INTRODUCTION
As an entrepreneur in Nigeria, understanding the legal framework is crucial for business success. Starting and running a business in Nigeria comes with both opportunities and challenges, especially in navigating the legal landscape.
Ensuring your business is legally compliant not only protects you from potential pitfalls but also sets the foundation for long-term success.
This article provides key legal tips based on recent developments in Nigerian law and business practices.
Below are essential legal tips for entrepreneurs:
- CHOOSE THE RIGHT BUSINESS STRUCTURE
Selecting the appropriate business structure is crucial, as it determines your tax obligations, personal liability, and ability to raise capital.
This will typically be determined by the nature, size and type of business object of the proposed business.
In Nigeria, the key business structures as provided for under the Companies and Allied Matters Act (CAMA) 2020 include:
Business Name
Limited Liability Partnership
Limited Partnership
Public Company Limited by Shares (PLC)
Unlimited Companies
Incorporated Trustees
Private Companies Limited by Guarantee
BUSINESS NAME
It requires anyone carrying on a business under a name to register the business name before commencement of business or within 28 days of commencing the business.
There are basically two types under this category. They are:
Sole Proprietorship: Simple and straightforward but comes with unlimited personal liability.
Partnership: It is also governed by the Partnership Act 1890, partners share profits, losses, and liabilities.
LIMITED LIABILITY PARTNERSHIP:
A limited liability partnership is a body corporate formed and incorporated under the Companies and Allied Matters Act and is a legal entity separate from the partners.
LIMITED PARTNERSHIP:
This is a partnership arrangement with at least one general partner and at least one limited partner.
The liabilities of a general partner are unlimited while the liabilities of a limited partner are limited (unless he takes part in the management of the partnership).
PRIVATE COMPANY LIMITED BY SHARES
The most popular kind of company in use. The liability of its members is limited by its memorandum of association, to the amount, (if any) left unpaid on the shares held by them.
This type of business provides protection of personal assets by members.
PUBLIC COMPANY LIMITED BY SHARES (PLC):
Any company other than a private company, whose liability is also restricted to the amount left unpaid on the shares held by them is a Public Company Limited by Shares. This type of company is suitable for businesses looking to raise capital from the public.
UNLIMITED COMPANIES
Unlike the Compay limited by shares, here there is no limit on the liability of the members. It can also be a private or public company
INCORPORATED TRUSTEE
It is created when two or more trustees are appointed by a community of persons bound by nationality, religion, culture, etcetera to promote educational, religious, literary, sporting, or any other charitable cause. It is a non-profit incorporation.
PRIVATE COMPANIES LIMITED BY GUARANTEE
It is one that has the liability of its members limited by its memorandum, to such amount as the members may undertake to contribute to its assets of the company.
This is in the event the company is being would up.It is formed for promoting commerce, art, science, religion, education, culture, sports, research, charity of other similar objects.
For Non-governmental Organizations (NGOs) and religious organizations.The case of Aro v. Adegbite (1986) 2 NWLR (Pt. 24) 1 highlights the importance of correctly structuring a business to mitigate personal liability.
It is noteworthy that the Companies and Allied Matters Act (CAMA) 2020 introduced significant changes, including:
Introduction of single-member/shareholder companies
Reduction of minimum share capital for private companies
Provision for electronic filing, share transfer, and meetings
TIPS: Consider registering as a private limited liability company for personal asset protection and easier access to funding.
ii. Register trademarks, copyrights, and patents where applicable to protect your brand, products, and innovations from infringement.
Steps to take in registering a business include:
Choose a Name for the Business:
Select a unique and appropriate name for your business after conducting a name availability search with the Corporate Affairs Commission (CAC) to verify the availability of your chosen business name.
This can be done online. Ensure the chosen name complies with the regulations set by the Corporate Affairs Commission (CAC) on restricted and prohibited Business Names.
Reserve Your Business Name: If your preferred business name is available, you have the option to reserve it for a period of 60 days by completing the necessary forms and paying the required fee.
