Is a foreigner required to satisfy special requirements for company incorporation in Nigeria?
Yes. This is because any company with foreign participation cannot be categorized as a small company, which enjoys many exemptions from some of the incorporation requirements in Nigeria.
Prior to the enactment of the Companies and Allied Matters Act, 2020 (“CAMA 2020”), the old Nigerian company law (i.e. CAMA 1990) required that a private company must be incorporated with a minimum of two directors, two shareholders (one of whom must be an adult Nigerian) and a company secretary, amongst other requirements.
However, as part of the Federal Government’s “Ease of Doing Business Policy”, the CAMA 2020 was enacted to reduce local requirements and timelines for business incorporation in Nigeria. One of such significant changes introduced by the CAMA 2020 is that a small company can be incorporated by a single adult shareholder and director (who could be the same person) with no company secretary requirement.
Where the promoter is a foreigner, then he may not be able to form the company alone without adding a Nigerian in view of section 395(4) of CAMA. A company having a foreigner as a director or shareholder is not a small company under Nigerian law. Section 395 (4) of the CAMA 2020 provides that the parameters for determining a small Company are as follows:
- It is a private company;
- Its turnover is not more than N120,000,000 or such amount as may be fixed by the Corporate Affairs Commission (“Commission”) from time to time;
- Its net assets value is not more than N60,000,000 or such amount as may be fixed by the Commission;
- None of its members is an alien (foreigner);
- None of its members is a government, government corporation or agency or its nominee;
- In the case of a company having share capital, the directors between themselves hold at least 51% of its equity share capital.
Where any of the above characteristics is present in a company, then such company cannot be regarded as a small company and as such cannot be incorporated by a single shareholder and director or exempted from the mandatory company secretary requirement.
While some of the above requirements may not be decipherable at the point of incorporation in order to determine whether a company is a small company or not, the membership of the company can be said to be a clear determining factor at the point of incorporation.
From the above, there is no gainsaying the fact that foreign-owned companies do not qualify as small companies in order to be exempted from special incorporation requirements in Nigeria.
Can a single foreigner form a company in Nigeria?
Section 18(1) of CAMA provides as follows: “As from the commencement of this Act, any two or more persons may form and incorporate a company by complying with the requirements of this Act in respect of registration of the company.”
However, section 18(2) of CAMA provides that notwithstanding the provisions of Section 18(1) of CAMA, a private company may be incorporated by one person. The provision is to the effect that private companies may be incorporated by one person as long as the company proposed to be registered meets all the requirements for the registration of a private company.
Also, Section 395(4) of CAMA is silent about the number of shareholders that can make up a small company.
From the foregoing, single shareholdership of a company is not peculiar to small companies as companies other than small companies can be registered by one member so long as it is a private company. The foregoing implies that foreign-owned companies can be registered in Nigeria with a single foreign shareholder and director.
However, in practice, the implementation of the CAMA 2020 by the Corporate Affairs Commission (“CAC”) has not been without some checkered records of conflicting representations and interpretations. In the past, the CAC has approved incorporation of companies formed by a single foreign shareholder and director with no local participation. However, the CAC has recently queried all applications for company registration by a single foreigner and insisted on additional local director, Nigerian shareholder and company secretary as preconditions for incorporation.
How many directors can be appointed to the board of a foreign-owned company?
Section 271(1) of CAMA provides that any company not being a small company shall have, at least, two (2) directors. The use of the word “shall” makes it a mandatory requirement for companies other than a small company to appoint a minimum of two directors. Therefore, a combined reading of sections 395(4) and 271(1) of CAMA 2020 implies that companies with foreign membership must be incorporated with a minimum number of two directors.
Do foreign-owned companies require a Company Secretary upon Incorporation?
A company secretary is a lawyer, chartered accountant or secretary or administrator duly qualified to practice in Nigeria. Section 330 (1) of CAMA provides that “Except in the case of a small company, every company shall have a secretary.” The implication of this is that the appointment of a company secretary is optional for small companies whilst other companies are required to appoint a company secretary.
In Nigeria, a foreign-owned company is not categorized as a small company under CAMA, as such must appoint a company secretary at the point of incorporation without which the incorporation will not be approved by the CAC.
Are there any implications for non-compliance with the provisions of CAMA by foreign-owned companies?
At the time of incorporation, failure to meet the incorporation requirements will delay approval of the CAC for incorporation until such outstanding requirements are met by the promoters. Where a company other than a small company, at any time after incorporation, has less than two directors or shareholders, it must appoint a second director or cease operation after the expiration of one month otherwise the sole director or shareholder will be personally liable for the company’s debts and liabilities in accordance with section 271(2) and (3) of CAMA.
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