The Nigerian economy entered recession in 2016 due to a number of factors, including a decline in oil prices. While the country returned to growth in 2017, the high cost of foreign exchange and energy led to high costs of production and reduced competiveness during the recession. Consequently, the operations of some companies were shut down.
“In order to survive, many companies reduced production by close to 50%, declared some employees redundant and slashed the remuneration of the remaining employees,” said Emmanuel Ekpenyong, managing partner of Fred-young & Evans LP.
“Banks struggled with declining operating profitability and poor liquidity. Luckily, the Federal Government’s concerted efforts to navigate the rough tide, which include support of small- and medium-scale industries, jolted the economy back to life. The Central Bank of Nigeria introduced policies to stabilise the naira and reduce the backlog of trade obligations to foreign banks.”
During this period, fewer business entities were incorporated. However, business gradually picked up as a result of the injection of funds into the economy by the Federal Government and the last quarter of 2017 witnessed an increase in registration of business entities.
“Interestingly, the large consumer base presents a huge opportunity for increased mergers and acquisitions in the nearest future,” added Mr Ekpenyong.
Considerations for new companies
Mr Ekpenyong explained that a foreign company may engage in any legal business endeavour in Nigeria, with the exception of firearms, narcotics and military uniforms. However, the company must be registered in Nigeria to carry out business within the country.
“A foreign company acquires the same status as Nigerian companies once it is registered,” he noted. “Nonetheless, Nigerian company law does not prevent an unregistered foreign company from suing or being sued in Nigeria.”
The minimum share capital of a private company is 10,000 shares while that of a public company is 500,000 shares. However, there is a stipulated share capital for companies with certain objects. A company with foreigners as its first subscribers must have at least 10,000,000 shares. A proficiency certificate is required for specialised businesses.
Mr Ekpenyong noted that the technologies, technical expertise and intellectual property of foreign companies are protected under Nigerian law.
“Also, Nigerian law prevents foreign companies from being expropriated by the Government and guarantees them a right to repatriate their profits abroad,” he continued. “However, in order to make indigenous companies to be competitive, there are legislations on local content participation in some sectors.”
Mr Ekpenyong stated that as a result of continuous existence of the business entity, limited liability of shareholders, separate personality of the company from its shareholders and restriction on transfer of shares, private company limited by shares is the popular and preferred legal structure to choose to conduct business in Nigeria.
He also noted that Nigerian legislation and powers of the courts extend to all matters between persons or between government and any person in Nigeria.
“This means a foreign business may invoke the provisions of Nigerian legislations and the judicial powers of the court to protect its civil rights and investments whether against Nigerians, a Nigerian company or even the Nigerian government,” he elaborated.
Legislative developments
Discussing recent updates to legislation, Mr Ekpenyong highlighted the Cybercrime (Prohibition, Prevention etc.) Act 2015, which provides an effective and unified legal, regulatory and institutional framework for the protection of data, electronic communication and privacy rights and prohibition, prevention, detection, prosecution and punishment of cybercrimes in Nigeria.
He also noted that the Bankruptcy and Insolvency (Repeal and Reenactment) Act 2016 as a welcome development to bankruptcy proceedings.
“This is because it acknowledges the right of a foreign creditor to initiate bankruptcy proceedings and recognises bankruptcy and insolvency order from a foreign jurisdiction,” he explained.
Other significant issues include the Electronic Commerce (Provision of Legal Recognition) Bill of 2008, currently awaiting Presidential assent, which provides for the recognition of electronic commercial transactions, and the 2017 amendment to the Companies Regulation, 2012, which Mr Ekpenyong believes has positioned the companies’ registry to be more effective.
“This is already achieving results as incorporation of business entities is made online and can be concluded within few hours,” he noted.
Future concerns
Mr Ekpenyong anticipates that the increased foreign interest in the healthcare, real estate and construction, telecommunications and financial sectors will lead to improved corporate governance in these sectors.
“The privatisation of the power sector will draw the attention of reputable international power firms to Nigeria,” he continued. “This will make the sector competitive and improve the power situation in the country.
“In face of falling crude oil prices, the Federal Government has shifted its attention to non-oil sectors. This will create more opportunities for investors especially in the agriculture and solid minerals sectors,” he concluded.
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