Corporate law is one of the highly regulated areas in Nigeria, which is not surprising given its effect on the country’s economy and polity.
The Companies and Allied Matters Act (CAMA) is the principal law governing corporate law in Nigeria. Other laws regulating corporate practice in the country include the Nigerian Investment Promotion Commission (NIPC) Act, the Investments and Securities Act (ISA) and Immigration Act.
Companies & Allied Matters ACT
CAMA established the Corporate Affairs Commission (CAC) to regulate the incorporation of companies, business names, incorporated trustees and other incidental matters. CAMA, in administering all organisations, is divided into three parts: Part A – companies; Part B – business names; and Part C – incorporated trustees.
Part A of CAMA recognises the different types of companies registrable in Nigeria: companies limited by shares; companies limited by guarantee; and unlimited companies. The form of these companies may be either private or public.
A private limited company is not allowed to offer its shares to members of the public. It should have a minimum of two and a maximum of 50 members. At the point of incorporation, at least 25% of its authorised share capital must be allotted to members. The authorised share capital should not be less than N10,000 ($35.34).
A public limited company is permitted to offer its shares to the public, and may be quoted on the Nigerian Stock Exchange (NSE). It should have a minimum share capital of N500,000 ($1770), and at the point of incorporation at least 25% of the authorised share capital must be allotted. A public limited company has no limitation on the number of members it can have once it meets the legal minimum requirement of two members.
A company limited by guarantee does not have share capital, and its members do not receive profits or own the company. All profits and income generated are applied solely in the promotion of its objects. Members of this type of company are only liable to the amount they respectively undertake to contribute in the event of winding up, which must not be less than N10,000 ($35.34).
An unlimited liability company is required to be registered with share capital. Unlimited liability companies are almost the same as companies limited by shares. The only difference is that the liability of shareholders of unlimited companies is unlimited in the event of liquidation.
Foreigners seeking to do business in Nigeria may register as a business name under Part B of CAMA as a sole proprietor or partnership. They may also incorporate any of the types of companies under Part A of CAMA with other foreigners or Nigerians, or they may buy shares of an existing Nigerian company. If foreigners decide to incorporate a company, they may do business in any area, except those on the negative list. Registration is required for doing business in Nigeria, except in circumstances where a foreign entity is exempt from registration and granted exemption status.
A foreign company may be granted exemption status from company registration by the CAC on the following grounds:
• It was invited into Nigeria by or with the approval of the federal government for a specified project;
• It is in Nigeria for an individual project on behalf of a donor country or international organisation;
• It is engaged solely in export promotion activities; or
• It contains technical and engineering consultants executing specific projects with any state government or agency that are approved by the federal government. CAMA makes further provisions for the exercise of: company powers, membership, appointment and function of directors and secretaries, protection of interests of minority shareholders, accounts and audit, winding up and corporate restructuring, business names and incorporated trustee registrations. NIGERIAN INVESTMENT PROMOTION COMMISSION ACT: The NIPC Act regulates any investment and participation in any Nigerian enterprise by a non-Nigerian. The regulatory arm of the act is the NIPC. The NIPC Act makes it mandatory for any enterprise with foreign participation to be incorporated at the CAC and NIPC before it can commence business in Nigeria. There are no restrictions on foreign participation in any enterprise in Nigeria under the NIPC Act, provided that it does not include activities on the negative list. The negative list includes: arms and ammunitions, narcotic drugs and psychotropic substances, military/paramilitary wears and accoutrements, and coastal and inland shipping.
Investments & Securities Act
Where any corporate activity entails investment in securities and stocks in the capital market, it is regulated by the ISA, and administered by the Securities and Exchange Commission (SEC) as its apex regulatory body. All securities exchange or capital trade points must be registered with the CAC and SEC. Invitation to members of the public to invest in securities and stock can only be granted through a prospectus, which may not be necessary when in respect of an offer to existing members of a company, or where the securities have been previously issued or quoted on the securities exchange.
