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BUSINESS AND ECONOMY 

The Nigerian Government, conscious of the over-dependence on oil, which constitutes about 95% of generated revenue, has embarked on many measures to give the Nigerian a new lease of life. To generate a stronger and stable growth rate, the Government is promoting the increased production in the non-oil sector of the economy by creating a level-playing field for private-sector led activity. Essentially, the pivots around which the framework for economic growth and development will revolve include the following:

  • agriculture and agro-business,
  • solid minerals development,
  • manufacturing,
  • information and communications technology (ICT),
  • crude oil,
  • natural gas, and
  • tourism

Other expected areas ofconcentration that will equally engender accelerated economic growth andpoverty reduction are:

  • diversification of the productive base of the economy,
  • emphasis on agriculture and rural development to consolidate existing initiatives in ensuring food security and export possibilities, particularly in cassava, rice production, textiles, cash crops, livestock, and vegetable oil,
  • continued privatization of government owned companies and public utilities
  • maximum use of the opportunity available to the textile and garment industry through the African Growth Opportunity Act (AGOA)
  • promotion of environmental protection and management
  • making Nigeria the hub of economic activity in West Africa
  • sensitization of the Nigerian public about the concept of the New Partnership for Africa's Development (NEPAD), which is the political and socio-economic program of the African Union (AU), and which is recognized as the expression of Africa's collective determination and willingness to develop and integrate into the global economy.

Government will provideNigerian businesses with an enabling environment that will enhance theirability to take advantage of opportunities arising from NEPAD and the AfricanUnion.

As further proof of theGovernment's commitment to economic growth, the Nigerian Government developed ahome-grown poverty-reduction strategy known as NEEDS - National EconomicEmpowerment and Development Strategy. The strategy has as its core, somespecific structural reforms:

  • Anti-Corruption, Transparency and Accountability
    • Extractive Industries Transparency Initiative (EITI). Nigeria has enrolled in this initiative and has already started the process of hiring auditors to examine the Oil Accounts;
    • Establishment of the Economic and Financial Crimes Commission (EFCC), which has already succeeded in arresting several perpetrators of the high-level frauds and
    • Publication of monthly revenue allocations to all tiers of government,
  • Public Sector Reforms
  • Public Expenditure and Revenue Reforms dealing with heightening of budget with a view to reducing fiscal deficit
  • Accelerated Privatization and Liberalization
    • deregulation and Liberalization of the petroleum sector with a complete phase-out of government subsidies,
    • deregulation of the telecom sector and increasing available telephone lines
  • Accelerated growth and Equitable Development
    • Diversification beyond the oil sector in support of other sectors such as SMEs, agriculture, solid minerals, manufacturing, tourism

The members of G-8continue to be the largest Trading-Partners of Nigeria which exports mainly oiland imports essential commodities.

Conclusively, the main focus of the Nigerian Government for embarking onvigorous economic reforms is to build a more humane, productive, and courteoussociety where every citizen is valued, and the plight of the disadvantaged isadequately addressed.

 

INCORPORATING A BUSINESS IN NIGERIA

Procedure for incorporating a businessenterprise by a foreign investor

1. METHODS OF CONDUCTING BUSINESS
All business enterprises must be registered with the Corporate AffairsCommission. Business activities may be undertaken in Nigeria 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 (religious, charitable, philanthropic or cultural);
(viii) Representative office in special cases ;

2. THE COMPANIES AND ALLIED MATTERS ACT ANDINCORPORATION PROCEDURES
The Companies and Allied Matters Act, 1990 (the Companies Act) is the principallaw regulating the incorporation of businesses. The administration of theCompanies Act is undertaken by the CORPORATE AFFAIRS COMMISSION (CAC), whichundertakes the administration of the Companies Act.
2.1. Minimum Share Capital and Disclosures in Memorandum of Association
The minimum authorised share capital is N10, 000 in the case of privatecompanies or N500, 000 in the case of public companies. The Memorandum ofAssociation must state inter-alia that the subscribers “shall take amongst thema total number of shares of a value not less than 25 per cent of the authorisedcapital and that each subscriber shall write opposite his name the number ofshares he takes.” The law permits and acknowledges the roles of attorneys andother relevant professionals in facilitating business transactions provided, ofcourse, that this “agency arrangement is disclosed”.

2.2. Membershipof the Company – Prohibition of Trusts
The Companies Act prohibits “notice of any trust, express, implied orconstructive” and such shall not be entered on the register of members or bereceivable by the CAC.

2.2.1Shares
All categories of company shares should 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 andattend all general meetings of the company and may speak and vote on any resolutionbefore the meeting.
2.3. Disclosures to be published in Company's correspondence and business premises.
Every Company is obliged to disclose on its letterhead paper used in correspondence,following particulars:

(i) Name of company/ enterprise;
(ii) Address;
(iii) Registration/Incorporation Number;
(iv) Names of Directors and Alternate Directors (If any).

