Business Registration in Nigeria
This article provides a brief overview of the features of different legal forms available for businesses in Nigeria; it as well details the
practical requirement for incorporating or registering same under the law.
1.1. Artificial Legal Personality
One of the foundations for business success is the separation of the business from the individual. The idea is to give the business a life if its own. The concept of “artificial legal personality” in law is a response to this. It refers to situations where the law clothes non-human entities (for example businesses) with qualities of a “person”. The reason is that these entities are composed of several persons (employees, management etc.) whose actions and decisions cannot be ascribed solely to any particular natural (human) person. Some of such incidences of “person” are: power to own property, capacity to sue.
Thus companies for instance are “artificial legal persons” whose actions
are distinct from the human persons that own, manage or work in them. A
company director is not liable to pay you a debt he received from you if the
debt was received in the company’s name.
Hence in dealing with such legal personalities, extreme caution must be observed. A person can form a company, use it to receive loans and thereafter abandon that company and form another one. In that case you cannot pursue him to recover the debt from him as an individual or from his new company. Advice of a lawyer
is required when dealing with legal personalities to avoid such unpleasant scenarios.
The main difference between artificial and natural persons is perpetual
succession –artificial persons do not die even if all its owners, managers
and workers die.
1.2. Companies and Allied Matters Act (1990)
The principal law regulating the incorporation/registration of businesses in Nigeria is the Companies and Allied Matters Act 1990 (CAMA). It creates the sole company’s registry in Nigeria: the Corporate Affairs Commission (CAC), it provides for the incorporation and regulation of different kinds of companies, the registration of business names and the incorporation of Trustees of Non-Profit Organizations.
1.3. Business Forms
Common forms for business include; Private Limited Liability Company (Ltd); Public Limited Liability Company (Plc); Unlimited Liability Company
(Unltd); Limited by Guarantee (Ltd/Gte), Registered Business Names (BN); Incorporated Trustees (IT).
2.1 Private Limited Liability Company (Ltd)
Is the smaller and more common unit of formal legal personality for a business. It is flexible in terms of requirements for incorporation and management and combines the advantages of legal personality (for example perpetual succession) with flexibility and privacy as ownership remains with the founders and its records are not published. It is suitable for SME’s and family businesses. It can also be upgraded to Plc or Unltd when it expands.
2.2 Registered Business Names
A business name is not a legal personality but merely a registration of the name a business uses so as to notify the public of its owner. The property of the business name belongs to the owner(s) personally. It terminates at the owner’s death. It is suitable for SME’s, sole proprietors and partnerships but lacks advantages of legal personality.
2.3 Public Limited Liability Company (Plc)
Big companies whose ownership (shares) is open to the public and may be quoted on the stock exchange. Unlike Ltd, they can have more than 50 owners. Requirements for incorporation and management are strict. They require additional regulation from the Securities and Exchange Commission (SEC) to be quoted on the stock exchange. They lack privacy as certain records (e.g. financial and management) must be published.
2.4 Unlimited Liability Company (Unltd)
This is rare in Nigeria, but are usually large trans-nationals. Unltd unlike Ltd and Plc are companies that have the advantage of legal personality but the members bear personal liability for the company’s businesses losses. In Ltd and Plc, the owner’s responsibility for business loses is limited to paying for the shares they own and no more. Stringent regulations also govern their registration and management.
2.5 Limited by Guarantee (Ltd/Gte)
Ltd/Gte is really not a business form in the traditional sense. It is a special creation of the law for Non-Profit Organizations (NPO) such as charities, learning institutions, NGO etc. While it may carry on activities that generate income, such income cannot be shared as profit between the owner’s, the profit must be applied to fulfil the companies stated aims and objective. The owners liability to business losses is limited to an amount which they
guarantee to pay in the event the company folds up
2.6 Incorporated Trustees (IT)
Is also another special creation for NPO’s. It is an association of people who aim to promote either religious, socio-cultural or such objectives on a not-for- profit basis. It is not a legal personality, but incorporation confers legal personality on the responsible members called Trustees whom the association has appointed. Most religious bodies (churches, mosques) and social association (eg old students) register under this category. The requirements for registration of the two most common business forms (Ltd and Business Names) are detailed below, requirement for the others
are available on request
3.1 Incorporating a Private Limited Liability Company
Incorporating a Ltd at CAC includes payment and filing of the following documents:
i. Form CAC 1 (Name Reservation): The application allows for two proposed names, processed in order of preference. Name must not conflict with existing companies or be objectionable. Advice of an experienced lawyer in name selection is helpful.
ii. Form CAC 7 (Directors): At least 2 adults (above 18). Information required: full names, nationality, address, phone no., e-mail and copy of means of identification (i.e. International Passport, Driver’s License, National ID or Voter Card).
iii. Form CAC 2 (Subscribers): The original shareholder (owners) of the company. Must include 2 adults, may and usually are also Directors. Must also provide same information required from Directors. Where tender children lacking means of ID are included, birth certificates will suffice. State their shareholding percentages.
iv. Memorandum and Articles of Association (Memart): Sets out the business objects of the company and defines and regulates operations. Business objects must be lawful; however certain objects require special qualification by at least one of the Directors, e.g. engineering, hospitals. Advice of a lawyer is required to prepare it.
v. Form CAC 3 (Registered Address): Proper street address located in Nigeria.
vi. Form CAC 2.1 (Company Secretary): A company must appoint a person competent in corporate matters as its Secretary.
vii. Stamping: Stamp duty (ad valorem the share capital) is paid to the Federal Inland Revenue Service (FIRS) to stamp the Memart and Form CAC2.
viii. Miscellaneous: Foreign subscribers or Directors should produce their residence permit or furnish their foreign address. Where another company is a subscriber, produce a copy of its certificate, a resolution signed by 2 Directors and its common seal for execution of the Memart.
ix. Form CAC 4 (Statutory Declaration): Upon assembling all the documents, a lawyer must peruse them and make a sworn declaration that all the requirements of the CAMA has been complied with in respect of the Incorporation.
Incorporation Documents: Upon successful incorporation, CAC issues: a Certificate of Incorporation bearing the company’s RC (Registered Company) number, as well as Certified True Copies (CTC) of the Memart, Form CAC 2 and 7. CTC of other forms may be obtained upon extra payments.
3.2 Registering a Business Name
Involves payment and submitting the following information and documents
i. Form CAC 1 (Name Reservation): Same requirement as Ltd above.
ii. Form 2 (Business Name Jacket): Information to be supplied include:
Nature of business, business address, full name, 2 colour passport photographs, nationality, phone no., e-mail, copy of means of identification (i.e. International Passport, Driver’s License, National ID or Voter Card) occupation, age, sex, former nationality or names (if any) of proprietor or partners. If a minor (below 18 years) is involved, an attestation by a lawyer, Senior Police Officer or Magistrate is required.
iii. Corporate Proprietor: If a company is a proprietor or partner, a copy of its Certificate of Incorporation, Form CAC 7, evidence of payment of annual returns and a resolution signed by 2 Directors and its iron seal for execution is required.
iv. Proficiency Certificates: If the nature of business involves any regulated profession or business (e.g. law practice, accountancy, primary or secondary school e.t.c.) All (not just some) of proprietors or partners must produce relevant proficiency certificates to show that they are qualified in that field.
Emmanuel Ukpai is a seasoned Lawyer who trains and advises SME owners on legal issues.