Foreign direct investment (FDI) is one of the major practice areas of LEGAL EMPERORS Law Firm. Our lawyers have extensive experience in franchise and foreign partnership with Nigerian enterprises’ by external investments and transnational enterprises’ investment in Nigeria. With a deep understanding of Nigerian laws and regulations regarding market access, our lawyers assist clients to avoid legal risks during entries into Nigerian market. Our lawyers also assist foreign clients in their localization in Nigeria. We provide consistent high-quality advice in relation to Foreign direct investment (FDI) matters such as selection of investment structure, corporate setups and operation, labor and capital relations, equity transfer, dispute settlement, repatriation of capital and investment exit.
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Overview of Foreign Participation in Nigerian Business Sector
- Section 650 of CAMA defines an alien as a person or association, whether corporate or incorporated, other than a Nigerian citizen or association. The current position of the law is that an alien may join (partner) in the formation of a company in Nigeria. In other words, such an alien can join or partner with a Nigerian for the purpose of doing business in Nigeria.
- Section 20(4) of CAMA supports this proposition as follows: “Subject to the provisions of any enactment regulating the right and capacity of aliens to participate or undertake in trade or business, an alien or a foreign company may join in forming of a company”.
- A foreigner may also solely engage in business in Nigeria. In this regard, section 17 of the Nigerian Investment Promotion Commission (NIPC) Act provides that “except as provided in section 18 of this Act and subject to this Act, a non-Nigerian may invest and participate in the operation of any enterprise in Nigeria”. It is clear that a foreigner is allowed to participate in business in Nigeria but subject to some exceptions and enactments.
- The exceptions are as stated in section 18 of the NIPC Act which mandates that the provision of the NIPC Act shall not apply to “Negative List as defined in section 31 of the Act”. The said section 31 of the NIPC Act, which is the interpretation section defines “Negative List” as the list of those sectors of investment prohibited to both foreign and Nigerian investors, that is:
- Production of arms, ammunition, etc.
- Production of and dealing in narcotic drugs and psychotropic substances;
- Production of military and para-military wears and accoutrement, including those of the police and the customs, immigration and prisons services,
- Such other items as the Federal Execution Council may, from time to time, determine.
Accordingly, a foreigner may do any business in Nigeria except those mentioned in the ‘negative list’ supra.
Also, any alien or alien company intending to do business in Nigeria, must comply with certain regulatory requirements – the First being Registration/incorporation, with the Corporate Affairs Commission as a Corporate entity or sole proprietorship/partnership. By section 54(1) of Companies and Allied Matters Act (CAMA), subject to sections 56-59 of CAMA, every foreign company which before or after the commencement of this Act was incorporated outside Nigeria, and having the intention of carrying on business in Nigeria shall take all steps necessary to obtain incorporation as a separate entity in Nigeria for that purpose, but until so incorporated, the foreign company shall not carry on business in Nigeria or exercise any of the powers of a registered company and shall not have a place of business or an address for service of documents or processes in Nigeria for any purpose other than the receipt of notice and other documents, as matters preliminary to incorporation under this Act. Subsection (2) provides that any act of the company in contravention of subsection (1) of this section shall be void. The foregoing position is re-echoed in the case of Unipetrol Nigeria Plc v. Agip Nigeria Plc (2002) 14 NWLR (Pt. 789) 312.
The foregoing notwithstanding, section 56(1) of CAMA provides that a foreign company may apply to the National Council of Ministers (Federal Executive Council) for exemption from registration. The Application is usually made to the President, through the Secretary to the Government of the Federation and is for exemption from the provisions of section 54 of CAMA, if that foreign company belongs to one of the following categories, that is –
- Foreign companies (other than those specified in paragraph (d) of this subsection) invited to Nigeria by or with the approval of the Federal Government to execute any specified individual project.
- Foreign companies which are in Nigeria for the execution of specific individual loan project on behalf of a donor country or international organization.
