Have you ever wondered how big brands own and operate multiple businesses and companies under one entity? The secret is usually in registering all the businesses as a group of companies or having a holding company. In Nigeria, setting up this kind of structure is more than just filing CAC forms; it requires a clear understanding of the Companies and Allied Matters Act (CAMA) 2020 and strategic planning to avoid tax, compliance, and governance pitfalls. In this article, we will break down the procedure on how you can register a group of companies and a holding company in Nigeria, but first, we will examine the characteristics of both company structures and the requirements for registering both companies.
WHAT ARE THE KEY CHARACTERISTICS OF A HOLDING COMPANY AND A GROUP OF COMPANIES?
Also known as a parent company, a holding company is a kind of business structure that exists to acquire ownership and control of its other companies, known as subsidiaries. A subsidiary company may be registered as a limited partnership or a limited liability company. A major distinctive point to note about a holding company is that it does not engage in business activities like every other company.[1] It is rather established to acquire the shares or equity ownership of its subsidiaries to exert control over the operations and management of its subsidiaries. Perfect examples of holding companies are: FBN Holdings Company, Stanbic IBTC Holdings Plc, is Alphabet Inc., with Google, YouTube, Looker, Nest, etc. as its subsidiaries.
A group of companies is a distinct company made of at least three or more companies with common directors and shareholders carrying on business for a specific purpose.[2] It is worth noting that the word ‘group’ is a restricted word and thus, companies desiring to have a group of companies must apply for the consent of the Registrar-General of the Corporate Affairs Commission before it can be used.
WHY REGISTER A HOLDING COMPANY OR A GROUP OF COMPANIES?
- Mitigation of Risk and Liabilities
The most effective approach to establishing a holding company is to design its structure so that it reduces the liabilities of its subsidiaries while safeguarding its assets.
2. Reduction of Tax Obligation
Having a holding company reduces tax burdens by strategically placing certain business activities in jurisdictions with more favorable tax regimes, thereby enhancing overall tax efficiency.
3. Group Synergy
A group structure can create operational synergies by allowing functions like administration, marketing, and finance to be managed centrally through the holding company. The expenses of these shared teams can then be allocated to the subsidiaries based on the services they use, helping each company avoid the cost of maintaining separate in-house teams.[3]
4. Separate Legal Entity
When a holding company oversees multiple businesses, each subsidiary remains a separate legal entity. As a result, if one subsidiary is sued, claimants cannot pursue the assets of the other subsidiaries. Moreover, if the subsidiary facing the lawsuit operated independently, the parent company is generally shielded from liability.[4]
5. Access to Capital and Other Resources
Subsidiary companies can leverage the parent company’s strength and reputation, making it easier to secure financing. This improved access to capital can help fund expansion plans or new initiatives that might be challenging for individual businesses to pursue alone.[5]
WHAT IS THE PROCEDURE AND REQUIREMENTS FOR REGISTERING A HOLDING COMPANY AND A GROUP OF COMPANIES?
In Nigeria, registering a holding company or a group of companies requires one to comply with certain legal requirements. Generally, the key requirement for both structures is to obtain the consent of the Registrar-General of the Corporate Affairs Commission at the point of application for name reservation. We will now highlight the requirements for registering both a holding company and a group of companies.
HOW TO REGISTER A HOLDING COMPANY IN NIGERIA
The following is required to register a holding company;
- Obtain consent from the Registrar General to use the word ‘Holding’, through name application and reservation.
- Ensure that the annual returns of the subsidiaries are up to date.
- Provide evidence of the existence and registration of 2 or more existing subsidiaries with all being active or in operation.
- Provide a statement by the board of directors of the proposed holding company, stating that the company shall take up more than 50% shares of the nominal value of the share capital of each of the subsidiaries within 90 days of incorporation.
- Compliance with section 733 of the Companies and Allied Matters Act, 2020 (requiring certain companies to publish a statement in the prescribed form as in Fourteenth Schedule), these kinds of companies only include banks, insurance companies, deposit provident companies, and benefit societies
- Upon obtaining the Consent, the holding company can be registered with the same procedure for the registration of a new company, which is as follows;
- Fill out the relevant forms alongside other documents through your lawyer or accredited agent, including the details of the company, Memorandum and Articles of Association (MEMART) of the company, directors and secretary, shareholders, PSC, share capital.
- Pay the prescribed fees, including stamp duty.
- Once approved, a certificate, MEMART, and Status Report of the newly formed company will be issued.
HOW TO REGISTER A GROUP OF COMPANIES IN NIGERIA
The following is required to register a group of companies;
- Confirm that you have a minimum of three companies to form the group. Each must be registered as a Limited Liability Company (LLC) and share common ownership or shareholders with up-to-date annual returns filing.
- Obtain consent from the Registrar General to use the word ‘Group’, through name application and reservation.
- Provide evidence of the existence and registration of 3 or more existing subsidiaries with common ownership, i.e, directors and shareholders.
- Provide evidence of a resolution by each company consenting to the union.
- Provide a statement that the share capital of the group shall not be less than the highest capital of any of the subsidiary companies seeking to form the group.
- Compliance with section 733 of the Companies and Allied Matters Act, 2020 (requiring certain companies to publish a statement in the prescribed form as in Fourteenth Schedule), these kinds of companies only include banks, insurance companies, deposit provident companies, and benefit societies.
- Upon obtaining the consent, the group of companies can be registered with the same procedure for the registration of a new company as follows;
- Fill out the relevant forms alongside other documents through your lawyer or accredited agent, including the details of the company, MEMART of the company, directors and secretary, shareholders, PSC, share capital.
- Pay the prescribed fees, including stamp duty
- Once approved, a certificate, MEMART, and Status Report of the newly formed company will be issued.
CONCLUSION
Setting up a holding company and structuring a group of companies in Nigeria can offer significant benefits from asset protection and tax efficiency to streamlined operations and growth opportunities. However, the process requires careful planning, proper structuring, and compliance with legal and regulatory requirements. By engaging experienced professionals such as a legal practitioner and tax consultant, you can build a structure that not only protects your investments but also positions your business for long-term success. Whether you’re expanding your existing ventures or starting fresh, the right foundation will ensure your holding company and subsidiaries operate smoothly and profitably.
For further enquiries or professional advice, or assistance with setting up your holding company or group, you may reach out to us through the WhatsApp icon on this page or HERE, and we’ll attend to you.
[1] https://corporatefinanceinstitute.com/resources/management/holding-company/#:~:text=A%20company%20that%20exists%20for,acquired%20is%20called%20a%20subsidiary.
[2] https://www.mondaq.com/nigeria/shareholders/1502676/how-to-set-up-a-holdinggroup-company-in-nigeria#:~:text=Requirements%20for%20setting%20up%20a,within%2090%20days%20of%20incorporation
[3] https://www.hwca.com/accountants-chester/opinion/why-do-companies-set-up-holding-companies/
[4] https://corporatefinanceinstitute.com/resources/management/holding-company/#:~:text=A%20company%20that%20exists%20for,acquired%20is%20called%20a%20subsidiary.
