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Overview: Company Formation in Nigeria

Published on : 25 Oct 2020

Company Formation in Nigeria

"Business opportunities are like buses, there's always another one coming." – Richard Branson

Richard Branson's Virgin proved that be it record labels or airlines, where there is a will there is definitely a way. The door might not always be open, but sometimes it's ajar or the key is under the carpet. All you need to do is pick the key and turn the lock. Basically, the right environment for success ebbs and flows, but a keen business person is never passive.

Companies are certainly a veritable vehicle for carrying out business and the advancement of societal goals. In the same vein, companies are the greatest contributors to the Gross Domestic Product of the countries and by implication, the per capital income. Companies are seen as a means of creating wealth. Hence, it is pertinent that the law and procedure on the formation of companies must be certain, simple and expedient. Furthermore, companies can attract the foreign investment required for development where there is the ease of doing business. 

The primary law governing the businesses and companies in Nigeria is the Company and Allied Matters Act (CAMA), which deals with various types of company structures, their eligibility, registration process, and rules for operation.

Corporate Affairs Commission (CAC) is the regulatory body in charge of implementing the provisions of the CAMA.

The business structures allowed in Nigeria are registered business name, a company limited by shares, a company limited by guarantee, unlimited company (all companies may be private or public), and incorporated trustees.

Among the criteria for ranking countries in the 'World Bank's Ease of Doing Business Report' is the simplicity and speed for starting a business. Consequently, the Corporate Affairs Commission (CAC) acting on the executive orders of the Presidency in the first quarter of 2017 initiated some reforms on the formation of companies in Nigeria.

I.          Name of the Company

In Nigeria, the first step to incorporate a company is to conduct a "name availability search" at the CAC to confirm the availability of the desired name for the company. This step involves ensuring that the said name is not identical or similar to the name of any existing company or any existing trademark or trade name. The name must not be such which is unacceptable to the CAC.

When the CAC confirms the availability of the desired name, same will be exclusively reserved for an initial period of sixty days further renewable for sixty days, subject to availability of the name. Throughout the reservation period, no other company can be registered with the reserved name or any name which, as per CAC's opinion, is identical or similar to the said reserved name.

II.         Objects of the Company

As per the provisions of CAMA, the Memorandum Of Association (the MOA) of every company, which is filed at the CAC along with an application to incorporate the company, must include the objects for which the company is being incorporated. The entities may engage in several types of business; however, there are certain prohibited businesses, for instance, the manufacturing of arms and ammunitions; manufacturing and dealing in narcotic drugs and psychotropic substances; as well as the production of military and para-military wears and accouterment.

III.       Documents Required

The next step is that the following documents must be completed and filed online:

  1. Memorandum of Association and Articles of Association (MOA & AOA)

MOA & AOA are the constitutional documents of the company. The MOA sets out, along with other information, the objects of the company, a description of the type of company, and the authorized share capital of the company.

The AOA regulates the internal governance and administrative procedures of the company.

The MOA and AOA must be subscribed to by minimum two entities, both of whom/ which, generally, can be non-Nigerians and whom/ which must jointly subscribe for a minimum of 25 percent of the company's authorized share capital.

Each subscriber must submit a recognized form of identification (any nationally recognized means of identification). If the subscriber is a corporate entity, it must submit a copy of its certificate of incorporation and a resolution of its board of directors authorizing it to subscribe for shares in the proposed company. The resolution shall be printed on the subscriber's letter-headed stationery, signed by its directors and the subscriber's common seal must be affixed.

If any subscriber is a corporate entity, the CAC requires that such subscriber be represented by an individual, who will sign the MOA & AOA and other documents on behalf of the entity, in addition to affixing that subscriber's common seal.

  1. Application Form for Registration of the Company

In this form, the following information is required:

  1. Statement of Authorized Share Capital and Return of Allotment of Shares 

  1. Particulars of Directors- There must be at least two individuals appointed as the directors. Generally, the directors need not be Nigerians, but they must be at least eighteen years old.

  1. Notice of registered office address

  1. Particulars of the Company Secretary

  1. Declaration of Compliance with the CAMA Requirements 

IV.         Share Capital

  1. Authorized Share Capital

As per CAMA, the minimum authorized share capital for a private company is generally Naira 10,000; whilst for a public company is Naira 500,000. If any of the subscribers to the company's MOA & AOA is a foreign entity, the NIPC (Nigerian Investments Promotion Commission) requires that such a company must have a minimum authorized share capital of Naira 10,000,000.

  1. Issued Share Capital

At incorporation, and during its existence, the company's issued share capital must be minimum of 25 percent of its authorized share capital.

