LEARNING OBJECTIVES:

Understand the Institutional Framework guiding Business formation and administration in Nigeria

Understand the process of Company formation and the type that is best for your business

Legal requirement for effectively running your business

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INTRODUCTION

Business concerns are established with the objective of making

profits. They can be established either by one person or by a group of persons in the private sector, government or other public bodies in the public sector.

A business started by only one person is called a sole proprietorship. The business started by a group of persons can be either a Partnership or Joint Stock Company or a Co-operative form of organization. These are corporate forms of organization and cannot start operations unless they are duly registered under the laws governing their functions.

On the other hand, non-corporate form of business can start

without registration though they will be limited in so many ways. For you to access YouWIN grant, you will have to be registered.

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Launching your business...

Determine your business structure, the following factors must be considered:

a. The level of control you want to have over the business. b. The level of formality you need within the organisation. c. The need to protect oneself against liability for business

actions.

FRAMEWORK FOR THE ADMINISTRATION OF BUSINESS IN NIGERIA

In order to operate a business or carry on business activities in Nigeria,

there are certain laid out rules and regulations must be followed by an intending entrepreneur whether it’s a small scale business, or a large organisation.

These requirements have been put in place by the Nigerian government and several of its agencies. Examples include:

The Corporate Affairs Commission (C.A.C) The Nigerian Investment Promotion Commission (NIPC) Securities and Exchange Commission (SEC) The National Office for Technology Acquisition and Promotion

(NOTAP)

We will examine them concurrently in the notes.

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TYPES OF BUSINESS ORGANIZATIONS IN NIGERIA

These are classified into the following:

Sole Proprietorship

Partnership

Corporations

Co-operative Societies

Chartered Companies

Registered Companies

I. Private Limited Liability Company

▪ Limited by Shares

▪ Limited by Guarantee

II. Public Liability Companies

III. Unlimited Companies

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A sole proprietorship or one man’s business is a form of

business organisation owned and managed by a single person. He is entitled to receive all the profits and bears all risk of ownership.

Advantages:

Ease of formation ; Very straight forward and less expensive

Motivation: All profits belong to the owner,

Freedom of Action: You are the Sole Authority

Quick Decision: No need for consultation or discussion with anybody.

Flexibility: Can adapt to changing needs with comparative ease.

Personal Touch: comes into close contact with customers as he himself manages the business.

Business Secrecy: Maintaining business secrets is very important in today’s competitive world.

Social Utility: Encourages independent living and prevents concentration of economic power.

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SOLE PROPRIETORSHIP

S Disadvantages LE PROPRIETORSHIP:

Limited resources: one man’s ability to gather capital will always be

limited.

Limited Managerial Ability

Unlimited Liability: Will be discouraged to expand his business even when there are good prospects for earning more than what he has been doing for fear of losing his personal property.

Lack of Continuity: uncertain future is another handicap of this type of business. If the sole proprietor dies, his business may come to an end.

No Economies of Large Scale: As the scale of operations are small, the owner cannot secure the economies and large scale buying and selling. This may raise the cost of production.

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Section 4 of the Partnership Act, 1932 defines Partnership as “the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”

PARTNERSHIP

PARTNERSHIP - Advantages HIP

Ease of formation Large resources Better organisation of business Greater interest in business Prompt decisions Balanced judgments Diffusion of risks Protection to minority interest

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PARTNERSHIP - Disadvantages

Great risk

Lack of harmony

Limited resources

Tendency to play safe

No legal entity

Instability

Lack of public confidence

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CORPORATIONS

Corporations are usually creations of an Act of Parliament formed for the sole aim of rending social Services to the public.

It has legal personality , thus making it distinct from the individuals that formed it, with its right to sue and be sued.

Examples are Nigerian National Petroleum Corporation which was created by the provisions of Nigerian National Petroleum Act N123 Laws of the Federation of Nigeria.

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REGISTERED COMPANIES

When a business is registered with the C.A.C it ceases to be a mere venture and becomes a corporate entity recognized as a person with rights and obligations. This is the doctrine of Legal Personality under section 37 of CAMA, 2004.

Registered companies are created through incorporation under section 35 and 36 of CAMA 2004 by the process of registration. Here, the Company officers are the directing will and mind of the Company and do not occupy the office in perpetuity as there are statutory limits to how long they can stay in office per time.

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Company Limited by Shares: In this company the liability of a member to contribute to the company’s asset in the event of liquidation or winding up is restricted to the amount , if any unpaid on his shares. The provisions of Section 21 (1) (a) of CAMA handles this.

TYPES OF REGISTERED COMPANIES

REGISTERED COMPANIES

Company Limited by Guarantee: Here, the liability of a member is limited to the amount which he has undertaken to contribute in the event of the company being wound up. So its based on an agreement.

“Such a company shall not be incorporated with the object of carrying on business for the purpose of making profits for distribution to members.”