The ISA oversees the registration and regulation of the sale of securities, securities exchanges, capital trade points and other self-regulatory organisations; registration and regulation of capital market operators; collective investment schemes; and corporate restructuring. SECURITIES & EXCHANGE COMMISSION RULES & REGULATIONS: The ISA regulates the Nigerian capital market, aiming to ensure the protection of investors, as well as maintaining an efficient and transparent market. It established the SEC to regulate investment and securities transactions in Nigeria. The SEC keeps a record of all portfolio investments in public companies. As such, all foreign investors investing in securities of Nigerian companies – except those of private companies – are expected to register with the commission.
Foreign Investment Law
Under the current foreign investment regime, foreigners are permitted to do business or own investments in any sector of the economy, excluding those on the negative list.
Foreigners can invest in companies through foreign direct investment (FDI), as prescribed by CAMA, or through joint-venture agreements. Investment may also be in the form of portfolio investment (PI), made through the acquisition of stocks and bonds. NIGERIAN INVESTMENT PROMOTION COMMISSION: The NIPC Act established the Nigerian Investment Promotion Commission, which is the federal government agency responsible for promoting and supervising foreign investment activities in Nigeria. Foreigners seeking to invest through FDI are required, upon completion of their company registration, to register with the commission before commencing business activities. Additionally, investors seeking to invest through PI must complete their purchase of shares through the NSE. IMMIGRATION ACT & IMMIGRATION REGULATIONS: The Immigration Act is relevant in cases where some employees and/or employers of a business are not Nigerian. The administrative arm of the Immigration Act is the Nigeria Immigration Service, which oversees all immigration matters in the country. The act prohibits a foreigner from owning a business or company without obtaining the necessary permits or visa. Available permits include the Subject to Regulation Visa, Combined Expatriate Residence Permit and Aliens Card, temporary work permits and temporary residence visas.
To a considerable extent, the current Immigration Act focuses on attracting and encouraging FDI, innovation and entrepreneurship. In March 2017 new immigration regulations were issued, establishing a legal framework for the implementation of the Immigration Act. The provisions of the regulations are expected to fast-track the ease of doing business in Nigeria. An investor seeking to do business in the country is required to obtain the necessary immigration documents. NATIONAL OFFICE FOR TECHNOLOGY ACQUISITION & PROMOTION ACT: The National Office for Technology Acquisition and Promotion (NOTAP) Act was enacted to monitor the transfer of foreign technology to Nigeria, along with other related or incidental matters. It established NOTAP, which is responsible for administering its provisions. All contracts or agreements dealing with the transfer of foreign technology to entities in Nigeria are, according to this law, required to be registered with NOTAP within 60 days of execution or conclusion of such contract or agreement. The Central Bank of Nigeria (CBN) has the right to refuse the repatriation of fees, profits or royalties in respect of any contract involved in the transfer of foreign technology to Nigeria that is not registered with NOTAP.
The Foreign Exchange ( Monitoring and Miscellaneous Provisions) Act (FEMA) was enacted to establish an autonomous foreign exchange market, and acts to regulate transactions relating to foreign exchange in Nigeria. A foreign investor seeking to import capital to Nigeria for investment purposes – either through FDI or PI – is required to do so through an authorised dealer, which is usually a commercial bank appointed by the CBN, and obtain a certificate of capital importation (CCI), issued by the CBN.
The CCI guarantees unconditional repatriation and transferability of funds, including earnings and capital (net of taxes), through an authorised dealer in a freely convertible currency.
Opportunities & Incentives
There are many opportunities for investment, including agriculture, packaging and export, mineral exploration, fashion and design, entertainment and show business, oil and gas, and real estate and construction. Incentives for investment include:
• Foreign participation in shares acquisition in indigenous companies;
• Guarantee of ownership with no threat of nationalisation or compulsory acquisition of a foreign investor’s interests by the government (should there be a case of compulsory acquisition, the owner is entitled to fair and adequate compensation);
• Guaranteed unconditional transfer/repatriation of the proceeds of any investment in Nigeria (net of taxes) through an authorised dealer;
• Tax relief in the form of capital allowances, and deduction of expenses incurred wholly, exclusively and necessarily in the course of the business;
• Tax relief claims under double tax agreements between Nigeria and a foreign treaty country;
• Access to effective dispute resolution mechanisms that are not restricted to the national courts;
• Eligibility to receive more allowances where investment is made in economically disadvantaged areas;
• Tax holidays: a pioneer status certificate is issued by the NIPC to qualified companies dealing in certain listed goods. Holders of this certificate enjoy tax holidays for certain number of years;
• Rural investment incentives: companies located in rural areas (at least 20 km from available electricity, water and tarred roads) attract certain tax reductions;
• Tax relief/exemptions in respect to interest on foreign loans: for example, interest on loans obtained to do business or invest in Nigeria, payable after 10 years, are exempt from tax; and
• Tax relief on double taxation treaties: an investor liable to pay tax in Nigeria will be exempt from doing so if such tax has already been paid in a commonwealth country or country with a double taxation agreement with Nigeria.
