HOW FOREIGNERS CAN INVEST IN NIGERIA-THE LEGAL FRAMEWORK FOR BUSINESS ACTIVITIES

 PROCEDURE FOR INCORPORATING A BUSINESS ENTERPRISE BY A FOREIGN INVESTOR IN NIGERIA

       THE LEGAL FRAMEWORK FOR BUSINESS                                        ACTIVITIES

METHODS OF CONDUCTING BUSINESS

All business enterprises must be registered with the Corporate Affairs Commission. Business activities may be undertaken in Nigeria as a:  

(i)        Private Limited Liability Company; 

(ii)      Public Limited Liability Company (Plc);

(ii)   Unlimited Liability Company;

(iii)  Company Limited by Guarantee;

(iv)  Foreign Company (branch or subsidiary  of foreign company);

(v)   Partnership/Firm;

(vi)  Sole Proprietorship;

(vii) Incorporated trustees (religious, charitable, philanthropic or cultural);

(viii) Representative office in special cases.   

THE COMPANIES AND ALLIED MATTERS ACT AND INCORPORATION PROCEDURES

The Companies and Allied Matters Act, 1990 (the Companies Act) is the principal law regulating the incorporation of businesses. The administration of the Companies Act is undertaken by the CORPORATE AFFAIRS COMMISSION (CAC), which undertakes the administration of the Companies Act.  

Minimum Share Capital

The minimum authorized share capital is N10, 000 (Ten Thousand Naira) in the case of private companies or N500,000 (Five Hundred Thousand Naira) in the case of public companies with a minimum subscription of 25% of the authorized share capital respectively.

OPERATIONS OF FOREIGN COMPANIES IN NIGERIA

A non-Nigerian may invest and participate in the operation of any enterprise in Nigeria. However, a foreign company wishing to set up business operations in Nigeria should take all steps necessary to obtain local incorporation of the Nigerian branch or subsidiary as a separate entity in Nigeria for that purpose. Until so incorporated, the foreign company may not carry on business in Nigeria or exercise any of the powers of a registered company.  

The foreign investor may incorporate a Nigerian branch or subsidiary by giving a power of attorney to a qualified solicitor in Nigeria for this purpose. The incorporation documents in this instance would disclose that the solicitor is merely acting as an “agent” of a “principal” whose name(s) should also appear in the document. The power of attorney should be designed to lapse and the appointed solicitor ceases to function upon the conclusion of all registration formalities.  

The locally incorporated branch or subsidiary company must then register with the Nigerian Investment Promotion Commission (NIPC) before commencing formal operations. The new company may also apply to NIPC for other investment approvals (e.g. expatriate quota) and other incentives.  

Exemption to the General Rule

Where exemption from local incorporation is desired, a foreign company may apply in accordance with Section 56 of the Companies Act, to the National Council of Ministers for exemption from incorporating a local subsidiary if such foreign company belongs to one of the following categories:  

(a)   “foreign companies invited to Nigeria by or with the approval of the Federal Government of Nigeria to execute any specified individual project;

(b)   foreign companies which are in Nigeria for the execution of a specific individual loan project on behalf of a donor country or international organisation;

(c)   foreign government-owned companies engaged solely in export promotion activities; and

(d)   engineering consultants and technical experts engaged on any individual specialist project under contract with any of the governments in the Federation or any of their agencies or with any other body or person, where such contract has been approved by the Federal Government.”  

The application for exemption from disclosing certain details about the applicant is to be made to the Secretary to the Government of the Federation (SGF). If successful, the request of the applicant is granted upon such terms and conditions, as the National Council of Ministers may think fit.  

Representative Offices

Foreign companies may set up representative offices in Nigeria. A representative office however, cannot engage in business or conclude contracts or open or negotiate any letters of credit. It can only serve as a promotional and liaison office, and its local operational expenses have to be floated by the foreign company. A representative office has to be registered with the CAC.  

