AN ANALYSIS OF THE PROCEDURE FOR EXECUTING JOINT VENTURE INVESTMENT IN NIGERIA BETWEEN A NIGERIAN...

7/28/2019 AN ANALYSIS OF THE PROCEDURE FOR EXECUTING JOINT VENTURE INVESTMENT IN NIGERIA BETWEEN A NIGERIAN

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SULEIMAN NASIRU ARISEKOLA U08CL1010

ALAKAN ALIU AKOREDE U08CL1158

SULAYMON TADESE ALMOL-YEQEEN U08SH1058

MUSTAPHA RABIU MARU U09SH2014

JIBRIN ALHASSAN KORO U08CL1037


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AN ANALYSIS OF THE PROCEDURE FOR EXECUTING JOINT VENTURE INVESTMENT IN

NIGERIA BETWEEN A NIGERIAN AND NON-NIGERIAN

1.0 INTRODUCTION

The Nigerian economy is primarily based on free market principles, with some areas of state

control. Foreign investment is being actively encouraged by both the private and public

sectors in all facets of the economy. This is evident from the governments foreign

investment policies and the various regulatory frameworks.

With the exception of banking, insurance and broadcasting industries, the various

regulatory laws impose no restrictions on foreign ownership of local companies and

businesses. The Nigerian Government is however committed to the economic

empowerment of its citizenry, thus, varied categories of incentives are incorporated in the

various regulatory laws geared at increasing the number of companies owned by it

populace.

The countrys financial infrastructure is well developed with advanced money markets and

capital markets. The money market is predicated on the issuance of short term securities by

the Central Bank of Nigeria. These securities once issued, are taken up by banks and other

financial institutions for placement with individuals and businesses.

The capital market is made up of a regulator, stock exchange and stock brokers. The

Securities and Exchange Commission regulates the activities in the capital market in

accordance with the Investment Securities Act, 2007. The country boast of a wide array of

financially sound and established commercial, merchant, and investment banks, both

domestic and international, listed shares and debentures, stocks and bonds and options on

those shares and debentures are traded on the Nigerian Stock Exchange (NSE). The NSE is

the only exchange operating in Nigeria with trading floors in the major cities of the country.

The Exchange has undergone major changes in the last few years with the commissioning of

the Central Securities Clearing System (CSCS), by which transactions are completed in T+1

day. The Federal Government in 1995 liberalised the Nigerian capital market to ensure the

participation of foreigners in the Nigerian Market both as operators and investors. This was

facilitated by the abrogation of laws like Exchange Control Act 1962, Nigerian Enterprise


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Promotion Act, 1989. The labour market in Nigeria consists of readily available skilled

professional in many technical fields required for the effective operation of a business.

1.2 OPERATIONS OF FOREIGN COMPANIES IN NIGERIA

A non-Nigerian may invest and participate in the operation of any enterprise in Nigerian

either in joint venture or 100% own by foreigner. However, a foreign company wishing to

set up business operations in Nigeria should take all steps necessary to obtain local

incorporation of the Nigerian branch or subsidiary as a separate entity in Nigeria for that

purpose. Until so incorporated, the foreign company may not carry on business in Nigerian

or exercise any of the powers of a registered company.

The foreign investor may incorporate a Nigerian branch or subsidiary by giving a power of

attorney to a qualified solicitor in Nigeria for this purpose. The incorporation documents in

this instance would disclose that the solicitor is merely acting as an agent of a principal

whose names should also appear in the document. The power of attorney should be

designed to lapse and the appointed solicitor ceases to function upon the conclusion of all

registration formalities.

1.3 PROCEDURE FOR EXECUTING JOINT VENTURE INVESTMENT IN NIGERIA

Except in instances where the proposed company will be 100% owned by non-resident

shareholders, it is must to prepared joint ventures agreement between prospective

shareholders. The joint venture may specify; inter-alia, mode of subscription by parties,

manner of Board Composition, mutually protective quorum for meetings, specify action

which would necessitate shareholders approval by special or other resolutions. And

Memorandum and Articles of Association must incorporating the spirit and intents of the

Join- Venture Agreement.

Thus, discussed below are regulations and regulatory agencies in executing joint venture

investment in Nigeria by Nigerian and Non-Nigerian.

1.3.1 Nigerian Investment Promotion Commission (NIPC) Act1

The NIPC Act established the NIPC as an investment promotion agency of the Federal

Government2. The NIPC is charged with the responsibility of registering foreign investments

1CAP. N117 L.F.N. 2004.