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REGISTERED COMPANIES

Unlimited Company: According to section 26 of CAMA, it must have a share capital and the liability of its members are unrestricted as they may be liable for the full amount of the company’s debt.

Private Company : Section 22 defines it as a company whose membership is limited to 50 and its articles restrict the transfer or sale of shares to the public. Its memorandum also states it is a private company. Name ends with “limited” or “Ltd”

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REGISTERED COMPANIES

Public Company: This is any company other than a private company. If its limited by shares it must end with the word “Public Limited Company” or “PLC.”

The minimum share capital is N10,000 and N500,000 for private and public respectively.

COMPANY FORMATION AND THE INCORPORATION PROCESS

When a business is created at the initial stage, it cannot be said to have a legal backing on its own to sue or be sued. However, once such an organization is registered with the C.A.C it becomes a legal entity of its own and is recognized to have legal personality and can function without the backing of its members or founders.

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CAPACITY TO FORM A BUSINESS ORGANISATION

Some categories of persons are disqualified from being members of a company. Section 20 of CAMA enumerates these persons as follows:

Persons less than 18 years of age. The exception to this category lies in where two adults who are qualified to subscribe to the memorandum of Association of the company;

Persons who are of unsound mind and whose state has been confirmed by a court of law in Nigeria or elsewhere;

An undischarged bankrupt. This is a person who has been unable to pay its debts and has been so certified by the court;

Persons who are disqualified under section 254 of CAMA from becoming a director of a company;

A corporate body in liquidation shall not join in the formation of a company.

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Check availability of name from CAC form 200 naira

Prepare the requisite forms and memo and articles (sample in class) stamp at Federal Inland Revenue Service (FIRS)

CAC 4- declaration by legal practitioner or accountant or chartered secretary of compliance sworn to at state high court for 250 naira,

Register company at CAC and pay fee at desk. You will need the following documents: CAC1,3,7 & Copies of Memo and article (2),

Fees- N10,000 for company whose nominal share capital does not exceed N1m, and N10,000 for 1st N1m and 10,000 for additional N1m

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Procedure

1. 500 naira for each additional copy of memo and article,

2. 3000 for certified true copy of memo and article,

3. 2000 for certified true copy of particulars of directors,

4. 2000 for certified true copy of particulars of shareholders,

5. N60,0000 for professional fees,

6. Register with FIRS and complete tax registration forms for

corporate income tax registration as well as VAT.

Stamp duties is payable at .75%

INCORPORATION DOCUMENTS

These include:

The Memorandum and Articles of Association

The Notice of the Registered office of the Company and the Head office if different from the registered office

Particulars of the first directors. These will obviously include the names, usual address, occupation and nationality of each director. This statement must be accompanied by a written consent of the named directors to act as such.

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INCORPORATION DOCUMENTS

A statement of the authorized share capital signed by at least one director

A statutory declaration in the prescribed form by a legal practitioner that all the requirements of the Act have been complied with; and

Any other document required by the Commission. See Section 35 of Companies and Allied Matters Act (C.A.M.A).

GUIDELINES AND RULES ON SELECTING A COMPANY NAME

As in other aspects of company formation, there are some basic rules laid down by the Companies and Allied Matters Act (CAMA) which require consideration when choosing a name for a new company. Some of them may be obvious, others might be less so.

Although, It may always be possible to change a company name later in its life, getting it right from the beginning, one which makes the right impression to the people with whom the company will engage with, can help the business immensely and should not be underestimated.

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Guidelines for choosing

a Company Name

1. It must not be the same as an existing company name 2. There must not be a similar company name already

registered 3. Using a dissolved company name is permitted 4. Upper and lower case company names do not distinguish

one from another which current exists 5. The use of Reserved or sensitive words require

justification 6. The company name must end with the word "limited". 7. It must not be an abusive, offensive or illegal name

Re- registration of a Private Company to

a Public Company Limited by Shares.

In most cases, companies are initially registered as a private company and

as a result of expansion or wider business scope , it is then converted to a public company usually limited by shares.

Section 50 of CAMA states the procedure as follows:

Pass a special resolution that it should be so re-registered, and;

Make consequential alterations in the memorandum and articles of association and;

Make an application on that behalf to the Corporate Affairs Commission , by virtue of section 50 (1) (2) of CAMA.

This procedure involves alterations during passing of the special resolution and applications that would be delivered with certain documents such as a written statement, balance sheet and statutory declaration by a director and company’s secretary.

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The Corporate Affairs Commission

The Corporate Affairs Commission is established and

empowered under the Companies and Allied Matters Act

to provide for the incorporation of companies and other

incidental matters, registration of business names and the

incorporation f trustees of certain communities, bodies

and associations.

Federal Inland Revenue Service

The object of the Federal Inland Revenue Service (FIRS)

shall be to control and manage the different taxes and

laws given by the National Assembly or other regulations

made by the Government of the Federation and to

account for all taxes collected.

WHO WINS?