Who is a venture capital manager?
Venture capital is a private equity and finance services firm that helps startup companies and small businesses to realize their long-term growth potentials through funding, planning, marketing and other necessary support in exchange for equity stake in the business.
The investors who provide the funding are called the venture capitalists whilst the middlemen or fund managers who manage the investments of the investors in the startups are called venture capital managers. This distinction is fluid as the two roles may be merged in one company depending on the terms of engagement between a startup company and the investors and/or venture capital manager.
Venture capital managers identify investment opportunities and innovative businesses with potential to generate high returns on investment. The monies invested in startups by a venture capitalist is usually referred to as “risk capital” because such investment is one with highly uncertain chance of success as well as an equally high potential to make huge returns from a successful investee.
In order to set up a venture capital management firm in Nigeria, the venture capital promoters are required to be incorporated as a private limited liability company with shares by the Corporate Affairs Commission (“CAC”) and thereafter licensed as Venture Capital Managers by the Securities and Exchange Commission (“SEC”) upon submitting three (3) qualified sponsored individuals and relevant documents, payment of applicable fees and meeting other licensing requirements.
Is there any share capital requirement for setting venture capital firm in Nigeria?
Yes. In Nigeria, a venture capital firm is required to be registered by CAC with N20,000,000 (Twenty Million Share Capital).
Also, the applicant company must satisfy the SEC that the required minimum share capital of N20,000,000 (Twenty Million Naira) has been paid up by its shareholders (i.e. through its Bank balances, fixed asset or investment in quoted securities).
Who is a sponsored individual for licence application to SEC?
Sponsored Individuals are officers of an applicant company for SEC licence who are responsible for complying with and may be held liable by SEC for flouting the law regulating the business operations of a SEC-licensed company.
Every applicant company for SEC licence or registration is required to have at least three (3) sponsored individuals, one of whom should be the Managing Director, and another a Compliance Officer who shall be responsible for monitoring compliance with the Investment and Securities Act, Rules and Regulations of SEC, all notifications, guidelines, instructions etc. issued by SEC or the Federal Government.
All sponsored individuals must have a minimum of four (4) years post-graduation experience to perform their functions as stipulated by the SEC Rules and Regulations.
Please note that individuals who have been previously sponsored by a SEC-licensed company may with notice to SEC be transferred as sponsored individuals to a new company seeking SEC licence or registration.
Also, certain individuals may be exempted undertaking qualifying examinations conducted by SEC if from their work experience, professional or academic qualifications SEC is of the view that the individuals possess sufficient knowledge of the capital market to be able to perform their functions in the applicant company.
What are the costs for setting up a venture capital firm?
There are two (2) sets of costs for setting up a venture capital firm: the cost of incorporation and the cost of licensing.
(i) CAC Incorporation Costs:
The costs of incorporation of a company in Nigeria are dependent on the amount of share capital of the company. This is because the share capital of a company attracts a stamp duty payable to the Federal Inland Revenue Service (“FIRS”) in addition to the incorporation or filing fee chargeable by the CAC.
The total of incorporation cost of a venture capital company in Nigeria (i.e. a N20 Million share capital company) is about N305,000 (Three Hundred and Five Thousand Naira). The foregoing sum entails the CAC Registration Cost and Stamp Duty payable to FIRS.
The incorporation by CAC costs about N105,161.25 (i.e. this is calculated by paying N10,000 cost for the first 1 million of the 20 million share capital and, then, paying N5,000 cost for every subsequent N1million of the remaining 19 million share capital, which will then mean N5,000 multiplied by 19, plus the initial N10,000 which ultimately equals to N105,000).
Also, as already mentioned above, stamp duty of N153,050 is payable to the Federal Inland Revenue Service on the N20 million share capital (this sum is determined by multiplying 0.75% by 20,000,000).
Both payments above (to CAC and FIRS) are made using the Federal Government Remita payment platform which charges about N161 per payment. Miscellaneous expenses including post incorporation requests cannot exceed N50,000.
(ii) SEC Registration or Licensing Costs:
The costs associated with obtaining the venture capital licence from the SEC is estimated at N11,250,000 (Eleven Million Two Hundred and Fifty Thousand Naira), the breakdown of which amount is as follow:
i. Application Fee of N100,000 (One Hundred Thousand Naira);
ii. Processing Fee of N300,000 (Three Hundred Thousand Naira);
iii. Registration Fee of N10,000,000 (Ten Million Naira);
iv. Sponsored Individual Fee of N100,000 (One Hundred Thousand Naira) for each sponsored individual. Please note that the applicant company is required to sponsor three (3) individuals (so, the sum is multiplied by 3); and
v. Miscellaneous cost is estimated at N450,000 (Two Hundred and Fifty Thousand Naira) to cover flight tickets, taxi fares, printing, courier, calls, internet data, etc.
What are the required documents for getting licensed as Venture Capital Manager?
The following are the documents that must be prepared and submitted to SEC in support for the registration of venture capital manager.
1. Corporate Documents:
A copy each of the following, duly certified by the CAC;
i. Certificate of Incorporation of the Applicant company;
ii. Memorandum and Articles of Association – this should include relevant object clauses suitable for venture capitalist business;
iii. CAC Status Report Form showing Statement of Share Capital of N20,000,000, Allotment of all the shares, and Particulars of appointed Directors.
