There are different forms a business organization can take depending on the preferences of the individual(s) intending to set up the same. Regardless of the differences, certain requirements pervade all of them. Requirements that need to be obtained before one can proceed to form such a business following the law. This article will give a brief guide of the requirements for setting up a business including those that need to be obtained upon due registration of the business.
1. Determine the Form of the Business
It is important to decide the form the proposed business should take. For someone who is yet to decide and one who has decided, engaging the services of a professional is indispensable. Versed with the necessary knowledge, they are equipped to give appropriate advice on which is most suitable for the proposed business in terms of being a sole owner, tax, ease of doing business, optional compliance to certain statutory requirements, advantages, and disadvantages etc. Under the Companies and Allied Matters Act (CAMA) 2020, the following are the forms a business can take: Private Company Limited By Shares, Public Company Limited By Shares, Company Limited by Guarantee, Unlimited Company, Limited Liability Partnerships, Limited Partnerships, Business Names and Incorporated Trustees.
As stated, depending on the preferences of the prospective owners of the business and the purpose of setting up the business, a decision must be made on any of the above extant forms provided by the law. For instance, persons intending to engage in a partnership can register a business name, limited partnership or limited liability partnership, a person intending to be a sole proprietor can register a business name or a private company limited by shares (a recent innovation of CAMA 2020)
2. Obtain Necessary Information/Documents
Once the preferred form of business has been chosen, the next step is to register the business. However, there are certain documents/information that must be available and will be required at the point of registration. These details include:
- Name, Address, Phone Number, E-mail address, Identification Number, Identification Card, Passport Photograph, Scanned Copy of Signature of the Subscribers/Owner/Trustee/Partners
- Details of the Director
- The number of shares and percentage of shares distribution where the company will have more than a shareholder.
- Partnership Agreement
- Verifiable Address
- Business Permit in the case of a foreigner which is obtained from the Ministry of Interiors
In some cases, there are business setups such as Bureau De Change that must obtain an approval from a government agency such as the Central Bank of Nigeria before they can proceed with registration at the Corporate Affairs Commission.
The proposed business must register with certain agencies before it can commence business in Nigeria, acquire property, permits etc. in the business’s name. The various agencies a business must register at and is advisable to do certain registrations at include:
- Corporate Affairs Commission (CAC): Registration with this agency is imperative as it is the primary agency authorized to incorporate and register businesses in Nigeria. This registration is usually carried out by an accredited agent entirely on the agency’s website including any payments required to be made for stamp duty. Any of the business forms stated earlier can be registered via the agency’s platform.
CAMA 2020 has enabled ease of doing business and these include single membership, the optional appointment of company secretaries and auditors for small companies, virtual general meetings, restrictive share transfer, business rescue and recovery provisions, among others.
- National Investment Promotion Commission (NIPC): Established by the National Investment Promotion Commission Act, it regulates foreign investments in Nigeria. Upon registration with the CAC, every company with foreign participation must proceed to register with the NIPC before commencing business. The documents majorly required for this are incorporation documents acquired from the CAC, evidence of capital importation through an authorized dealer, duly completed NIPC Form 1, evidence of payment of prescribed fee, etc.
- Federal Inland Revenue Service (FIRS): Established by the Federal Inland Revenue Service (Establishment) Act, it controls and administers federal tax in Nigeria. This registration is mandatory and is considered an offence where an individual or business fails to deduct or remit the tax to the FIRS.
The Corporate Affairs Commission by upgrading its website has introduced an easy means of obtaining Tax Identification Number (TIN), which is mandatory for every business in Nigeria. Thus, upon due registration at the CAC, the certificate being issued will include the TIN of the registered business. Some of the taxes levied on companies in Nigeria include:
- Companies and Income Tax
- Value Added Tax
- Withholding Tax
- Petroleum Profits Tax where applicable
- Stamp Duties
- Capital Gains Tax
- Industrial Training Fund
- Education Tax Fund
- Intellectual Property Registrations: a business or person should register the manifestation of an idea that sets it apart from its competitors. This can be a trademark, patent, design or copyright. It must comply with the extant laws of being original and distinctive. Such registration enables the brand to build a reputation among its customers and prevent others from unauthorized use. The classification whether copyright, trademark, patent or design to register under depends on the nature of the idea. While the trademark, patent and design can be registered with the Trademarks, Patents and Designs Registry, copyright can be registered with the Nigeria Copyright Commission (NCC).
- National Office of Technology Acquisition and Promotion (NOTAP): The National Office of Technology Acquisition and Promotion Act requires every contract involving the transfer of technology with Nigerian Partners to be registered with NOTAP within 60 days of its execution. Thus, where the transfer of technology involves any of the followings, it must be registered:
- The use of trademarks
- The right to use patented inventions.
- The supply of technical expertise in the form of the preparation of plans, diagrams, operating manuals or any other form of technical assistance of any description whatsoever.
- The supply of basic and detailed engineering.
- The supply of machinery and plant, and
- The provision of operating staff or managerial assistance and the training of personnel
By Section 7 of NOTAPA, any profit or benefit due under the contract to the foreign partners cannot be repatriated or transferred to them through the Central Bank of Nigeria if such contracts not registered with the NOTAP. However, this does not apply when the technology is obsolete or freely available in Nigeria, price is not commensurate to the technology acquired and where the contract requires the transferee to submit himself to foreign jurisdiction in the event of a dispute.
4. Opening A Bank Account
It is important to open a bank account to run a business. This also aids in remitting tax. To open a business bank account in Nigeria for a company, the followings are required:
- Certificate of Incorporation
- Means of Identification
- Bank Verification Number (BVN)
- Tax Identification Number
- Board Resolution authorizing the opening of the account.
- Two references from existing corporate bank account holders
5. Employment of Staff
A business requires a workforce to execute its affairs effectively and efficiently. In the employment of staff, a company may choose to contract a human resource agency to recruit staff on its behalf or conduct the recruitment process itself. The laws that guide a business workforce in Nigeria include the Labour Act 2004, Employee Compensation Act 2010 and the Pension Reform Act 2014. These laws stipulate the rights available to employees and places obligations on the employers to contribute to a compensation fund and make necessary deductions from an employee’s income for pension and tax purposes.
For a business intending to hire foreigners into its ranks, an expatriate quota must be obtained. This is granted by the Minister of Interior Affairs to any company in Nigeria intending to employ foreigners in its ranks. This however does not qualify as a work permit, which must be applied for separately to enable the foreigner to reside and work in Nigeria.
6. Obtaining Statutory Licenses to Operate in Certain Sectors
Depending on the nature of the business venture, the following are some licenses needed to operate in certain sectors of the Nigerian economy:
- The National Agency for Food and Drug Administration and Control (NAFDAC) Approval: it permits an individual or entity to manufacture certain foods or drugs for sale otherwise they will be deemed illegal
- Petroleum Resources Permit & License: issued by the Department of Petroleum Resource which allows a company dealing in petroleum resources to operate in that sector.
- Financial Institution & Payment License: The Central Bank of Nigeria is the regulatory agency in charge of licensing financial institutions in Nigeria. It issues circulars on the guidelines for its operation concerning its customers.
- Money Lending License: which is granted to individuals or corporate bodies who intend to go into the business of lending money. For an individual or a company to become a legitimate money lender then the individual or company must first apply to get a money lenders license.
Finally, the above is a summary of the requirements for business formation. There are several other laws applicable to doing business in Nigeria. However, registration of a company name with the CAC is the first step towards business formation in Nigeria.