The required minimum share capital of a company is dependent on either the objects of the company, type of company or statutory provisions regulating that company. The primary law on the registration and regulation of companies in Nigeria is the Companies and Allied Matters Act, 2004 (CAMA) while the Corporate Affairs Commission (CAC) is the body empowered to ensure that the provisions of the CAMA are complied with during pre-incorporation and post incorporation stages.
As interesting as it may sound, the CAMA is not the only law that regulates the minimum share capital of a company as there are other laws, policies and regulations that dictates what the minimum share capital of certain companies should be. The CAC being the regulator at the initiation stage must ensure the compliance of companies before issuing a certificate of incorporation.
This article attempts to list regulated business activities and their required minimum share capital. It also discusses the laws and the regulatory agencies that ensure that the provisions of the law are complied with during the post-incorporation stage.
Minimum Share Capital By Category of Company
In this regard, a company’s nature determines its required minimum share capital. In general, the required share capital of companies is set at a very low amount in order to make registration of companies attractive to everyone. Thus it is stated in Section 27 (2) of the CAMA that the minimum share capital of a Private company shall be N10,000 whereas a public company cannot fall below N500,000.
Private Company: N10,000
Public Company: N500,000
Minimum Share Capital By Classification
By virtue of the CAMA, a company can also either be a company limited by shares, an unlimited company or a company limited by guarantee. A company limited by shares is required to have a share capital as earlier discussed whereas an unlimited company which is also required to have a share capital had hitherto and before the act not fallen under the type of companies required to have a share capital.
A company limited by guarantee, however, is not required to have a share capital. This provision is contained in section 26 (2) which states that a company limited by guarantee shall not be registered with a share capital; and every existing company limited by guarantee and having share capital shall, not later than the appointed day, alter its memorandum so that it becomes a company limited by guarantee and not having a share capital.
It is worthy to note that a company limited by guarantee is also defined in the section as a company formed for promoting commerce, art, science, religion, sports, culture, education, research, charity or other similar objects, whose income and property are to be applied solely towards the promotion of its objects and no portion thereof is to be paid or transferred directly or indirectly to the members of the company except as permitted by the Act.
Private Company Limited by Shares: N10,000
Public Company Limited by Shares: N500,000
Private Companies Limited by Guarantee: N0
Public Companies Limited by Guarantee: N0
Private Unlimited Company: N10,000
Public Unlimited Company: N500,000
Minimum Share Capital Of Regulated Objects
There are certain businesses activities and ventures that are regulated by specific laws that provide guidelines for the registration, licensing and regulation of the business activities or ventures. These rules, policies and guidelines place an obligation on promoters of certain types of companies to ensure that the minimum share capital requirement of these types of companies are met. Failure to meet the required share capital will result in the registration being queried by the CAC. The rationale behind setting a higher threshold for certain companies is to provide a means of assurance that in the event of liquidation of the company, the assets of the company will be sufficient to pay a substantial part of any debt owed. This means that any company which purports to carry out the activities under the regulated list whether public or private would not be registered by the Corporate Affairs Commission unless it complies with the minimum share capital requirement by law.
The regulated objects, the enabling law and the post-incorporation regulatory agencies are discussed below for better understanding of the minimum share requirements of the different categories of companies under this umbrella.
- COURIER BUSINESS
By virtue of its power to regulate Courier Business in Nigeria as contained in Section 43 of the Nigerian Postal Service Act, 1992 the Nigerian Postal Service has set its guidelines for registration, licensing and operation of courier companies in Nigeria. The requirements which must be complied with before a courier company can commence operations includes registration of the company with a minimum share capital of N2 Million.
Courier Company: N2 Million
- CAPITAL MARKET OPERATORS
The Securities and Exchange Commission (SEC) is empowered by section 8 of the Investment and Securities Act, 2007 to regulate investment and securities business in Nigeria as defined in the Act. Below are the list of investment companies regulated by the SEC and their required minimum share capital.