In addition, the law requirescompanies/enterprises to ensure that the Certificate of registration bedisplayed in conspicuous positions at their principal and branch offices.

 3. OPERATIONS OF FOREIGN COMPANIES IN NIGERIA
A non-Nigerian may invest and participate in the operation of any enterprise inNigeria.However, a foreign company wishing to set up business operations in Nigeria should take all steps necessary toobtain local incorporation of the Nigerian branch or subsidiary as a separateentity in Nigeriafor that purpose. Until so incorporated, the foreign company may not carry onbusiness in Nigeriaor exercise any of the powers of a registered company.

The foreign investor mayincorporate a Nigerian branch or subsidiary by giving a power of attorney to aqualified solicitor in Nigeriafor this purpose. The incorporation documents in this instance would disclosethat the solicitor is merely acting as an “agent” of a “principal” whosename(s) should also appear in the document. The power of attorney should bedesigned to lapse and the appointed solicitor ceases to function upon theconclusion of all registration formalities.

The locally incorporated branch orsubsidiary company must then register with the Nigerian Investment PromotionCommission (NIPC) before commencing formal operations. The new company may alsoapply to NIPC for other investment approvals (e.g. expatriate quota) and otherincentives.

3.1. Exemption to the General Rule
Where exemption from local incorporation is desired, a foreign company mayapply in accordance with Section 56 of the Companies Act, to the NationalCouncil of Ministers for exemption from incorporating a local subsidiary ifsuch foreign company belongs to one of the following categories:

(a) “Foreign companies invited toNigeria by or with the approval of the Federal Government of Nigeria to executeany specified individual project;
(b) Foreign companies which are in Nigeria for the execution of a specificindividual loan project on behalf of a donor country or internationalorganization;
(c) Foreign government-owned companies engaged solely in export promotionactivities; and
(d) Engineering consultants and technical experts engaged on any individualspecialist project under contract with any of the governments in the Federationor any of their agencies or with any other body or person, where such contracthas been approved by the Federal Government.”

The application for exemption fromdisclosing certain details about the applicant is to be made to the Secretaryto the Government of the Federation (SGF). If successful, the request of theapplicant is granted upon such terms and conditions as the National Council ofMinisters may think fit.
3.2. Representative Offices
Foreign companies may set up representative offices in Nigeria. A representative officehowever, cannot engage in business or conclude contracts or open or negotiateany letters of credit. It can only serve as a promotional and liaison officeand its local operational expenses have to be inflowed from the foreigncompany. A representative office has to be registered with the CAC.

CHECKLISTOF STEPS FOR ESTABLISHING NEW COMPANIES IN NIGERIA WITH FOREIGN SHAREHOLDING

Stage A

1.  Establish partners/shareholdersand their respective percentage shareholdings in the proposed company.  

2. Establish name, initial authorisedshare capital and main objects of the proposed company.  

3. EXCEPT in instances where the proposedcompany will be 100% owned by non-resident shareholders - Prepare Joint-VentureAgreement between prospective shareholders. The Joint-Venture may specify;inter-alia, mode of subscription by parties, manner of Board Composition,mutually protective quorum for meetings, specific actions which wouldnecessitate share-holders approval by special or other resolutions.  

4. Prepare Memorandum and Articles ofAssociation, incorporating the spirit and intents of the Joint-VentureAgreement.  

5. Foreign Shareholder may grant a powerof attorney to its Solicitors in Nigeria, enabling them to act asits Agents in executing incorporation and other statutory documents pending theregistration with NIPC (i.e. formal legal status for foreign branch/subsidiaryoperations).  

6. Conduct a search as to the availabilityof the proposed company name and, if available, reserve the name with the CAC. 

7. Effect payment of stamp duties, CAC filing fees and process andconclude registration of the company as a legal entity.  
Stage B

Prepare Deeds of Sub-Lease/Assignment, as maybe appropriate, to reflect firm commitment on the part of the newly registeredcompany, to acquire business premises for its proposed operations

Stage C

1. Prepare and submit simultaneous applications to the NIPC (on the prescribed NIPC Application Form) for the following: -  
- Registration and Expatriate Quota;

- Pioneer Status and other incentives (where applicable)  