- Foreign government-owned companies engaged solely in trade export promotion activities; and
- Engineering consultants and technical experts engaged on any individual specialist project under contracts with any of the governments in the Federation or any of its agencies or with any other body or person, where such contract has been approved by the Federal Government.
Subsection(2) of Section 56 of CAMA further provides that an application for exception under this section shall be in writing addressed to the Secretary to the Federal Government and shall set out –
- The name and place of business of the foreign company outside Nigeria.
- The name and place of business or the proposed name and place of business of the foreign company in Nigeria.
- The name and address of each director, partner or other principal officer of the foreign company.
- A certified copy of the Charter, Statutes or Memorandum and Articles of Association of the company, or other instrument constituting or defining the constitution of the company and if the instrument is not written in the English language, a certified translation thereof.
- The names and addresses of someone or more person resident in Nigeria authorized to accept on behalf of the foreign company services of process and any notice required to be served on the company.
- The business or proposed business in Nigeria of the foreign company and the duration of such business.
- Particulars of any project carried out by the company as an exempted foreign company; and
- Such other particulars as may be required by the Secretary to the Federal Government.
Subsection (3) thereof allows exemption to be granted in befitting cases, and the period of exemption granted as well as the project(s) shall be specified and the exemption order must be published in the Federal gazette.
The status of an exempted foreign company is as stated in section 58 of CAMA as follows:
Subject to this Act and save as may be stated in the instrument of exemption, a foreign company exempted pursuant to this Act shall have the status of an unregistered company and accordingly, the provisions of the Act applicable to an unregistered company shall apply in relation to such an exempted company as they apply in relation to an unregistered company under the Act.
However, by virtue of section 60(b) of CAMA, such an exempted unregistered company is allowed to sue and be sued in Nigeria (either in its corporate name or that of its agent) and claims in foreign currency can be made by or against it. See Ritz Pumpen Fabrik GMBH & Co. KG v. Techno Continental Engineers Nig. Ltd. & Anor (1999) 4 NWLR (Pt. 598) 298, where the appellant a foreign unregistered company successfully sued the Respondents in Nigeria for the value of the machineries borrowed by the latter.
The point is emphasized that a foreign company or alien needs to register in Nigeria with the Corporate Affairs Commission before it can be qualified to do business in Nigeria: section 54 of CAMA. Again, an alien may operate alone or in joint venture with Nigerians by means of a company, which must have been registered by the Corporate Affairs Commission.
There are a principally two modes of alien participation depending on the area of interest. These are: foreign Direct Investment and Foreign Port Folio Investment.
Foreign Director Investment:
By this mode aliens can participate directly in business in Nigeria by forming (either solely or with Nigerians) a company (except an exempted company) by engaging directly in business except those in the negative list. It is immaterial whether the alien has or does not have an existing company in his home town. Foreign Direct Investment showcases a measure of foreign ownership of productive assets, such as factories, mines and land. Here, the alien participates in the establishment and management of the company (business).
Foreign Portfolio Investment:
By this mode, the alien participates indirectly in business by buying shares in existing Nigerian companies; the foreigner purchases company stocks and bond in Nigeria. These are usually through a stockbroker purchasing shares of publicly quoted companies or by private placement of shares of private companies or direct application for allotment in which case the Securities and Exchange Commission should be notified. Foreign Portfolio Investment can be effected with foreign currency imported through an authorized dealer and converted to naira at the official exchange rate. See sections 12, 13, & 15 of Foreign Exchange (Monitoring and Miscellaneous Provisions) Act.
Accordingly, an alien (foreigner or foreign company) may choose to register a business name as a sole proprietor or partnership. He may wish to incorporate a company with other aliens or Nigerians. He may wish to buy shares into an existing company. Where he is incorporating a company, he may do business in any area except the negative list. However, he must register with the Nigerian Investment Promotion Commission and Securities and Exchange Commission. But, if he is only buying shares into an existing company, he only needs to register with the Securities and Exchange Commission. He must also obtain the necessary permits and approvals before engaging in business in Nigeria.
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