Issuing House: N200 Million
Brokers/dealers: N300 Million
Trustees: N300 Million
Fund/ Portfolio Managers: N150 Million
Stock Brokers: N200 Million
Stock Dealers: N100 Million
Inter- Dealer Broker (IDB): N50 Million
Corporate Investment Adviser (Registrar) : N150 Million
corporate Investment Adviser: N5 Million
Individual Investment Adviser: N2 Million
Market Maker: N2 Billion
Consultant Partnership: N2 Million
Consultant Individual: N500,000
Consultant Corporate: 5 Million
Under Writer: 200 Million
Venture Capital Manager: 20 Million
Commodities Exchange: 500 Million
Commodities Broker: 40 Million
Capital Trade Point: 20 Million
Rating Agency: 150 Million
Corporate/Su Broker: 5 Million
- BANKS AND OTHER FINANCIAL INSTITUTIONS
The Central Bank of Nigeria (CBN) is empowered by the Banks And Other Financial Institutions Act, 2004 to regulate the Banking Industry and by virtue of section 2 of the Act, No person shall carry on any business in Nigeria except it is a company duly incorporated in Nigeria and holds a valid banking license issued under the Act.
Through its powers to regulate the banking business, the CBN from time to time make policies relating to the minimum share capital of the type of companies under its purview. Below is a list of the companies and their minimum share capital.
Commercial Bank With Regional Authorization: N10 Billion
Commercial Banks With National Authorization: N25 Billion
Commercial Banks With International Authorization: N50 Billion
Merchant Banks: N15 Billion
Micro Finance Bank (Unit): N20 Million
Micro Finance Bank (State & Fct): N100 Million
Micro Finance Bank (National): N2 Billion
Primary Mortgage Institutions: N2 Billion
Finance Company: N20 Million
Bureau De Change: N35 Million
Non-Interest Banks (Regional): N5 Billion
Non-Interest Banks (National): N10 Billion
- REGISTERED INSURANCE BROKERS
The Nigerian Council of Registered Insurance Brokers is the body empowered in Nigeria to regulate the enrolment and operation of Registered Insurance Brokers. Section 15(1) of the Nigerian Council of Registered Insurance Brokers Act, 2003 empowers the Council to make rules while subsection (1) (a) mandates the council to ensure that a Practicing Insurance Broker business should have a working capital of not less than N5 Million made up of verifiable movable and immovable assets and cash in proportion as the council may decide. Below is a list of insurance-related businesses and their required minimum share capital.
Insurance Brokers: N5 Million
- INSURANCE BUSINESS
The National Insurance Commission Act, 1997 empowers the National Insurance Commission by virtue of section 6 to regulate insurance business in Nigeria. The section provides that the principal object of the commission shall be to ensure the effective administration, supervision, regulation and control of insurance business in Nigeria.
The commission through its powers has issued guidelines regulating the insurance business in Nigeria.
Life Insurance: N2 Billion
General Insurance Business: N3 Billion
Re-Insurance Business: N10 Billion
Life Microinsurance Business: N150 Million
General Microinsurance Business: N200 Million
General Takaful/Family Takaful: N200 Million
- PRIVATE GUARD BUSINESS
The requirements for registration of Private Guard Security Companies are contained in policies made by the Civil Defence Corps made pursuant to Nigeria Security and Civil Defense Corp Act, 2003. According to section 3 of the Act, the Civil Defense Corps (the Corps) has the power to recommend to the Minister the registration of private guard companies. The Corps is also to supervise and monitor the activities of all private guard command and keep a register for that purpose.
Private Security Company/Consultant: N10 Million
- PENSION FUND MANAGERS
The Pension fund business is regulated by the provisions of the Pension Reform Act 2004. The minimum share capital required for Pension Fund business is as follows:
Pension Fund/Asset Custodians: N2 Billion
Closed Pension Fund: N500 Million
Pension Fund Administrators: N1 Billion
- NATIONAL HEALTH INSURANCE BUSINESS
Health Insurance Business is regulated under the National Health Insurance Scheme, HMO Accreditation Guidelines. Under this scheme, the following are the required minimum share capital.
