Understanding Legal and Tax Considerations for your Business in Nigeria

1. BSW - Business Skills Workshop LEGAL AND TAX CONSIDERATIONS for your business • Zelda Akindele • Managing Counsel 27TH NOVEMBER, 2015

2. Corporate Identity/Separating your business from yourself There are various types of ways a person can carry on business in Nigeria. It is necessary to separate yourself from your business as it allows you to separate and protect your personal assets if unfortunately, the business does not do as well as planned. The law allows for registration of companies which are limited by shares which could be either a private or public company. The law also recognizes non-corporate forms of business such as partnerships and sole proprietorships. Whatever the type of business choice, it must be registered at the Corporate Affairs Commission (CAC). The various types of business entities recognized under the law are as follows: • 1. Private company limited by shares • 2. Public company limited by shares • 3. Company limited by guarantee • 4. Unlimited company • 5. Business Name • 6. Partnership • 7. Incorporated Trustee* * Usually registered for non-profit organizations

3. Registration of a Business Name/Partnership Documents required for registration at the Corporate Affairs Commission (CAC): • Certificate of proficiency (where applicable) • where the proposed object of a company or business name is professional, the CAC may require that the applicant discloses the appropriate expertise before the object is registered. For example, individuals that intend to register a law firm will be required to submit copies of their call to bar certificates along with the registration documents at the CAC. • Completed business name application form (available online at the CAC website http://new.cac.gov.ng/home/ ) • Two passport-sized photographs in the case of individuals or photocopy of certificate of registration together with certified true copy (CTC) of a resolution (approving the registration) in the case of a corporate body • Updated annual return in case of a corporate body • Payment of filing fees • Payment of fees for CTC of certificate for display at each branch

4. Registration of a Business Name/Partnership Fees Payable • Reservation of name – N500 • Registration of business name N10,000 • CTC of certificate of registration – N5,000

5. Incorporation of Private Company vs. Public Company Private Company • Minimum authorised share capital of N10,000 • Minimum of two people as shareholders at incorporation. Maximum of 50 members Public Company • Minimum authorised share capital of N500,000 • Minimum of two people as shareholders at incorporation. No maximum number of members

6. Incorporation of Private Company vs. Public Company Documents required for incorporation and the CAC • 2 proposed names must be reserved – normally reserved for 60 days. If after 60 days the company has not been incorporated then the name must be submitted again for revalidation • Duly completed CAC form (for the type of company) • Memorandum and Articles of Association (MEMART) of the Company - this is the constitutional documents of the company which provides for how the company will be run. • Statement of the proposed company’s authorised share capital • Particulars of the first directors of the company and consent of the directors • Notice of the proposed company’s registered office • A statutory declaration of compliance with the provisions of the Companies and Allied Matters Act (CAMA)

7. Incorporation of Private Company vs. Public Company Filing Process • After the documents have been prepared, they must be taken to the CAC to be verified and assessed. Following the verification and assessment, the MEMART must be taken to the Federal Inland Revenue Service (FIRS) where stamp duties must be paid on it. • Once stamp duties have been paid on the MEMART, all the documents must be taken back to the CAC and filed alongside the appropriate filling fees. • Upon approval an the payment of the filing fees, the Registrar – General shall issue a certificate of incorporation confirming the company’s registration Timeline • The incorporation process usually takes two to three weeks from the date of submission of all the required documents.

8. Incorporation of Private Company vs. Public Company Fees Payable • Stamp duties assessed at an ad valorem rate of N7,500 per N1million of the share capital, payable to the FIRS • Filing fees at the rate of N10,000 per N1million of the share capital payable to the CAC for processing the registration application

9. Incorporation of Private Company vs. Public Company Business Name to Limited Liability Company • Previously, it was possible to convert a Business Name into a limited liability company without having to first go through the entire incorporation process. This practice is now prohibited by the CAC • Thus, any person who wishes to register a limited liability company with the same name as a previously registered Business Name must first cease the Business Name and then proceed to incorporate a limited liability company with the same name as the ceased Business Name • A person who does not wish to cease a Business Name but wishes to incorporate a limited liability company will not be able to have the same name for both the Business Name and the newly incorporated company

10. Landlord/Tenant Issues • Depending on the nature of the business, a tenancy agreement may be entered into to rent space for your business. There are a number of issues that may arise and one must be aware of his/her rights under the law and the correct process of eviction. • Once an agreement has been entered into between a landlord and tenant such an agreement serves as a contract in law and as such, a breach of terms by either party would result in a right of action by the offended party. • The law that governs the recovery of Premises in Lagos is the Lagos State Tenancy Law, 2011. Please note that this law does not apply to all parts of Lagos. the following areas in Lagos are exempt from the application of this law: • Apapa • Ikeja GRA • Ikoyi • Victoria Island • The law that governs these areas are the Rent Control and Recovery of Residential Premises, 1997, Recovery of Premises Law, 1973 and the Magistrate Court Law, 1994 all Laws of Lagos State. Please note that each state has its own Recovery of Premises Law. The law principally provides for procedures a landlord must adopt to recover possession of his premises. Such procedures are primarily to protect the interest of the tenant. The Landlord can be sued and made liable for damages for an unlawful eviction.