Prepare Incorporation Documents: Prepare the requisite documents based on your chosen business structure.
These may include Memorandum and Articles of Association for companies, Partnership Deed for Partnerships, and filling the CAC registration forms online
Register with the Corporate Affairs Commission (CAC): Submit the completed registration forms and necessary documents to the Corporate Affairs Commission (CAC) office nearest to you.
Alternatively, you can register online through the CAC portal.
It is vital to note that registration safeguards your business name, preventing unauthorized usage within the jurisdiction.
Opting for business structures like Limited Liability Companies shields owners (shareholders) from personal liability beyond their invested capital.
Pay Registration Fees: Pay the applicable registration fees as prescribed by the Corporate Affairs Commission (CAC).
Registration fees vary based on the type of business structure and the prescribed minimum issued share capital.
Obtain Certificate of Incorporation: Upon approval of your application, you will receive a Certificate of Incorporation (for companies) or Certificate of Registration (for other business structures) from the Corporate Affairs Commission (CAC).
You will need to present your Certificate of Incorporation and other relevant documents to open a corporate bank account.
Secure an Address for the Service of Documents and other Pre-formation Correspondence for the Company: This will ensure that all correspondences for the formation of the business will be contained in a central location. It is important to keep accurate records of your business transactions, financial statements, tax filings, and other relevant documents as mandated by law.
3. UNDERSTANDING YOUR TAX OBLIGATIONS
Meeting tax obligations and navigating Nigeria’s complex tax system requires careful planning and ongoing vigilance.
Entrepreneurs must stay abreast of tax laws, filing deadlines, and compliance requirements to avoid penalties and legal repercussions. The taxes include: Personal Income Tax, Capital Gains Tax, Value Added Tax, Companies Income Tax, Withholding Tax and others Tax compliance is essential for any business in Nigeria.
The taxes are paid to the Federal Inland Revenue Service or State Inland Revenue Service, this is dependent on the type of tax.
For instance, Companies are also required to withhold and file personal income tax of their employees to the internal revenue service of the state where employees reside.
This income tax is also known as Pay As You Earn (PAYE). Entrepreneurs must be aware of their obligations under several tax laws, such as Company Income Tax Act, Stamp Duties Act, Personal Income Tax Act, etc.
Registering for a Tax Identification Number (TIN) with the Federal Inland Revenue Service (FIRS) is mandatory for all businesses operating in Nigeria.
The TIN is essential for tax compliance and conducting various transactions, including opening a corporate bank account.
Any business required to pay VAT must register for Value Added Tax (VAT) with the Federal Inland Revenue Service (FIRS) and obtain a VAT registration certificate.
Recent tax reforms have implications for businesses:The Finance Act 2020 introduced changes to Company Income Tax, Value Added Tax, and Personal Income Tax.
Small companies (with turnover less than ₦25 million) are exempt from Company Income Tax.
Registered businesses access tax benefits, incentives, and deductions offered by the government.
TIPS: Engage a tax professional to ensure compliance and maximize available exemptions.
ii. It should also be noted that failure to comply with tax obligations attracts penalties.
4. DRAFT CLEAR CONTRACTS Contract is an agreement which the law will enforce as affecting the legal rights and duties of the parties involved.
Contracts are vital in business transactions. Under Nigerian law, a valid contract must have an offer, acceptance, consideration, and intention to create legal relations. Contracts serve as the foundation of business relationships, outlining rights, obligations, and expectations between parties.
Thus, having well-drafted contracts can mitigate risks and prevent disputes. It is essential to ensure that your contracts are clear and legally enforceable.The case of Koiki v. Magnusson (1999) 8 NWLR (Pt. 615) 492 illustrates the significance of having clear, unambiguous contracts to avoid disputes.
TIPS:
i.Seek legal advice to draft contracts that protect your interests and minimize potential liabilities.
5. PROTECTING YOUR INTELLECTUAL PROPERTY (IP) Intellectual Property refers to intangible creations of the human intellect. Intellectual property (IP) protection is vital for innovation-driven businesses.