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in Nigeria. It is also part of its responsibility to maintain close cooperation between investors

and ministers, the relevant government departments, institutional lenders and other bodies

concerned with investments. With the abrogation of the Nigerian Enterprises Promotion

Act, 1989, the ceiling on foreign investment in Nigeria has been removed with the exception

of restrictions relating to items on the negative list. Items listed under the negative list are

within the exclusive preserve of the government of Nigeria.

Items contained in the negative list are:

1. The production of arms and ammunition,2. Narcotics and psychotropic substances, and3. The production of military, para-military, police, customs, immigration and prison

service uniforms and accessories.

Important improvements made by the NIPC Act include:

i. The procurement and repayment of foreign loans and interest by Nigeria companies

without first obtaining ministerial approval.

ii. Foreign portfolio investment in Nigerian-quoted companies through the Nigerian Stock

Exchange.

iii. The remittance of dividends, and interests by guaranteeing to foreigners the unrestricted

transferability of dividends or profits attributed to foreign investments in Nigeria and the

repatriation of capital in the event of liquidation without the requirement of approval by the

minister.

Investment Protection Assurance3

The NIPC Act provides that:

(a) No enterprise shall be nationalized or expropriated by any Government of the

Federation, and

(b) No person who owns, whether wholly or in part, the capital of any enterprise shall be

compelled by law to surrender his interest in the capital to any other persons.

2Section 1(1) Ibid.

3Section 25(1) and (2), Ibid.


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There will be no acquisition of an enterprise by the Federal Government unless the

acquisition is in the national interest or for a public purpose under a law that makes

provision for:

(a) payment of fair and adequate compensation, and

(b) a right of access to the courts for the determination of the investors interest of right and

the amount of compensation to which he is entitled.

Procedure for obtaining NIPC Registration

Application is made to the Nigerian Investment Promotion Commission Completed copies of the NIPC Form 1 (Original and 3 copies) Original copy of receipt of purchase of NIPC Form 1 (and 3 copies) A copy ofCompanys Certificate of Incorporation (and 3 copies) Evidence that Company has a minimum share capital of N10million. (3 copies) Companys Allotment of shares and Particulars of Directors (3 copies) Details of the shareholding structure of Company (3 copies) Joint Venture, Shareholders or Partnership Agreement, where applicable (3 copies).1.3.2 Foreign Exchange (Monitoring and Miscellaneous Provisions) Act

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Section 41 of the Act defines an authorized dealer as any bank licensed under the Bank and

other Financial Institutions Act, and such other specials bank and issued with license to deal

in foreign exchange.

Certificate of Capital Importation

Investors who wish to be able to remit dividends to non-resident shareholders or repatriate

capital on disinvestments must ensure that they obtain a Certificate of Capital Importation

from the Nigerian bank through which the payment is transferred into Nigeria.

Procedure for Obtaining Certificate of Capital Importation (CCI)

Application will be made to Companys bankers

4CAP F34 L.F.N. 2004.


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The foreign shareholders will instruct their bank (the remitting bank) by telex to transfer

the necessary funds either directly to Companys bankers or to their foreign affiliate;

The transfer must be accompanied by a telex stating that the money being remitted to the

bank is for the account of Company and that the money represents the foreign investors

capital contribution to the equity of Company;

Upon confirmation that the funds have been remitted to Nigeria, Company is required to

send a formal letter of application to the receiving bank to issue a CCI in respect of the

equity contribution.

The following documents must be submitted together with the letter of application:

A Board resolution of Company authorizing the foreign investment; A letter from Company stating the purpose for which the money has been remitted; A copy of the certificate of incorporation of Company; A copy of the swift message from the remitting bank.

If satisfied with the documentation the receiving bank will issue a CCI in respect of the

funds. The receiving bank is required to notify the CBN whenever it issues a CCI.

1.3.3 Companies and Allied Matters Act5

By the provisions of the act, an alien or foreign company may join in forming a company

subject to the provisions of any law regulating the right and capacity of aliens to engage in

trade or business in Nigeria. Any foreign company intending to trade in Nigeria must ensure

that all the necessary requirements for incorporation as a separate entity in Nigeria is

complied with.

