Pre-incorporation To-Dos

Welcome to this edition of our Governance and Compliance Digest.

Today, we review Pre-incorporation matters that Promoters of a Company (i.e., the proposed Directors, Shareholders and other persons who take part in forming the Company) are to consider before applying for incorporation at the Corporate Affairs Commission (CAC).

The formation, and carrying on of business, in Nigeria commences with the registration of the business as either a Company, Business Name, Incorporated Trustees, Limited Partnership or Limited Liability Partnership with CAC, which is the first and foremost Regulator every proposed Company must interact with. This is in accordance with the Companies and Allied Matters’ Act (CAMA), 2020, the principal legislation that governs the formation and management of Companies and other forms of business organisations in Nigeria.

CAMA 2020 is, however, not the only business regulatory legislation that Companies seeking to carry on business or already carrying on business in Nigeria are subject to. Other business legislations include the Companies Income Tax Act and other Tax laws, Pension Reform Act, Nigerian Investment Promotion Commission, National Office of Technology Acquisition and Promotion Act, Nigeria Data Protection Regulation, Labour Act, Immigration Act, Immigration Regulations, Investment and Securities Act, Securities and Exchange Commission Regulation, Banks and other Financial Institutions Act, etc.

To incorporate a Company, some information about the proposed Company and its Promoters are required in its the Memorandum and Articles of Association, these are:

1. The proposed name of the Company.
2. The business objects of the Company.
3. The proposed registered address.
4. The proposed phone number and email of the Company.
5. The particulars of the Directors, which must be a minimum of two person except in the case of a Small Company, where a minimum of one is permitted (see here for details).
6. The particulars of the Shareholders, which must be a minimum of two except in the case of a Small Company, where a minimum of one is permitted.
7. The particulars of the minimum issued share capital.
8. The particulars of the proposed Company Secretary, which can be foregone by a Small Company.

Additionally, any desiring shareholder must be 18 years of age (legal age) and above and have the capacity for join in the formation of the Company. The exception to legal age rule, however, is that a person or persons below the legal age shall not be disqualified from joining in the formation where two other persons that meet all the capacity requirements (not disqualified) are among those partaking in the formation of such Company.

The foregoing are the more obvious incorporation considerations to persons who are familiar with the process. However, there are other considerations such as the nature of business to be carried on, the equity participation, makeup of the workforce (e.g employing Expatriates), inflow of Foreign Direct investment (FDI), transfer of Technology and Know-How, involvement in the money and capital market amongst others which dictates the sector of the economy the Company will fall under and its specific Regulators.

1. Minimum Share Capital Threshold

Every Company limited by liability is required to be registered with a minimum share capital, all of which must be fully allotted in accordance with the Companies Regulations 2021 made pursuant to CAMA 2020.

Section 124 of CAMA 2020 stipulates a general minimum issued share capital of ₦100,000 (One Hundred Thousand Naira only) for Private Companies and ₦2,000,000 (Two Million Naira only) for Public Companies.

Irrespective of the above, there are other industry-specific minimum share capital for designated businesses that are to be incorporated (see here).

2. Nature of Business: Subsequent Registration With Sector Specific Regulators

Registration with CAC and, subsequently, the Federal Inland Revenue Service (FIRS), which is arguably the second Regulator new Companies are to register with, is not the end of the registration compliance for many Companies.

Recently, the National Information Technology Development Agency (NITDA) proposed a Bill to amend the NITDA Act 2007. The amendment is envisaged to give NITDA more control over the budding technology ecosystem including e-commerce platforms, foreign digital services targeting the Nigerian market, and Financial Technology (FinTech) Companies.

Additionally, the Bill proposes mandating new license categorizations (Product License, Service Provider License and Platform Provider License), licensing fees, payment of 1% profit-before-tax levies for companies with revenues higher than ₦100 million into NITDA’s development fund, and penalties of fines and/or prison sentences for defaulting parties. This development will impact on Companies whose business objects, as evidenced by their Memorandum of Association, center on the identified aspects of the technology business sector, should the Bill be passed into law.

We also witnessed the clamp down on FinTech Companies by the Central Bank of Nigeria (CBN) for contravention of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act (Forex Act) in their Foreign Exchange dealings and for operating Asset Management businesses without the appropriate licensing from the Security and Exchange Commission (SEC).

The nature of business carried on by a Company can also impose registration and reporting obligations to the Special Control Unit on Money Laundering (SCUML). Tax Consultants, Audit Firms, Cars and Luxury Goods Dealers, Pool Betting, Supermarkets, Non-Governmental Organisations, are some of the businesses with this obligation (see here

Other Regulators include but are not limited to:

2. 2. 1. Department of Petroleum Resources (DPR) for Companies in the Oil & Gas industry.
      2. Central Bank of Nigeria (CBN) for Companies within the Financial Services sector.
      3. Securities and Exchange Commission (SEC) for public companies (listed or unlisted), Capital Market Operators and FinTech sector.
      4. Nigerian Communications Commission (NCC) for telecommunications and FinTech Companies.
      5. National Insurance Commission (NAICOM) for Insurance Brokers.
      6. Nigerian Electricity Regulatory Commission (NERC) for electricity licensees.

It is recommended that Promoters should seek adequate legal counsel prior to proceeding with the formation of their proposed Company.

3. Foreign Participation

Section 20(4) of CAMA permits foreigners or foreign Companies to join in the formation of a Company in Nigeria.

The Nigerian Investment Promotion Commission (NIPC) Act chiefly regulates foreign investment in Nigeria. Others for this purpose, are the Forex Act, the Central Bank of Nigeria Act, the Industrial Development Act, Immigration Act.

The NIPC Act allows foreign Nationals to own up to 100% equity and invest in any business in Nigeria except those indicated on the negative list as defined by Section 31 of the NIPC Act (such as production of arms, ammunition, narcotics, and related substances).

To conduct their business in Nigeria, Section 20 of the NIPC Act requires Companies with foreign equity or investment to be registered with the NIPC before commencing operations. Such Companies are required to, further to being registered with CAC with a minimum share capital of N10 million, apply for NIPC Business Registration Certificate, by submitting the following:

2. 2. 1. Duly completed NIPC Form.
      2. Certificate of Incorporation.
      3. Memorandum & Articles of Association.
      4. Status Report (for Companies registered in 2021) or CAC Form 1.1 or CAC Forms CO2 and CO7 (for old companies) Power of Attorney/ Letter of Authority (where applicable).
      5. Approved Remita payment receipt of a non-refundable ₦15,000.00 only.
      6. NIPC payment receipt

In addition to the NIPC registration requirement, Foreign Companies or Companies with foreign participation are to apply for and obtain a Business Permit from the Federal Ministry of Interior.

A Business Permit is a certificate granted to wholly foreign or joint venture companies intending to do business in Nigeria to enable them import investment and commence business activities in Nigeria. Failure to obtain Business permit is an offence and defaulting foreigners may be liable to deportation.

Companies that desire to employ the services of qualified expatriates would be required to apply for and be issued an Expatriate Quota under the provisions of the Immigration. This will be treated in a subsequent edition of our Digest.

For further discussion and assistance with filing any of your organization’s returns, as well as providing you with Board Evaluation and Nominee services, please contact us below