In Nigeria, protecting your intellectual property is crucial to preventing unauthorized use of your business name, logo, literary works, or products, etc.
The Trademarks Act, Patents and Designs Act, and Copyright Act are the key legislations governing IP in Nigeria.
TIPS: It is vital to register your trademarks, patents, and copyrights with the Nigerian Copyright Commission and the Trademarks, Patents and Designs Registry.
This is a culture that is not yet appreciated by business owners in Nigeria.
ii. The case of Ferodo Ltd v. Ibeto Industries Ltd (2004) 5 SC (Pt. 1) 1 highlights the importance of trademark registration in protecting your brand.
6. COMPLY WITH REGULATORY REQUIREMENTS:
Different industries have specific regulatory requirements that must be met. Depending on your business’ nature, you may need to register with specific regulatory bodies or governmental agencies such as NAFDAC (National Agency for Food and Drug Administration and Control), SON (Standards Organization of Nigeria), etc.
For instance, telecommunications businesses must comply with the Nigerian Communications Commission (NCC) guidelines, while food and drug companies need NAFDAC approval.
The National Agency for Food and Drug Administration and Control Act (NAFDAC Act) and the Nigerian Communications Act 2003 are key regulatory laws.
The case of Philip Morris v. NAFDAC (2017) 15 NWLR (Pt. 1589) 454 demonstrates the importance of adhering to industry-specific regulations.
It may also be necessary to obtain the requisite business permits and licenses required for your industry or sector, such as environmental permits, health licenses, or trade permits.
Ensure compliance with additional regulatory requirements, such as employee registration with PENCOM (National Pension Commission), NSITF (Nigerian Social Insurance Trust Fund) registration, among others.
Obtaining permits or approvals from local government authorities may be required. These permits may include signage permits, environmental permits, health licenses, and operating permits.
Renewal and Compliance: Stay abreast of renewal deadlines and regulatory changes to ensure continuous compliance with licensing requirements.
Failure to renew licenses or adhere to regulatory standards can result in legal consequences and business disruption. For instance, failure of companies to file annual tax returns with the corporate affairs commission would lead to payment of penalty fee, further non-compliance would render the status inactive.
TIPS:
i. The registration process and requirements may vary based on factors such as business structure, location, and industry. It’s advisable to seek professional advice or consult relevant authorities for tailored guidance to meet your specific needs and circumstances. Stay informed about regulatory changes in your industry and maintain open communication with relevant regulatory bodies
7. CONSIDERING EMPLOYMENT LAWS
As an employer, it’s essential to comply with the Nigerian Labour Act, which governs employment contracts, wages, working conditions, and employee rights.
Establishing clear terms of employment through written contracts is essential for both employers and employees. Employment contracts should address key aspects such as job roles, compensation, benefits, termination clauses, and confidentiality agreements.Statutes and Judicial Precedents have provided for employment laws in Nigeria and the need to adhere to such laws.
The Nigerian Labour Act Cap L1, LFN 2004 provides the legal framework for employment relationships in Nigeria.
The case of Shena Security Co. Ltd v. Afropak (Nig.) Ltd & Ors (2008) 4-5 SC (Pt. II) 117 emphasizes the need for clear employment contracts and compliance with labor laws.
The case of Olam Nigeria Limited v. Oluwasegu Oyewole (2019) emphasized the importance of clear termination clauses in employment contracts
TIPS:
i. Develop comprehensive employment contracts and staff handbooks aligned with current labor laws.
8. IMPLEMENT DATA PROTECTION MEASURES
Data protection is increasingly important. The Nigeria Data Protection Act 2023 imposes obligations on data controllers and processors.
Non-compliance can result in severe penalties, as seen in the case of Electronic Settlement Limited (sanctioned in 2020 for NDPR violations)
TIPS:
i. Develop a robust data protection policy and conduct regular audits to ensure compliance.
9. Planning for Dispute Resolution Disputes are a common aspect of business, and having a dispute resolution plan is critical.
Methods for resolving business disputes include: Negotiations, Mediation, Conciliation, Arbitration, Litigation.