Without such compliance, the foreign company shall not have a place of business in Nigeriafor any purpose other than the receipts of notice and other documents. There is, however, a

provision for exemption of a foreign company from the requirement of registration. The

Federal Executive Council is empowered by Section 566

of the Act to exempt a foreign

company eligible for exemption under the conditions listed within the section. They are as

follows:

5CAP. C20 L.F.N. 2004.

6Ibid.


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(a) Foreign companies (other than those specified in paragraph (d) (below) invited to Nigeria

by or with the approval of the Federal Government to execute any specified loan project;

(b) Foreign companies, which are in Nigeria for the execution of specified individual loan

project on behalf of a donor country or international organization;

(c) Foreign government-owned companies engaged solely in export promotion activities;

and

(d) Engineering consultants and technical experts engaged on any individual specialist

project under contract with any of the governments in the Federation or any of their

agencies or with any other or person, where such contract has been approved by the

Federal government.

Exemption from the local incorporation requirement may confer tax-free status on the

beneficiary for the duration of the exemption.

Procedure for Company Incorporation in Corporate Affairs Commission (CAC)

An application for incorporation is made to the Registrar-General of the CAC. Prior to the

application being made, submitting a written application to the CAC, and paying a

prescribed fee may reserve the name of the proposed company. Subsequently the

application to the Registrar-General is submitted in the prescribed form along with the

following documents:

A copy of the Memorandum and Articles of Association of the Company (which must besubscribed to by at least two persons, together holding at least 25% of the companys

authorized share capital together with evidence of payment of stamp duty.

A statement of the authorized share capital of the company together with evidence thatthe stamp duty payable in respect of the amount of share capital has been paid.

A statement of the particulars of the initial directors of the company, of which theremust be at least two.

A notice of the situation of the registered office of the company. A declaration, sworn to by a Lawyer that all matters preliminary to the registration of

the company have been complied with.


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Stamp duty and filing fees are payable to the Federal Commissioner for Stamp Duties

and the Registrar - General of Companies respectively. If the application is approved, a

Certificate of Incorporation will be issued and the company can commence business

subject to its having obtained the necessary investment approvals.

1.3.4 National Office for Technology Acquisition and Promotion Act (NOTAP)7

By virtue of the provisions of the Act any agreement under which a foreigner is to provide

foreign technology, management, or assistance, to a Nigerian company must be approved

by the National Office for Technology Acquisition and Promotion (NOTAP). Thus, this is a

form of technical co-operation agreement in which a party will agree to offer technical

services to a company for the payment of a fee. Details and terms of such agreements are

normally worked out between the parties involved. Fees payable for the provision of such

technology or services must also be approved by the NOTAP.

Registration with National Office of Technology Acquisition and Promotion (NOTAP)

Every contract or agreement involving the transfer of foreign technology to a Nigerian

company must be registered with the NOTAP within sixty (60) days of execution or

conclusion of the agreement.

An agreement involves transfer of technology if, in the opinion of NOTAP, it is wholly or

partially connected with any of the following matters:

i. The use of trade marks

ii. The right to use patented inventions,

iii. The supply of technical expertise in the form of the preparation of plan, diagrams,

operating manuals or any other form of technical assistance of any description whatsoever,

iv. The supply of basic or detailed engineering,

v. The supply of plants and machinery, and

vi. The provision of operating staff or managerial assistance and the training of personnel.

Registration with NOTAP is necessary, as non-registration will frustrate transfer of any fees

or payment due under the contract to the account of the aliens outside Nigeria.

7CAP. N61 L.F.N. 2004


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1.3.5 Immigration Act8

This is para-military organization established by the Act. Our concern here is those aspects

of the provisions of the Act that deal with or affect investment in Nigeria. Therefore, for a

foreigner who wishes to enter the country and enjoy the benefits of investments, they must

require the necessary legal permit and any defaulters will be deported. Aliens or foreigners

need the following permits from Immigration Service after obtaining a visa.

i. Business Permit

A business permit is an operational and permanent permit for the local operation of a

business with expatriate investments either as a branch or subsidiary of a foreign company

or otherwise. By the provisions of the Immigration Act, no person other than a Nigerian

citizen shall on his own or in partnership with another practise a profession or establish,

takeover or register a company or business without the written consent of the Minister of

Internal Affairs.