  1. Paid-Up Share Capital

There is generally a statutory requirement that the minimum amount of a company's issued share capital must be paid up.

V.         Management

The company acts through its member or shareholders in general meeting or its board of directors or through officers, managers or agents appointed by the members in general meeting or the board of directors. The AOA often permits the board of directors to delegate functions to a managing director and other executive directors or to the board of directors' committees.

To employ any expatriate personnel, the company is required to obtain expatriate quota approval from the Nigerian Immigration Service.

VI.       Other Permits

  1. Importation and Repatriation of Investment Capital

The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, Cap F34 LFN 2004 ("FEMMA") specifies that a person investing in any Nigerian enterprise with foreign currency imported into Nigeria may do so through an authorized dealer by telegraphic transfer, cheques or other negotiable instruments converted into Naira. The foreign investor is required to specify the Nigerian beneficiary of the investment funds and the purpose thereof. Certificate of Capital Importation must be issued by the authorized dealer, evincing receipt of investment capital, within 24 to 72 hours of funds inflow.

The FEMMA provides that the foreign currency imported into Nigeria for investment purposes is guaranteed unconditional transferability through an authorized dealer in freely convertible currency. Unconditional convertibility and repatriation will also apply to yields on investment funds and in the event of a divestment. The FEMMA also permits the operation and maintenance of domiciliary accounts.

  1. Certificate of Business Registration

As per the Nigerian Investment Promotion Commission Act, Cap N117 LFN 2004 ("NIPCA"), any company with non-Nigerians participants must register with the NIPC and obtain a Certificate of Business Registration from the NIPC prior to carrying on business in Nigeria.

NIPC shall register the enterprise, within seven working days from the date of receipt of completed registration forms, provided it is satisfied that all relevant documents for registration have been duly completed and submitted.

  1. Business Permit

A non-citizen of Nigeria shall not establish a business without obtaining the consent of the Minister responsible for immigration matters (Section 8 of the Immigration Act, Cap I1 LFN 2004). The consent is usually obtained after the company's incorporation has been concluded when the "Business Permit" is issued by the Department of Citizenship of the Federal Ministry of Interior.

  1. Expatriate Quota Approvals

To employ non-Nigerian personnel, it is the duty of the company to obtain an expatriate quota approval. Expatriate quota approvals are valid for a specified period and are renewable for consecutive terms.

The company is also required to file monthly returns regarding the approved expatriate quota positions specifying the employees who hold the approved positions and details of the Nigerians understudying the expatriates holding the said positions.

The expatriate employee, upon securing the expatriate quota approvals, must obtain a CERPAC, which permits him/her to reside and work in Nigeria. The CERPAC is issued by the Nigerian Immigration Service to the non-Nigerian employees upon their arrival in Nigeria.

  1. Transfer of Foreign Technology

Any contract entered between any company in Nigeria with a foreign company that involves transferring of foreign technology to the Nigerian company must be registered with the National Office for Transfer Technology Acquisition and Promotion (NOTAP) within sixty days from the date of execution of such contract. The registrable contracts also include agreements between a Nigerian company and its overseas parent involving such transfer. The registration process usually is completed within five weeks from the date of submission of all the required documents to NOTAP.

Tax for Company Registered in Nigeria

Both the resident and non-resident corporations are subject to corporate tax of 30 percent on net profits. The LLC in Nigeria is liable to pay a VAT rate of 5 percent on goods unless it is incorporated within a Free zone, in which the VAT is zero percent.

Under the Nigeria tax law, companies are liable to pay withholding tax on the payment made to non-resident like interest, royalties and other service fees. The rate of withholding is 10 percent of gross payment.

Free Zones

In Nigeria, the Free zones are rewarding areas which help to attract foreign investors and further provide employment opportunities to the native people. Free zone companies permit foreign entrepreneurs to import and export without any taxation in Nigeria.

There is a total of 33 Free zones in Nigeria.

For setting up a company in the free trade zones, specific steps need to be taken. These steps are standard for all the free zones in Nigeria:

  1. Fill up the application form and submit the completed application form in the Zone Administration office or Nigeria Export Processing Zone Authority (NEPZA) in Abuja. The application shall be reviewed within five working days, and either accepted or rejected by the administration.
  2. On approval, an Operating License (OPL) will be issued by the Administration of the Free Zone, and then the Free Zone Administration will discuss the site location and assign a space.
  3. Certificate of Importation must be received through one of the banks located in the zone.
  4. The investors must submit four copies of full architectural drawings for approval by Zone Management to start the construction. The built-up spaces must not exceed 70 percent of the leased land, and construction must start within three months after the execution of the agreement.
  5. The permissions for the foreign nationals and employees shall be done at the immigration desk offices in the free zones.


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