Inserting arbitration or mediation clauses in contracts can help resolve conflicts efficiently without resorting to litigation.
Alternative Dispute Resolution (ADR) is gaining prominence and the Arbitration and Mediation Act 2023 provides a framework for commercial arbitration, it governs alternative dispute resolution in Nigeria.
The case of Mutual Benefits Assurance Plc v. KS Foundation Inc. (2020) reinforced the validity of arbitration clauses and the case of Nigerian National Petroleum Corporation v. Lutin Investment Ltd (2006) 2 NWLR (Pt. 965) 506 underscores the effectiveness of arbitration in resolving commercial disputes.
TIPS:
i. Include well-drafted arbitration clauses in commercial contracts to facilitate efficient dispute resolution.
10. Engaging Legal Counsel
A legal practitioner is essential and cheaper to any business. Having a legal advisor is an invaluable asset for navigating the complexities of the business legal landscape in Nigeria. It is essential you engage the services of a legal practitioner at the very unset of your idea generation. Do not do a DIY then run to a legal practitioner when you hit a roadblock.
The cost implication will be way higher at that point.
CONCLUSION
Entrepreneurship in Nigeria requires more than just business acumen; it demands a solid understanding of the legal environment. Application of these legal tips and staying compliant with Nigerian laws, you can protect your business, avoid legal pitfalls, and focus on growth. Investing in legal advice early on can save you from costly mistakes and ensure the longevity of your business. See the references and disclaimer 1
- REFERENCES
1. Companies and Allied Matters Act (CAMA) 2020.
2. Company Income Tax Act (CITA).
3. Nigerian Labour Act Cap L1, LFN 2004.
4. Trademarks Act Cap T23 2LFN004
5. Arbitration and Mediation Act Cap 2023
6. Aro v. Adegbite (1986) 2 NWLR (Pt. 24) 1.
7. UAC v. Mcfoy (1961) 3 All ER 1169.
8. Ferodo Ltd v. Ibeto Industries Ltd (2004) 5 SC (Pt. 1) 1.
9. Nigerian Bottling Co. Ltd v. FBIR (2014) 14 TLRN 124.
10. SIAO (2024., June 10) How To Legally Register A Business In Nigeria SIAO.ng Retrieved August 23, 2024, from https://siao.ng/how-to-legally-register-a-business-in-nigeria/
11. Mascot Legal (2024, April 12) Embarking on Entrepreneurship: Navigating Legal Requirements for Starting a Business in Nigeria Mascot legal.com.ng Retrieved August 20, 2024 <https://mascotlegal.com.ng/2024/04/12/embarking-on-entrepreneurship-navigating-legal-requirements-for-starting-a-business-in-nigeria/>
12. Aderonke Alex-Adedipe, Olawale Atanda Pavestones Legal (2024, March 6) Compliance Requirements For Doing Business In Nigeria, Mondaq.com, Retrieved August 25, 2024 <https://www.mondaq.com/nigeria/corporate-and-company-law/1431968/compliance-requirements-for-doing-business-in-nigeria#authors>
For further reading:
1. Kalu, U. A., & Nnabue, U. S. I. (2021). “Legal and Regulatory Framework for Startups in Nigeria: A Critical Analysis.” Journal of Law, Policy and Globalization, 105, 58-67.
2. Oserogho & Associates. (2021). “Doing Business in Nigeria: Legal and Institutional Framework.” Lagos: LexisNexis.
3. Okonkwo, C. O. (2020). “Commercial Law in Nigeria.” Spectrum Books Limited.
Disclaimer:
The content provided herein is for informational purposes only and should not be construed as legal advice. While we strive to ensure the accuracy and reliability of the information presented, we make no representation or warranty, express or implied, regarding, completeness, or suitability of any information contained herein.
You are to seek the advice of a qualified Legal Practitioner with any questions you may have regarding the application laws to your specific circumstances and legal needs. ↩︎
1 Comment
Grace
September 1, 2024Good tips. Thanks.