Building a start-up is dependent on certain business decisions which are pivotal to the existence and running of such establishments. Nigeria’s business frontier comprises registered and unregistered business entities. Unregistered business entities usually lose out on some benefits that accrue to registered businesses. Benefits like the priority of name, loan grants, tax reliefs, business credibility, among others may not avail a business organization that is not compliant with laid down laws and regulations for its existence. The structure of a business generally affects its goals, legal and financial framework, hence a prospective start-up owner must ensure that his business operates in the right form. It is then advisable for him to employ the services of a solicitor to appropriately guide and perform due diligence on the processes required.
It should be noted that the Corporate Affairs Commission (CAC) is the main regulatory body for business organizations in Nigeria by virtue of the Companies and Allied Matters Act, 2020 (hereinafter referred to as “CAMA”). This article sheds major light on CAMA’s regulatory obligations on business organizations. Insight is further given into other regulatory requirements that businesses should be aware of.
FORMS OF BUSINESS ORGANIZATIONS UNDER CAMA
The Companies and Allied Matters Act, while establishing the Corporate Affairs Commission, has provided for three (3) forms of business organizations. They are:
The Incorporation of Companies and Incidental Matters is provided for under Part B of the Act. A company is seen as a legal entity under the law; meaning it can sue and be sued. 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. [1]
Who can form a company?
Section 20 of CAMA expounds on the eligibility of individuals to join in the formation of a company. The provisions of that section are reproduced below:
(1) An individual shall not join in the formation of a company under this Act if he is –
(a) Less than 18 years of age;
(b) Of unsound mind and has been so found by a court in Nigeria or elsewhere;
(c) An undischarged bankrupt; or
(d) Disqualified under sections 281 and 283 of this Act from being a director of a company.
(2) A person shall not be disqualified under subsection (1)(a) if two other persons not disqualified under that subsection have subscribed to the memorandum.
(3) A corporate body in liquidation shall not join in the formation of a company under this Act.
(4) Subject to the provisions of any enactment regulating the rights and capacity of aliens to undertake or participate in trade or business, an alien or a foreign company may join in forming a company.
Types of Companies that operate as business organizations
It is not every company that exists for the core purpose of doing business for profits. For instance, a Company Limited by Guarantee is not established as a profit-oriented company and may not be outrightly seen as a business organization. A company limited by guarantee is only allowed to do business to further its objects, which could be charity, education, religion, among others. [2]
Thus, any business start-up that wants to register a Company would register as either of the following:
A Private Company is ‘one which is stated in its memorandum of association to be a private company’ [3] , with its members no more than fifty (50). [4] It shall not, unless authorized by law, invite the public to subscribe for any of its share or debenture; or deposit money for fixed periods or payable at call, whether or not bearing interest. [5] On the other hand, ‘any company other than a private company shall be a public company and its memorandum of association shall state that it is a public company.’ [6]
Parts C and D of CAMA provide for Limited Liability Partnership and Limited Partnership, respectively. In either mode of Partnership, two or more individuals may come together and agree to do business and share profits on certain specified terms that would guide their engagement.
This is provided under Part E of CAMA. Most sole proprietors choose to register a Business name and operate under such a name and style. Two or more individuals may be proprietors in one business name. The major distinguishing factor in this type of business organization is that it does not have a legal personality. There is no distinction between the business owner and the business itself. The owner bears all liabilities and risks of the business.
OTHER REGULATORY REGIME RELEVANT FOR BUSINESS ORGANIZATIONS
Sometimes, it is not just about registering with the CAC, there are other requirements and regulatory bodies that are involved in the operations of business organizations. These are provided for below:
Also, any company seeking to operate in the finance sector must obtain requisite license from the CBN. These include Banks, Microfinance Banks, FinTech companies, Mobile Money Operators, Payment Service Providers, etc.
It is commonplace to find start-ups in Nigeria that focus on technology. Thus, such a start-up must work in compliance with the requirements of NOTAP when bringing in foreign technology to Nigeria.
AFTER SETTING UP A BUSINESS ORGANIZATION, WHAT NEXT?
Whereas congratulations are usually in order after the successful registration of a business organization, it should be noted that there are some obligations that existing businesses must fulfill after registration to remain a going concern. Some of these obligations are highlighted below:
Where there is any alteration or update in the operations of the business, notice must be given to the CAC as well as other agencies that regulate such business organizations. Such alteration or update may include change of name, address, proprietors, directors, secretary; Increase or decrease in share capital; registration of charges/debenture holders; alteration of memorandum and articles of association, among others. Failure to file such notices usually attracts a penalty.
Every registered business must file its annual returns up to date to maintain an ‘Active’ status on the database of the Corporate Affairs Commission. Where such returns are not up to date, the status of the organization will be ‘Inactive’. Getting it to ‘Active’ status will require payment of penalty. Thus it is advisable to provide an update as and when due.
Tax payment is the responsibility of every business organization. Therefore, businesses must ensure that they are up to date with their tax payments and proof would be required in most cases to grant renewal of licenses.
Where a company requires a special license to operate, whether from the CBN, NSCDC, SEC, among others, the company must ensure that all applicable licenses are renewed promptly.
There are statutory books that business organizations are expected to keep, by virtue of the Companies and Allied Matters Act. These books include:
CONCLUSION
Overall, it is imperative for start-ups to understand the legal regime for the successful operation of a business in Nigeria. It may appear as though complying with laid down requirements is a burdensome activity, in the wake of the different laws, agencies, and required licenses. This explains why organizations ensure the existence of a legal department and others engage lawyers/law firms on a Retainer Agreement. In fact, it is relieving for start-ups to retain lawyers to ensure and advise on regulatory compliance. This would enable them to focus their time and energy on more productive activities that would expand and move their businesses forward.
FOOTNOTES
[1] Section 18 CAMA
[2] Section 26 CAMA
[3] Section 22(1) CAMA
[4] Section 22 (3) CAMA
[5] Section 22 (5) CAMA