There are various laws that regulate activities in the labour sector. These laws respectively govern the day-to-day relationship between employer and employees, along with the activities of trade unions and other related stakeholders.
The Labour Act is the primary law that controls labour activities in Nigeria, with the legislation providing a particular focus on contract of employment, wages, welfare, termination and repatriation.
Contract Of Employment
Written employment contracts are required to be given to employees within three months of employment, are enforceable only against the worker (except provided otherwise under the contract), and end at the expiration of the period of employment, the death of the worker or by notice. An employee under contract may be subjected to a medical examination by a registered medical practitioner.
All contracts made on behalf of employers by persons so authorised are enforceable against them. In a contract of employment, the consent of a worker must be obtained prior to transferring the contract to another employer.
Wages are payable in legal tender or, subject to the worker’s written consent, payable by cheque or postal order.
An authorised labour officer must consent to the deduction of the employee’s salary for any fine payable arising from any injury or loss intentionally caused by the worker to the employer. All deductions relating to contributions to trade unions, pension funds and others are limited to one-third of the employee’s salary and subject to the individual’s consent. Employers may provide their employees with food, a dwelling place, or any other allowance or privilege as part of the worker’s remuneration, if prescribed by law. Advanced payment of wages in excess of one month’s worth of an employee’s wage is not allowed.
Welfare Of Employees
The work hours can be fixed by mutual agreement, collective bargaining within the organisation or industry concerned, or by an industrial wages board. An employee is eligible for overtime where he/she works overtime, along with other entitlements such as annual holiday with pay, which may be mutually postponed, and 12 working days’ salary in one calendar year during absence from work caused by temporary illness.
If a foreign worker is unable to carry on his/her work under any contract of employment, the employer is required to repatriate the worker to his/her country. Also, where the foreign worker dies in the event of repatriation, the employer is required to repatriate the family of the worker.
Women & Minors Under Employment
The Labour Act imposes restrictions on night work for female workers, excluding employed nurses or women holding managerial positions. The law further forbids women under any contract of employment from working in mines, except where they hold managerial positions, health and welfare positions, or are in the course of their studies.
Under a contract of employment where a medical practitioner has certified that a woman is to be confined within six weeks, she is not to work for the period and is entitled to not less than 50% of her earned wages for the period she has worked.
The minimum age to enter into a contract of employment under the Labour Act is 16, except in the case of contract of apprenticeship.
Termination & Notice
Either party (employer or employee) may terminate a contract of employment by giving written notice to the other party of their intention to so do. The notice is required to be either: (a) one day, where the contract has continued for a period of three months or less; (b) one week, where the contract has continued for more than three months but less than two years; (c) two weeks, where the contract has continued for a period of more than two years but less than five years; and (d) one month, where the contract has continued for five years or more.
A party is permitted to waive their right to notice, and also to receive payment in lieu of notice. All wages of an employee payable in cash are required to be paid on or before the expiration of the notice. When an employer is giving notice to terminate an employee’s employment who has been employed for three months or more, they are not liable to pay wages for the period in which the employee was absent. The National Industrial Court (NIC) has exclusive jurisdiction in all civil causes and matters relating to labour and employment.
Safety Of Employees
The activities of factories in Nigeria are regulated by the Factories Act. It prohibits factory overcrowding, and mandates the provision of proper lighting (artificial or natural) in work areas, clean sanitary conveniences and environment for the employees, and maintenance of general employee safety in the factory.