Procedure for obtaining Business Permit

Application is made to the Ministry of Internal Affairs Completed copies of the NIPC Form 1 (Original and 3 copies) Original copy of receipt of purchase of NIPC Form 1 (and three copies) A copy of COMPANYs Certificate of Incorporation (and three copies) Evidence that COMPANY has a minimum share capital of N10million. (3 copies) COMPANYs Allotment of shares and Particulars of Directors (3 copies) Details of the shareholding structure of COMPANY (3 copies) Joint Venture, Shareholders or Partnership Agreement, where applicable (3 copies).ii. Expatriate Quota

Expatriate Quota is the permission granted tot a foreigner to accept employment in Nigeria.

It is the official permit to a company conveying permission to a company to employ

individual expatriates to specifically approved job designations and also specifying the

permissible duration of such employment.

8CAP I1 L.F.N. 2004.


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The initial expatriate quota is sought and obtained usually along with Business Permit. There

are two types of expatriate quota:

a) Permanent Until Reviewed Quota (PUR), usually granted to the post of Chairman of the

companys board of directors or the Managing Director; and

b) Temporary Quota, which is usually granted to the directors and other employees of the

company.

The maximum number of years granted in the first instance is five years renewable for a

further period of two years.

Procedure for obtaining Expatriate Quota

Application is made to the Ministry of Internal Affairs In addition to the requirements listed under Business Permit application, the following

requirements have to be met for Expatriate Quota applications:

Evidence of acquisition of operational machinery and equipment Management and Technical Services Agreement Minimum authorized share capital of N10million Tax Clearance Certificate Company applying for Permanent Until Reviewed (PUR) Quota slots must show evidence

of payment of tax for minimum of =N=1 million.

Names, addresses, qualifications and positions to be occupied by the expatriate Project Implementation Program Training Program for Nigerians and a Management Succession Scheduleiii. Resident Permit

Only aliens with tourist visa may enter Nigeria and stay for a period of three months without

a residence permit. Any person, other than a citizen of Nigeria, desiring to stay in Nigeria

beyond three months must obtain a resident permit. Application is by letter accompanied

by a valid passport of the alien from the company requesting permission to employ the

alien, to the Immigration Department.

iv. Combined Expatriate, Residence Permit and Alien Card (CERPAC)


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Registration permits an expatriate to live and work in Nigeria on a long-term basis. For an

expatriate to obtain Resident permit, he must obtain employment with a company that has

expatriate quota position. Such a person will be expected to come into the country with a

special type of entry visa know as STR (Subject To Regularization) visa after which his

resident permit will be processed. The combined CERPAC scheme was introduced in 2002,

providing for foreigners (except ECOWAS citizens accredited diplomats and children below

the age of 15 years) working or living in Nigeria to carry CERPAC card, the scheme is

expected to simplify the process of acquiring residence permit and alien registration

certificate. It provides a computerized unit at various points of entries, like airports, that is

linked to a central database centre containing information on every foreigner residing in

Nigeria. The residence permit allows a foreigner and his dependants or family to reside in

Nigeria. Unlike the residence permit, the alien registration certificate is essentially a

movement chart. Under the CERPAC scheme, registration is valid for one year, after which

application for revalidation must be made.

Foreigners relocating to a different part of Nigeria must inform the nearest Aliens Office of

the move. Also if a foreigner holding an Aliens Card leaves Nigeria permanently then the

Card has to be handed to the Aliens Office.

1.4 Conclusion

In conclusion foreigners may invest and participate in the operation of any enterprise in

Nigeria. By virtue of the provisions of the CAMA, a foreign investor, wishing to set up joint

business operations in Nigeria is obliged to take all steps necessary to obtain local

incorporation of a Nigerian company, or branch or subsidiary of an existing company, which

would be a separate and distinct entity from its parent company. Until so incorporated, a

foreigner may not carry on business in Nigeria or exercise any of the powers of a registered

company.


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BIBLIOGRAPHY

1. Orojo J.O., Company Law and Practice in Nigeria, 5 edt., LexisNexis, South Africa,2008.

2. Olakanmi & Co., Synoptic Guide Companies and Allied Matter Act, 2 edt.,LawLord Publications, 2009.

3. Akume A.A., Delivered Lectures Note, Class of 2013 Ahmadu Bello UniversityZaria.

4. Nigerian Investment Promotion Commission, www_nipc-nigeria_com. Accessedon 8

thMarch, 2013.

AN ANALYSIS OF THE PROCEDURE FOR EXECUTING JOINT VENTURE INVESTMENT IN NIGERIA BETWEEN A NIGERIAN...

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