2. The application to the NIPC should be accompanied with thefollowing documents: -  

  • Original and duplicate copy of the duly completed NIPC Form;
  • Original copy of the treasury receipt for the purchase of NIPC Form;
  • A copy of the Certificate of Incorporation of the applicant company;
  • A copy of the Tax Clearance Certificate of the applicant company;
  • A copy of the Memorandum and Articles of Association;
  • A copy of treasury receipt as evidence of payment of stamp duties on the authorised share capital of the company as at date of application;
  • A copy of the Joint-Venture Agreement -UNLESS 100% foreign ownership is envisaged;
  • A copy of Feasibility Report and Project Implementation Programme of a company for its proposed business. It is advisable that quotations, letters of intent and other such documentation relating to industrial plant and machinery to be acquired by the company, be forwarded either as annexes or separately. In order to discourage the dissipation of administrative energy on speculative applications, the NIPC favours the applicant who has demonstrated positive intention to commence business as and when approvals are granted. Hence, the requests for evidence of acquisition of business premises and evidence of acquisition of the plant and machinery to be utilised in the company's business;
  • A Copy of Deed(s) of Sub-Lease/Agreement evidencing firm commitment to acquire requisite business premises for the company's operation. By implication, the ultimate NIPC approvals do incorporate approvals of the industrial site locations indicated in the application;
  • A Copy of training programme or personnel policy of the company, incorporating management succession schedule for qualified Nigerians;
  • Particulars of names, addresses, nationalities and occupations of the proposed directors of the company;
  • Job title designations of expatriate quota positions required, and the academic and working experience required for the occupants of such positions. It is pertinent to note that expatriate quota on a “Permanent Until Reviewed” (PUR) status is only accorded to a Managing Director, where the non-resident shareholders own a majority of the company's shares, and the authorised capital of the company is N5 million and above;
  • Copies of information brochure on foreign shareholder (if available) as testimony of international expertise and credibility of the foreign partner in the proposed line of business.

  Stage D

1. Having obtained the requisite NIPC approvals, the non-residentshareholder must act with despatch to import its foreign equity holding in thecompany. To ensure prompt importation of the foreign equity components, theNIPC may register company but defer approvals for Expatriate Quota and PioneerStatus and other applicable investment incentives, until evidence of capitalimportation is produced.

2. After obtaining Certificate of Capital Importation from the bank, theNIPC is to be notified of this fact with the supporting documentation, in orderfor it to resume processing of pending approvals that might have been deferredon such ground.

3. As soon as expatriate quota position are granted and the respectiveindividuals to fill the quota positions are recruited, the company must embarkon steps to obtain work permit and residency status for the expatriateemployees and their accompanying spouses and children (if any).

Meaning of ‘NIPC Registration' and ‘EXPATRIATE QUOTA'

NIPC Registration confers permanent authorisation for the localoperation of businesses with foreign investments either as branch/subsidiary ofa foreign company or otherwise.  

Expatriate quota is the official permit to a company; conveyingpermission for the company to employ individual expatriates to specificallyapproved job designations, and also specifying the permissible duration of suchemployment.  

The expatriate quota forms the basis of work permits for expatriateindividuals employed (whose qualifications must fulfil the criteria establishedfor the particular quota position). Expatriate quota positions are usuallygranted for 2-3 years subject to renewal, E

EXCEPT in cases where companies qualify for and are granted “PUR” Quota(i.e. Permanent Until Reviewed) position.  

The Current Regulation on the Appointment of Foreign Directors

The promoters of business ventures in Nigeriaare free to appoint directors of their choice, either foreign or Nigerian, andthe directors may be resident or non-resident. The application to the NIPC mustreflect the names of the proposed Nigerian and foreign directors (with anindication of resident and non-resident directors). The RegistrationCertificate consequently issued following such application usually reflects therespective names of the proprietors of the company, as well as the directorsrepresenting each proprietor or co-proprietor.  

Payments of foreign directors' fees areremittable in the same manner as dividends accruing to the foreign company.However, since such fees are taxed at source (5% as withholding tax), eachforeign director's fees are remittable subject to satisfactory evidence thatthe taxable amounts on such fees have been paid.    

Pioneer Status (Tax Holiday) Advantages to a Company

The Industrial Development (Income Tax Relief)Act, Cap. 179 Laws of Nigeria, 1990, declares a number of industries as pioneerindustries. Thus, any company whose products fall within the categorisedindustries could be conferred with Pioneer Status.  

This designation is not necessarily areflection that a company was pioneer per se in the industry, as severalcompanies within the same pioneer industry classification could qualify forPioneer Status. Where the activities of a company include the production ofpioneer and non-pioneer products, the tax relief available on conferment ofPioneer Status would be restricted to income derived from pioneer productsonly. Under the current industrial policy, conferment of Pioneer Status accordsa company relief from income tax liability for a period of up to 5 years(tax-holiday status).  

The criteria for granting Pioneer Status are related and/or based on the following considerations: -  

(i)  the amount of qualifying capital investment in a company (N5 million and above) must be verifiable by physical inspection and supportedby a report of the Industrial Inspectorate Division of the Federal Ministry ofIndustry before a Pioneer Certificate is granted.  

(ii) The socio-economic advantages of a company's activities to theNigerian economy as set out in its Feasibility Study is also an importantconsideration.  

Without prejudice to these conditions, NIPC isempowered to confer Pioneer Status and other investment incentives, in anyother deserving circumstance as the Council of NIPC may approve in accordancewith the provision of the Nigerian Investment Promotion Commission Act and theForeign Exchange (Monitoring and Miscellaneous Provisions) Act in 1995.  

However in the case of portfolio investment in the capital market, theSecurities and Exchange Commission (SEC) regulates the market.