FOREIGN INVESTMENT REQUIREMENTS AND PROTECTIONS  

Principal Laws on Foreign Investments 

The principal laws regulating foreign investments in Nigerian are:

a.      the Nigerian Investment Promotion Commission Act No.16 of 1995; and

b.      the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act No.17 of 1995.  

Basic Functions and Powers of NIPC As Prescribed by Act 16 of 1995

The Nigerian Investment Promotion Commission (NIPC) is an Agency of the Federal Government with perpetual succession and a common seal, which is specially established, among other things, to:  

(a)   co-ordinate, monitor, encourage and provide necessary assistance and guidance for the establishment and operation of enterprises in Nigeria ;

(b)   initiate and support measures which shall enhance the investment climate in Nigeria for both Nigerian and non-Nigerian investors;

(c)   promote investments in and outside Nigeria through effective promotional means;

(d)   collect, collate, analyse and disseminate information about investment opportunities and sources of investment capital and advise on request, the availability, chance or suitability of partners in joint-venture projects;

(e)   register and keep records of all enterprises to which the NIPC Act legislation applies;

(f)   identify specific projects and invite interested investors for participation in those projects;

(g)   initiate, organise and participate in promotional activities such as exhibitions, conferences and seminars for the stimulation of investments;

(h)   maintain liaison between investors and Ministries, government departments and agencies, institutional lenders and other authorities concerned with investments;

(i)    provide and disseminate up-to-date information on incentives available to investors;

(j)   assist incoming and existing investors by providing support services;

(k)   evaluate the impact of the Commission on investment in Nigeria and recommend appropriate remedies and additional incentives;

(1)   advise the Federal Government on policy matters, including fiscal measures designed to promote the industrialization of Nigeria or the general development of the economy; and

(m)  perform such other functions as are supplementary or incidental to the attainment of the objectives of NIPC Act.  

Investment Features of the Acts 16 & 17 of 1995

Deregulation of Equity Structure in Nigeria Enterprises

Effectively, the Nigerian Investment Promotion Commission (NIPC) Act No. 16 of 1995 has abolished any restrictions, in respect of the limits of foreign shareholding, in Nigeria registered/domiciled enterprises. However, certain business/enterprises are exempted from free and unrestrained participation by any person or group of persons irrespective of their nationality. These  are: 

-      Production of arms and ammunition;

-                     Production of and dealing in narcotic drugs and psychotropic substances;

-                     Manufacture of military/paramilitary wears and accoutrements;

-                     Participation in coastal and inland shipping.  

Provisions Relating to Investments

Notable amongst the provisions relating to investments are the following:  

- A non-Nigerian may invest and participate in the operation of any enterprise in Nigeria;

- An enterprise, in which foreign participation is permitted, shall after its incorporation or registration, be registered with the NIPC;

- A foreign enterprise may buy the shares of any Nigerian enterprise in any convertible foreign currency.  

- A foreign investor in an approved enterprise is guaranteed unconditional transferability of funds through an authorized dealer, in freely convertible currency, be it:  

(a) dividends or profit (net of taxes) attributable to the investment;

(b) payments in respect of loan servicing where a foreign loan has been obtained.

- The remittance of proceeds (net of all taxes) and other obligations in the event of sale or liquidation of the enterprise or any interest attributable to the investment;

- Total repatriation of capital should the investor choose to relocate elsewhere.

Investment Protection Assurance

- No enterprise shall be nationalized or expropriated by any Government of the Federation, and

- No person who owns, whether wholly or in part, the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other persons.  

- There will be no acquisition of an enterprise by the Federal Government unless the acquisition is in the national interest or for a public purpose under a law which makes provision for:

(a)   payment of fair and adequate compensation, and

(b)   a right of access to the courts for the determination of the investor's interest of right and the amount of compensation to which he is entitled.  

- Compensation shall be paid without undue delay, and authorization given for its repatriation in convertible currency where applicable.  

Investment Promotion and Protection Agreements (IPPA)

Apart from the investment guarantee assurances of the NIPC Act countries are welcome to execute and enter into bilateral Investment Promotion and Protection Agreements (IPPA) with the Nigerian government.

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