Factory owners are mandated to provide proper training and supervision on work machines capable of causing bodily injuries, as well as the installation of fire detectors and escape plans in the factory.
Floors, passages and stair cases of factories are also required to be kept safe at all times to ensure the safety of employees. Factory owners are mandated to install fire detectors in every part of the factory where employees work. A fire escape should also be provided in case of an emergency.
Compensation of employees in the industrial sector is regulated by the Employees’ Compensation Act (ECA), which applies to both public and private entities.
The purpose of the ECA is to provide adequate and fair compensation for any death, injury, accident, occupational disease, hearing impairment, mental stress, injury, disease and so on that may arise during the course of employment.
Compensation is required for injury sustained in the employee’s principal or secondary residence, the place where the employee usually takes meals and the place where he or she usually receives remuneration provided that the employer has prior notification of such place. If injury or disease is caused by accident and the accident arose out of the employment, it is presumed that the injury occurred in the course of employment.
Trade Union Activities
Trade union activities in Nigeria are regulated by the Trade Union Act (TUA). A trade union is any combination of workers or employees who come together to regulate the terms and conditions of employment of workers. According to the TUA, a federation of trade unions may also be formed by two or more trade unions whose members are employed in the same trade or industry.
Peaceful Assembly Of Union Members
The TUA made it lawful for one or more persons under the umbrella of any registered trade union in furtherance of trade disputes to come together in a solidarity move on behalf of its member(s) for the purpose of peacefully persuading any person to work or abstain from working.
The TUA also allows an employer to make deductions from the wages of any employee, who is a member of any trade union, for the purpose of paying contributions to the trade union.
Trade Disputes Resolution
The Trade Dispute Act regulates disputes and other related matters arising from trade and work places. Trade disputes are meant to be first settled amicably if such agreements exist between disputing parties. If no such agreements exist, disputing parties are required to refer the dispute to a mediator within seven days of the date on which the dispute arises.
If mediation fails, parties to a trade dispute can resort to the NIC, which was established by the NIC Act as the court of first instance for the resolution of civil trade disputes.
The Land Use Act (LUA) applies to the whole of Nigeria. There are other laws that are applicable only in certain areas of the country. The LUA vests title to land in all states of the federation in the governors of the respective states who hold land in trust for the use and benefit of Nigerians.
The Acquisition of Lands by Aliens Law (ALAL), operating in various states, and the Acquisition of Lands by Aliens Act, which operates in the Federal Capital Territory of Abuja, allow aliens to own property for a maximum period of 25 years, providing the written approval of the governor of the relevant state is obtained.
In addition, a foreigner or foreign company who wishes to acquire longer interest or right over land may seek an exemption from the provisions of the ALAL. The Lagos State government and some other states have exempted some foreign entities from the prohibitions of the ALAL.
A foreign entity or investor may also choose to incorporate a real estate company in Nigeria, and be able to acquire land if a majority of the shares of such companies belong to Nigerians. Foreigners can also subscribe to shares in existing Nigerian real estate companies.
Property & Conveyancing Law
The Property and Conveyancing Law (PCL) lays down the procedures that must be adopted before, during and after the sale of land or property. The PCL’s jurisdiction covers the states within the former Western State of Nigeria, with the exception of Lagos State.
The Conveyancing Act, like the PCL, also deals with the aspect of conveyancing and disposition of interest in property. The law applies in the states making up the former Eastern and Northern Regions of Nigeria.
Stamp Duties Act
This law applies in all states with regards to land documentation requiring stamp duties. Such documents are inadmissible in court until duly stamped by relevant authorities.
Land Instrument Registration Law
This requires the registration of instruments affecting land, and also the filing of judgments affecting land, including powers of attorney. Registration of such instruments can only be made after the requisite consent of the relevant governor has been obtained.
Lagos State Lands Registration Law & Lagos State Properties Protection Law
The Lagos State Lands Registration Law (LLRL) came into force in January 2015, and the Lagos State Properties Protection Law (LPPL) in 2016. The laws provide for land registration and protect land purchasers from land-grabbers. The LLRL replaced previous legislation on land matters in Lagos.
The approval of the governor is required to transfer part or all of a seller’s interest in land to a third party. Consent is also required for mortgage transactions.
