Wednesday

How to Register a Company in Nigeria


Why should you register your business?

A country needs to ensure its business registration processes are as straightforward as possible and that the cost of such service is within the means of the average citizen or resident. Where this is not so informal (or ‘black’) markets will automatically develop, as people will trade without formal business registration and without remitting taxes to government. Institutional arrangements & transaction costs affect patterns of business operations. This is true of all markets whether in the United States, Europe or Africa. You can do a random sampling of the very many small shops operating in your neighbourhood to know how many have actually registered their business names - the result may be surprising.

I wanted to start my own company in Nigeria, so I set about trying to register a business name. This brought me to my first hurdle, which was whether to register as a Sole Proprietorship (SP) or a Limited Liability Company (LLC). 

Difference between a Sole Proprietorship and Limited Liability Company

Some of the differences between a Sole Proprietorship and a LLC can be found here and on other websites. However, I will mention those I believe to be the most important.
 
SP:   Lower start-up cost (suitable especially when there are limited finances)
LLC: Cost much more than SP

SP:   Owner is personally liable for all debts
LLC: Company has a life (incorporated), so the owner is liable to the value of his/her investment in the company

SP: Quicker to file taxes, as the owner’s income and the business income are considered to be the same
LLC: May file taxes as a sole proprietorship or a corporation (separate from the owner’s personal income tax)

Registering a Company in Lagos (similar to other states in Nigeria)

In Nigeria company registration & other business start-up procedures are governed by the 1990 Companies and Allied Matters Act and administered by the Corporate Affairs Commission (CAC). According to the World Bank, state offices of the Commission are fully operational in 29 states of the country. 

In Lagos, CAC has a Yaba office at Aje Street, close to Sabo bus stop in the Yaba area. This office handles business name registration, while incorporation (for Limited Liability Companies) is still done in Abuja. CAC lists two Lagos State Offices on its website. These are at:

        "Ikeja: Elephant Cement House, Assbifi Road, Alausa Ikeja
        Marina: 9th Floor, UBA House, No 57 Marina, Lagos Island
        Telephone: 01-7744799"

(I have not visited any of these offices nor called the listed number. Anyone with experience at any of these offices should please post a comment.)

Steps in Registering a Business Name in Nigeria

The steps to register a company (business name registration) in Nigeria are:
  1. Search for availability of name
  2. Submission of duly completed statutory forms with two passport sized photographs of each applicant attached to the form
  3. Payment of filing fee at the Corporate Affairs Commission
Cost of Registering a Business Name in Nigeria

As stated above, the cost of registering a business name (Sole Proprietorship or Ventures) differs from that of incorporating a business (Limited Liability Company). According to CAC, the ‘official’ cost of registering a business in Nigeria is broken down as follows:
Business Name Search (N500.00)
Business Name Registration Form (N250.00)
Registration of Business Name (N4,000.00)
Certified True Copy of a Business Name Certificate (N1,000.00)
                                     Total                                           N5,750.00

The cost of registering a business name, using a lawyer or staff of CAC (although not necessary) ranges between a low (quite rare) of N10,000 and average of N15,000. This could take as long as 14 working days, especially as the computer servers at CAC are often down. In such cases, additional 5-10 working days are not unusual.

Steps in Incorporating a Company (LLC) in Nigeria
  1. The steps to incorporate a Limited Liability Company in Nigeria are as follows:
  2. Search for availability of name
  3. Payment of appropriate stamp duty fee at the Federal Board of Internal Revenue
  4. Submission of Memorandum and Articles of Association together with statutory forms for verification and assessment
  5. Payment of statutory fees at the Corporate Affairs Commission

Cost of Incorporating a Company (LLC) in Nigeria

According to CAC, the ‘official’ cost of registering a business in Nigeria is broken down as follows:
1.      
  1. Availability of Name Form (N200.00)
  2. A set of Company Incorporation Forms (N500.00)
  3. Prepare the requisite incorporation documents and pay the stamp duty                              
  4. Declaration of Compliance (Form CAC 4) signed before a Commissioner                
    for Oaths or notary public
  5. Register the company with the Corporate Affairs Commission (N10,000.00)
  6. Certified True Copies of relevant documents (N7,000.00)
Other Cost Issues

I found it ‘difficult’ to get the official total sum required for incorporating a business in Nigeria from either the CAC website or the Doing Business in Nigeria website of the World Bank. In my search, I met with a lawyer from a reputable Lagos-based Law firm who gave me N27,000 as the official sum (not including professional fees) of incorporating a company with up to N1million share capital.

According to data from the Doing Business website on Nigeria, there is a legal requirement for company’s incorporators to hire a ‘CAC accredited professional’. This is usually a lawyer who will undertake the administrative incorporation procedures. This requirement is not peculiar to Nigeria alone as several countries have similar requirements. The World Bank data puts the average professional fees of a lawyer in Lagos at N60,000.  However, several persons ranging from lawyers to clerks in claw firms and several members of staff at CAC Zonal Offices are very quick to carry out these services. I have heard of prices between N180,000 and N60,000 for incorporating a company with N1 million share capital in Lagos, Nigeria.

Assuming my reliable source was correct about the N27,500 official fee, then what is the justification of the N60,000 (minimum) that CAC staff often collect to incorporate a business? Why does CAC not suggest minimum rates which are fair rather than allow ‘CAC accredited professionals’ increase rates by over a 100% (at least).

Business Startup Costs Comparison

How does Nigeria compare ?

Registering a business name:

Nigeria: N5,750
UK: Free

Incorporating a business (official costs):
Nigeria: N27,500
UK: £20

Issues

Is it possible to legislate on a minimum cost for professional services in registering a Limited Liability Company, seeing its importance in our economy, and also grant Nigerians direct access to CAC for incorporation? Let us remember that institutional inefficiencies, high costs are bottlenecks that help create illegal economies, which are unfavourable to the growth of our great country Nigeria.