Are you a foreigner considering starting a business in Nigeria? Are you unsure about the number of directors and shareholders required for a foreign company registered in Nigeria? Do you have concerns about maintaining full ownership and control of your company in Nigeria as a foreigner, and understanding the relevant laws and regulations governing it?
In this article, we will provide a comprehensive guide to the minimum number of directors and shareholders required for a foreign company registered in Nigeria to comply with Nigerian law. We will also outline the business sectors where a foreigner can own a business in Nigeria. Additionally, we will address whether a foreigner can own 100% shares in a company in Nigeria. Understanding these fundamental aspects is crucial for legal compliance and for effectively planning and operating your business in Nigeria. Whether you are an experienced corporate practitioner or a foreign entrepreneur establishing a company in Nigeria for the first time, this article will be a valuable resource for setting up a strong and compliant corporate structure in Nigeria.
WHAT IS THE MINIMUM NUMBER OF DIRECTORS FOR FOREIGN COMPANIES COMING TO DO BUSINESS IN NIGERIA?
A director is a member and employee of a company, responsible for overseeing the daily operations and affairs of the company. It’s important to note that a company director can also be a shareholder of the same company, but it’s not a requirement.
The Companies and Allied Matters Act (CAMA) 2020 is the main law that governs the establishment and functioning of companies and other business entities in Nigeria. It stipulates that every company in Nigeria, except for “small companies,” must have at least two directors. This requirement also applies to foreign-owned companies, as they do not qualify as small companies under Nigerian law or register as such.
According to Section 271(1) of CAMA, every company, except for a small company, must have a minimum of two directors. This rule is strictly enforced to ensure that a company’s governance structure benefits from multiple perspectives and oversight. Failure to comply with this provision can result in penalties for directors or members of the company who are aware that the number of directors falls below two and continue to conduct business for more than 60 days. Furthermore, any debts incurred during this period when the number of directors is below the minimum requirement will be the responsibility of the director or member of the company involved during that time.
According to Nigerian regulations, foreign companies looking to do business in Nigeria must have a minimum of two directors when incorporating a company in the country. These directors can be foreign nationals or a combination of foreign and Nigerian citizens, based on the specific needs of the company.
It is crucial to understand that if a foreign national is appointed as a director, they must first obtain the necessary work permits, such as the Combined Expatriate Residence Permit and Aliens Card (CERPAC), before they can take on their role as a director or engage in any official business activities in Nigeria.
WHAT QUALIFIES AS A SMALL COMPANY IN NIGERIA?
For clarity, it is essential to know what qualifies a company as a small company in Nigeria. As it is enshrined in CAMA. Section 394 of CAMA, provides the qualifying factors for a company to be classified as a small company. They are:
1. It must be a private company;
2. Its turnover is not more than N120,000,000 or any other amount that may be fixed by the Commission from time to time;
3. Its net assets value is not more than N60,000,000 or such amount as may be fixed by the Commission from time to time;
4. None of its members is an alien;
5. None of its members is a government, government corporation agency, or its nominee; and
6. In the case of a company having a share capital, the directors between themselves hold at least 51% of its equity share capital.
Taking into account the requirements, it is important to note that a small company is not allowed to have a foreigner as a member or a director. According to Section 271(1) CAMA and Section 394 of CAMA, it can be inferred that a foreign company must have at least two directors to be registered and operate in Nigeria, whereas a small company is allowed to have a single director as per Section 18(2) of the CAMA.
HOW MANY SHAREHOLDERS SHOULD A FOREIGN COMPANY IN NIGERIA HAVE?
When a person contributes to a company’s share capital, they become a shareholder. The amount of their contribution largely determines their level of control and ownership rights in the company. Although a shareholder may be appointed as a director, it is not a requirement for them to serve in that capacity.
Section 18(2) of the CAMA allows private companies in Nigeria, including foreign-owned companies, to be incorporated with a single shareholder. This represents a significant change from the previous CAMA, which mandated a minimum of two shareholders. The new CAMA introduces flexibility, enabling a foreign-owned company to be registered with just one shareholder, as long as it is not classified as a small company.
In case no. FHC/ABJ/CS/665/2023 involving Primetech Design and Engineering Nigeria Limited, Julius Berger Nigeria PLC, and Corporate Affairs Commission, the Federal High Court made a decision on 30th July 2024 affirming a single shareholding in a private company in Nigeria. It’s also important to note that foreign companies are not exempt from the court’s decision regarding the interpretation of section 18(2) of CAMA, 2020. Furthermore, as of the time of this post, there has been no Supreme Court judgment reversing the position of the Federal High Court, making the position of the Federal High Court a significant reference point on this issue.
Following the community reading of the CAMA and the court’s decision in the aforementioned case, it’s important to note that private companies in Nigeria can now register with a single shareholder. Moreover, foreign companies are also allowed to register with a single shareholder in Nigeria.
When incorporating a foreign-owned company, it is generally possible to do so with just one shareholder. However, there might be special cases where it’s necessary for foreign companies to have more than one shareholder. This could be due to specific industry requirements. Therefore, it’s recommended to seek advice from legal professionals to ensure that all regulatory requirements are satisfied and that the incorporation process goes smoothly.
CAN A FOREIGNER OR FOREIGN COMPANY OWN 100% SHARES OF A COMPANY IN NIGERIA?
Yes, a company can be registered with a single shareholder in Nigeria, which means that a foreigner or a foreign-owned company can own 100% of the shares. The CAMA 2020 governs company formation and operation in Nigeria, and it does not restrict foreign ownership. As a result, a foreign individual or entity can completely own a company without requiring local participation.”
However, some industries have regulations that restrict 100% foreign ownership. For example, in the oil and gas sector, the Nigeria Oil and Gas Industry Content Development Act of 2010 mandates that at least 51% of the equity shares must be owned by Nigerian citizens.
In the broadcasting industry, for instance, the National Broadcasting Commission Act restricts foreign ownership of broadcasting services in Nigeria. This means that a Nigerian investor must be involved in forming a business in this sector. Many other sectors also require Nigerian participation in the formation of companies in Nigeria. Foreigners are advised to consult with corporate or business lawyers or law firms for legal advice about starting a company in Nigeria as a foreigner.
CAN A FOREIGNER DO BUSINESS IN ANY SECTOR IN NIGERIA?
Yes, a foreigner can own a business in any sector in Nigeria, as long as the business is not in sectors prohibited by sections 17, 18, and 31 of the Nigeria Investment Promotion Commission Act. These sections outline the negative list and prohibit both local and foreign entrepreneurs from engaging in businesses in those specific areas.
The following business sectors are classified under the negative list;
1. Production of arms and ammunition, etc.
2. Production of and dealing in narcotic drugs and psychotropic substances
3. Production of military and paramilitary wears and accoutrement, including those of police and the customs, immigration, and prison services and
4. Such other items as the Federal Executive Council may, from time to time determine;
CONCLUSION
In summary, although the process of establishing and operating a foreign-owned company in Nigeria can be complex, thorough planning and expert guidance can lead to a successful venture. By fulfilling all legal obligations and making well-informed decisions, foreign companies can establish a solid business presence in Nigeria, contributing to the country’s economy while achieving their own business goals.
It’s important to note that this article is a general guide. We recommend reaching out to us for specific consultation and legal advice on any matter related to the topic discussed here. For more information or legal advice, please contact us through the WhatsApp icon on this page or HERE, and we will be happy to assist you.
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