11. Landlord/Tenant Issues Procedure for Recovery of Premises 1. Notice to Quit A landlord seeking to recover possession of his premises before the expiration of the tenancy (effluxion of time) is obliged to issue a notice to quit. The notice stipulates a period within which the tenant must quit possession of the premises. The period of notice given will usually depend on the agreement between the parties. In the absence of any agreement, the period of notice will be determined by statute. For instance, Section 14 of Rent Control and Recovery of Residential Premises, 1997 (Lagos) provides that in the absence of express agreement as the notice to be given by either party to determine the tenancy, the following periods of time shall be given: • In the case of a tenancy at will or weekly tenancy, a week’s notice • In the case of a monthly tenancy, a month’s notice • In the case of a yearly tenancy, half a year’s notice The Notice to Quit must be issued by the landlord himself or by someone else authorised by him (usually his lawyer). Failure to authorize such a person in writing will render the Notice to Quit invalid.

12. Landlord/Tenant Issues Procedure for Recovery of Premises 2. Notice of Intention to apply to recover premises Once the Notice to Quit has expired and the tenant has not given up possession of the premises, or refuses to give up possession, the landlord or his agent may serve a Notice of Intention to apply to recover premises on the tenant. Notice must not be less than 7 days. At this point, the occupant now becomes a statutory tenant due to the expiration of the valid quit notice. Under the law he is still afforded protection and cannot be removed from the premises until compelled by an order of court. A trial date would be set and the court will grant a recovery of premises to the landlord where any of the following can be proved: • Arrears of rent for three months • Breach of an express covenant • The premises is required for public interest • If the premises requires substantial repairs • If the premises is reasonably required by the landlord for the occupation of himself, any son or daughter of his over 18 years, his father or mother, provided that an order or judgment will not be made on grounds 7 and 8, if hardship will be caused by granting it Please note, this is list is not exhaustive.

13. Tax Considerations • In Nigeria all taxable persons including corporate bodies who derive income from Nigeria are liable to pay tax. Tax is payable to the FIRS on any profit made by the company regardless of the amount of such profit. However, determination of profits made would be an accounting calculation which could result in a minimal liability to tax for some small and micro businesses. • Such taxes are administered by the FIRS and include: • C0mpanies Income Tax: payable for each year of assessment in respect of the total profits of the company at a rate of 30% • Personal Income Tax: payable for each employee based on a graduated tax table as follows: - First N300,000 @ 7 percent - Next N300,000 @ 11 percent - Next N500,000 @ 15 percent - Next N500,000 @ 19 percent - Next N1,600,000 @ 21 percent - Above N3,200,000 @ 24 percent • Value Added Tax (VAT): consumption tax payable on the goods and service consumed by any person, whether government agencies, business organizations or individuals. It is chargeable at the rate of 5%

14. Tax Considerations Tax Clearance Certificate A Tax Clearance Certificate (TCC) is issued by the FIRS when it is satisfied that the tax assessed on the profits or income of a person for the three years immediately preceding the current year of assessment has been fully paid or that no tax is due on such profits or income. A TCC is usually requested by all ministries, department or agencies of Government and banks when commencing on any transaction with them. These include an application for loan, registration of motor vehicles, application for foreign exchange, application for certificate of occupancy , application for award of contracts by Government and many more instances provided for under the Companies Income Tax Act.

15. Tax Considerations Obtaining a Tax Clearance Certificate Limited Liability Company The process for obtaining a TCC for a company incorporated within 6 months is as follows: • An application must be made to the FIRS stating that the company is newly incorporated. A photocopy of the MEMART must be attached to the application as evidence of the new status of the company. • The original Certificate of Incorporation of the company must be presented for sighting • The FIRS will consider the application and verify the documents • On satisfaction, the FIRS will issue a TCC to the company If an application is made after 6 months of the company being incorporated, the company is liable to pay a penalty for every month. N10,000 for the first month and N5,000 for every subsequent month a statement of affairs signed by the directors of the company must be submitted

16. Tax Considerations Obtaining a Tax Clearance Certificate Late filing If an application is made after 6 months of the company being incorporated, the company is liable to pay a penalty for every month of failure to obtain the TCC. A penalty of N10,000 for the first month and N5,000 for every subsequent month is payable. In addition to the payment of the penalty above, a statement of affairs signed by the directors of the company must be submitted to the FIRS. Upon satisfaction, the FIRS will proceed to issue a TCC Business name/Partnership The same process for obtaining a TCC for a limited liability company obtains for a business name/partnership except that the board responsible for issuing a TCC in this case is not the FIRS but rather, the inland revenue boards of each state.

17. Minor Disputes/Small Claims • Litigation is usually an expensive option for a small business • Cost of filing the suit itself not so high e.g. filing a claim of N100, 000 may only cost about N3, 000 • However, there are significant costs associated with retaining lawyers coupled with the typical delay in judicial proceedings e.g. Magistrate Courts are supposed to resolve cases summarily i.e. promptly without a full trial to listen to arguments from both sides. However, this is rarely the reality. The average life span of a case is 6 months at a minimum • In theory, pro se representation is available in Nigerian courts i.e. where you represent yourself but the complex nature of our judicial system and laws makes it a completely impractical option – would not advise that you ever do this. You would be placed at a significant disadvantage to the other party • So, what options do you have?

18. Alternative Solutions for Minor Disputes/Small Claims • ADR becoming more popular in Nigeria, more sophisticated, but also more expensive • Nigerian case law, however, supports the binding nature of customary arbitration, provided that natural due process is followed • What is customary arbitration? This involves the resolution of disputes through the application of customs, usages and practices of a community – typically no lawyers involved and no technical rules of evidence or other legal formalities are followed • Small businesses may organize themselves into associations and amongst themselves adopt a binding arbitration model similar to customary arbitration. • Where members of the association are in dispute inter se, that is amongst each other, the leadership of the association would then delegate 1 or more member of proven integrity to settle such dispute by applying the common commercial customs, usages and practices that prevail in that line of business

19. THANK YOU