such application usually reflects therespective names of the proprietors of the company, as well as the

directors representing each proprietor or co-proprietor.

Payments of foreign directors fees are remittable in the same manner asdividends accruing to the foreign company. However, since such fees aretaxed at source (5% as a withholding tax), each foreign directors fees

are remittable subject to satisfactory evidence that the taxable amountson such fees have been paid.

nip c regulatory framework for setting up business in nigeria

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