Nature Of Interest In Land
With the inception of the LUA, Nigerians and foreigners who are able to acquire land can only obtain leasehold interest in land because freehold interest has been abolished. Leaseholds are encapsulated in the term “right of occupancy”, which may be statutory or customary. The LUA, upon coming into force in 1978, granted holders of land deemed rights of occupancy.
Thus, no individual or holder of land has absolute ownership. What holders of land possess is the renewable right of occupancy (99 years), the remainder of which they can transfer in the form of leasehold to any person – including a foreign investor – provided the consent of the governor has been obtained.
Land is transferred through deed of assignment after preliminary contracts, like contract of sale, have been executed. The governor’s consent is required to complete the transaction. Deeds of assignment, as well as mortgages, are required to be registered at appropriate lands registries after the requisite consent has been obtained.
This must be done before land certificates are issued. A land certificate is prima facie evidence of title backed by the state.
A foreign investor who does not intend to permanently remain in Nigeria also has the option of leasing a location (common lease, for terms exceeding three years) for business. In this regard, a deed of assignment is unnecessary, as all that is required is a deed of lease.
Protection & Diligence
Real property remains a viable area of investment in Nigeria, especially in the country’s major commercial areas of Lagos, Abuja and Port Harcourt.
The Illiterates Protection Act (laws of various states) voids any contract/transaction, including land, signed by an illiterate who did not understand the content of the agreement, nor have the content explained to him/her in a language he/she understands. The LPPL makes it a criminal offence for anyone without the relevant lawful authority to alienate land.
Major public enterprises in Nigeria, including the power and telecommunications sectors, have been successfully privatised over the last few years. Investors see it as an opportunity to expand their businesses, while the government views it as a tool to boost the overall economy.
The major law regulating privatisation and commercialisation activities of public enterprises is the Public Enterprise (Privatisation and Commercialisation) Act (PEPCA).
The PEPCA permits the sale of shares of public enterprises either by public issue or private placement to interested private investors. The PEPCA provides for a total of 95 public enterprises to be privatised or commercialised: 25 of which are to be fully privatised, 37 to be partially privatised, 26 to be partially commercialised and 9 to be fully commercialised.
Enterprises listed for partial privatisation include those involved in telecommunications; power generation; fertiliser, gas, paper, steel and aluminium production; and machines, tools, mining, media, transport, aviation, insurance and sugar companies.
Enterprises to be fully privatised include hotels; cement and utilities companies; commercial banks; agro-allied and infrastructure industries; and motor vehicle and truck assemblies.
According to the NCP, full privatisation means divestment from the designated enterprise by the federal government of all its ordinary shareholding; whereas, partial privatisation is the divestment from the designated enterprise by the federal government of part of its ordinary shareholding.
Full commercialisation implies that enterprises will be expected to operate profitably on a commercial basis and able to raise funds from the capital market without a government guarantee.
Partial commercialisation means that said enterprise will be expected to generate enough revenue to cover their operating expenditures. The government may consider giving capital grants to finance capital projects, however.
The PEPCA established the NCP, which determines the agencies to be privatised and the mode of privatisation. It also determines policies, and the legal and regulatory framework for privatisation. Its powers are quite vast as it is also tasked with the supervision of the Bureau of Public Enterprise (BPE).
The BPE is responsible for implementing and overseeing the sale and privatisation processes of state-owned enterprises. Additionally, the BPE performs other policy functions as may be assigned to it by the NCP from time to time.
Already privatised sectors, such as power and telecommunications, have experienced positive gains. Under the management of private hands, these sectors have become more profitable, and improvements have been made in the standard of services rendered.
Other benefits include the attraction of FDI, which has increased competitiveness, staff quality, supervision and technology transfer.
Privatisation of some public enterprises and assets is borne out of the understanding that there are some services that are better provided by the private sector. For instance, the telecommunications industry is performing very well compared to when it was a public enterprise operating under the name Nigerian Telecommunications.
The power sector has also been witnessing some improvements due to privatisation in the country. Indeed, the private sector is generally more efficient at managing resources – a task that government institutions may find more challenging. In this regard, privatisation presents countless investment opportunities for investors, both domestic and foreign.