Nigeria is known to be the most populated African country. In other words, more people live in Nigeria than in other parts of the world. Its mammoth population of well over 200 million people continues to attract foreign direct investments(FDI) into the country more than other African territories. This number accounts for a Gross Domestic Product (GDP) of 441.5 billion U.S. dollars in 2021, the highest in Africa.
While it is true that foreigners are leaving the country to invest elsewhere – no thanks to the increased spate of insecurity in the country – more foreigners are arriving on the next flight to either invest in existing businesses or establish new businesses in Nigeria more than elsewhere in Africa. The rewards of such investments are remarkably outstanding. For instance, the Chinese-backed African fintech company, Opay Digital Services Limited (Opay) has become something of an “overnight” success within the first two years of opening shop in Nigeria, recording $2 billion in total gross transaction value in 2020, being only founded in 2018.
Anyone with an entrepreneurial mindset will agree that the secret to this influx of FDI and the undeniable return on investment is in the number of people living in Nigeria. More people means more problems to be solved, and more people willing to pay to have their problems solved.
Of course, not only foreigners are keying into this high-income economy. The local populace is not left behind in the hustle to profit from the mammoth population of the African giant of numbers. Nearly every day new businesses are being established and more people are looking to own their own businesses. This is why the subject of owning a legal business in Nigeria is very important.
To conveniently enjoy the profits of doing business in Nigeria, one must own and operate a legal business.
What does it mean to have a legal business?
The term “legal business” is often thrown around by people who say that they want to deal only with legitimate businesses. These people often add their conditions as to what makes a business legitimate enough for them to trade with.
In the dictionary sense, the word, “legal” means lawfully begotten, something created according to rules and regulations, something that is what it says it is. Therefore, it is safe to say that a legal business is a business that is created according to the law of the land and can be trusted by the public and held liable as a business.
That being said, what does it really mean to own and operate a legal business in Nigeria? In other words, what are the legal requirements for owning or operating a business in Nigeria?
In the first place, anyone who wishes to do business must have a clear idea of the kind of business to venture into. You cannot do everything and be everywhere. No business can be effective in doing everything. You must choose the exact problem you want to solve and the solution that you bring to the market.
In Nigeria, business ownership or operation is not open to all persons of all ages. A person must be of a certain age to own a business in Nigeria. Once the age criterion is satisfied, then you must satisfy other criteria to own what the Nigerian laws that regulate businesses recognize to be a legal business.
A legal business in Nigeria must first be registered with the Corporate Affairs Commission (CAC). CAC is the Registry of businesses and non-profit entities in Nigeria. It is the authority that is charged with the sole responsibility of authorizing businesses to be established in Nigeria. There are other government authorities that provide licenses to operate certain kinds of businesses and carry out certain functions within Nigeria’s territory. For instance, CAC does not give business permits to foreigners, approve expatriate quotas, or approve the production or manufacture of goods, trademarks, etc. in Nigeria. There are various government departments that have the authority to do so.
However, you must first be a business before you can seek such approvals. CAC is the government authority that coordinates and approves the formation and establishment of any business or non-profit entity in Nigeria. CAC is a creation of the Companies and Allied Matters Act (CAMA) of the Laws of the Federation of Nigeria. CAMA is the law that specifies the requirements for forming a legal business in Nigeria.
Therefore, whether a person seeks to operate a business as a sole proprietor (one-man business) or as a partnership, a company (public limited company (PLC) or private limited company (LTD)), non-governmental organization (NGO), such business must meet the requirements of CAMA 2020 and be registered with CAC to be a legal business.
What do I have to do to “be legal” or “have a legal business”?
Be registered with CAC.
Although there are specific conditions for registering different kinds of business organizations, there are general requirements that every organization must have to be registered with CAC as follows:
- A unique business name
Such a name must be different from the personal name of the founder(s) of the business. For instance, you cannot register Fred Henry as a business name. It is or ought to already have been registered as a person’s name. That name must not be closely related to or similar to the name of an already registered business but must be a name that is unique to that intended business. However, before you can have the name registered, you must enter a name search on the CAC portal to know if it is available to be registered or it is already registered.
- A Business Address
Every business must have a traceable address located in any part of Nigeria. A traceable address means that it must have a number/building name, a street, within a town/city/village, and within a local government of a state in Nigeria. For instance, a traceable address will be No. 5, Coker close, Off Andoaaka Street, High Level, Makurdi, Benue State. On the other hand, Plot 102, Cadastral Zone B25, Apo-Dutse, Abuja is not a traceable address. Also, Suite C10 PEB 04 Plaza, Plot 2027, Dalaba Street, Wuse Zone 5, Abuja is a more traceable address.
- Business Contact Details
These entail a business email and phone number. It is advisable that once your business name is approved, you register a formal email address on any of the email service providers of choice with your business name or abbreviation that is easy to remember. For instance, instead of having bestarindustrieslimited@outlook.com, you can try some simple combinations that your customer will easily remember. However, if you are more comfortable with the full name, that is also fine.
Your business must also have a phone number to be registered. This can either be your personal number if that’s what you have or a dedicated business phone number. Whichever you choose, you must have an email address and a phone number to have a legal business in Nigeria.
- Proprietors, Directors, and Shareholders
Which nomenclature is appropriate for you depends largely on what business organization you choose.
Generally, a person who owns a business is called a Founder. However, where that business is registered or to be registered as a Business Name (sole proprietorship) then, he or she is best described as a proprietor. Your choice to use CEO/Founder is totally up to you but in the formal sense of it, the founder of a one-man business is called a “proprietor”. With respect to a company, that is business organizations which names end with “Limited”, “Ltd.”, and “Plc”, the owners of such businesses are known as the shareholders while the managers/decision makers are known as “directors”.
Be that as it may, it is a compulsory requirement that a business must have one of these, as the case may be. At the time of registration with CAC, the full details of such proprietor, director, or shareholder must be disclosed. Such details are: full name as on a valid government Identity card, date of birth, email address, residential traceable address, occupation, and phone number.
Tax Registration
A legal business in Nigeria is expected in law to pay taxes. To do so, they must register with the Federal Inland Revenue Service (FIRS) (for companies) and the State Inland Revenue Service (for sole proprietorships). This registration is free and very straight to the point.
To register a company with the FIRS, the director/shareholder of the business is to approach the FIRS Tax Office (TO) nearest your principal place of business to obtain a Tax Identification Number (TIN) and register for Valued Added Tax (VAT) collection. However, if the Comapny’s TIN is already printed on its certificate of incorporation, then approach the centralTO within your state to activate the TIN, and effect a transfer of your TIN to the TO closest to you, if you prefer that.
Once formalized, the law requires your business to collect VAT which is 7.5% of the price of the goods and/or services that you are selling. You can choose to either charge exclusive or inclusive
Although there are other specific requirements to establish and run a legal business in Nigeria, we will examine them in subsequent articles.
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