Please note that there is no more requirement to present the original copy of the certificate of incorporation for sighting by an authorized officer of the SEC because since the advent of digitalization of CAC incorporation services, all incorporation certificates are now electronically certified and therefore do not have originals.
2. Financial Documents:
A copy of the following financial documents of the company is required to accompany the application to SEC:
i. Latest audited accounts (for old company) or audited statement of affairs of the (newly incorporated) company. Note that the cash assets ratio shall be 60% liquid assets and 40% fixed and other assets;
ii. Bank statement of accounts operated by the Company for the last 6 months;
iii. Evidence of Required Minimum Paid up Capital – N20,000,000 (Ten Million Naira) (i.e. Bank balances, fixed asset or Investment in quoted Securities);
iv. Current Fidelity Insurance Bond covering at least 20% of the minimum paid-up capital (i.e. N4,000,000) as stipulated by the Commission’s Rules and Regulations.
3. SEC Forms:
There are some standard SEC Forms which must be duly filled, executed and submitted with the Application for licence as Venture Capital Managers, namely:
i. Form SEC 3: This is the Application Form for the registration and licensing of a Company for a specified business;
ii. Form SEC 2 and 2D: This is the Application Form for Registration of Sponsored Individuals/Compliance Officer. This Form o be completed by the managing director, directors, compliance officer, etc. in duplicates).
4. Documents required from Sponsored Individuals:
i. Copies of credentials of sponsored individuals including secondary school and NYSC discharge certificates. Please note that all originals of submitted credentials will be required for sighting by the SEC;
ii. Detailed curriculum vitae of sponsored individuals and Directors which should include details of activities arranged from Secondary School and employment history up to date, with their respective dates, and postal addresses of immediate previous employers. Please note that all gaps in employment and educational history should be explained;
iii. Police clearance report for each sponsored individual.
iv. Two (2) recent passport photographs of each sponsored individual to be submitted when reporting to SEC office in Lagos or Abuja for commencement of the application process;
v. Copy of means identification of the Directors and the Sponsored Individuals of the Applicant company (preferably International Passport, driver’s licence or National Identification Number Card);
vi. Evidence of personal income tax payment;
vii. Evidence of residence i.e. utility payment documents;
viii. Details of bankers (with Account number) and nominated referees of sponsored individuals.
5. Business Documents
i. Profile of the Applicant company, which should include among others brief history of the company, organizational and shareholding structure, principal officers as well as details of past and current activities;
ii. A document setting out the name(s) and address(es) of the Applicant company’s subsidiaries/associated companies, type of business and percentage of shareholding;
iii. A Specimen Agreement between the Venture Capital Management company and the Venture Capitalist;
iv. Evidence of Payment of shares allotted to the shareholders;
v. Evidence of the company’s intended venture capital funding sources, which must pass the anti-money laundering and combating of financing terrorism (AML/CFT) test;
vi. Operational manual or organizational chart of the company;
vii. Business plan;
6. Sworn or Notarized documents:
i. Sworn undertaking to keep proper records and render returns as may be specified by the Commission from time to time signed by a director or the company secretary (to be sworn or notarized);
ii. Sworn undertaking to abide by SEC Rules and Regulations and Investments and Securities Act No.29 of 2007 by a director or the company secretary (to be sworn or notarized); and
iii. Sworn undertaking to strictly engage in venture capital business only (sworn or notarized).
Is there any examination or inspection requirement before SEC approval?
Yes, the sponsored individuals are required to undertake an examination conducted by the SEC to test their knowledge of the laws, practices and rules of the capital market and the relevant business venture for which licence or registration is sought by the applicant company.
A fair knowledge of the Rules and Regulations of SEC and the Investments & Securities Act No 29 of 2007 (amended) and the capital market is an essential prerequisite for registration of sponsored individuals or the applicant company.
Also, every applicant company will be inspected by SEC in the course of processing an application for registration.
What is the timeline for completing the process of setting up a venture capital management company in Nigeria?
The incorporation of a company the CAC takes between 1 to 2 days.
The licensing or registration by SEC is subject to various factors including the completeness of submitted requirements, the examination calendar for sponsored individuals, their performance in the set examinations and outcome of SEC inspection of the applicant’s office.
The SEC usually conducts its regulatory examinations for sponsored individuals every quarter of the year and successful candidates may be licensed or registered in the following quarter.
It is estimated that SEC licence or registration will be completed between 3 to 6 months. However, this timeline should be shorter if the applicant company opts for existing sponsored individuals or individuals who are qualified for exemption from the SEC examinations.
Is there any other information an applicant needs to be aware of?
Yes, SEC may require such other documents as it considers necessary for registration or licensing.
Also, an application for registration will only be considered as having been properly filed when all document (s)/information have been completed or all queries answered.
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About KORIAT & CO.
KORIAT & CO. is a full-service commercial law firm in Lagos, Nigeria, with experienced and agile middle-aged lawyers servicing local and overseas clients in business registration, licensing, compliance and dispute resolution.
Please contact us via admin@koriatlaw.com or +2349067842241 if you have any question or require any assistance on any aspects of the above article.
The above article is for information only and not intended to serve as legal advice to readers.