Health Maintenance Organisations (HMOs) (National): N400 Million
Health Maintenance Organisations (HMOs) (Zonal): N200Million
Health Maintenance Organisations (HMOs) (State): N100 Million
- LOTTERY, CASINO AND BETTING BUSINESS
Setting up a lottery business in Nigeria requires compliance with the regulatory authority which is the National Lottery Regulatory Commission. The commission is empowered by the National Lotteries (Amendment) Regulations, 2007. Also, the Lagos State has its own Lottery Regulatory Commission with a different set of permit requirements. Below are the required minimum share capital for Lottery Businesses.
Non-Sports Lotteries: N5 Million
Sport Lottery Businesses: N30 Million + Approval In Principle (AIP).
- AIR TRANSPORT BUSINESS
The air transport business is regulated by the Nigerian Civil Aviation Authority which issues guidelines to the operators in the sector. Section 32 of the Civil Aviation Act gives the Authority the power to regulate and issue licenses to aircraft operators. The Authority from time to time have issued guidelines and directives to airline operators and some of the guidelines relate to the minimum share capital.
Air Transport (International): N2 Billion
Air Transport (Regional): N1 Billion
Air Transport (Local): N500 Million
Air Ambulance/Fumigation/Private Jet: N20 Million
Aerial Aviation Services: N20 Million
Aviation (Ground Handling Services): N500 Million
Aviation (Air Transport Training Institutions): N2 Million
Agents Of Foreign Airlines: N1 Million
- AGRICULTURE BUSINESS
Generally, the agriculture business is not strictly regulated. However, the National Agriculture Seeds Act, 2004 regulates the business of Agricultural Seeds, Productions, Processing And Marketing. The Act establishes a National Agricultural Seed Council and gives it oversight functions over any business, actions, or activities regarding seed development and the seed industry in general including legislation and research on issues relating to seed testing, registration, release, production, marketing, distribution, certification, quality control, supply and use of seeds in Nigeria, importation and exportation of seeds and quarantine regulations relating thereto.
Thus any business relating to seed business is within the purview of the council and the minimum share capital is as stated below:
Agricultural Seeds, Productions, Processing And Marketing: 10 Million.
- SHIPPING AND MARITIME BUSINESS
The maritime business is controlled and regulated by the Nigerian Maritime Administration and Safety Agency (NIMASA) which was created by the enabling law, the Nigerian Maritime Administration And Safety Agency Act, 2007.
By virtue of section 22 of the Act, the agency is saddled with the responsibility of pursuing the development of shipping and regulatory matters relating to merchant shipping and seafarers.
Shipping Company/Agent: N25 Million
Cabotage Trade: N25 Million
Freight Forwarding: 5 Million
Notwithstanding, a company can choose to increase its share capital above the required minimum either at the time of registration or subsequently. However, the same company cannot reduce its share capital below the minimum either at the time of registration or subsequently unless it alters its object clause to exclude the activities requiring the required minimum share capital.
ABOUT THE AUTHOR
Ezra Akintonde is a lawyer with over six years of court room and non-courtroom practice experience. He is seasoned in many areas of law including civil and criminal litigation, business registration, company secretariat services, corporate compliance and the general practice of law.
He has won several cases for his clients both in court and in alternative dispute resolution. He is a writer and has written several legal articles.
CORE PRACTICE AREAS: Civil Litigation, Criminal Defence, Corporate Practice, Divorce & Matrimonial Matters.
Email: [email protected]
SMEs: Carefully Navigating The Loan Agreement
Morenike Okebu, Founder at Reni Legal
If you are an SME owner and you are thinking of taking a loan from a commercial bank, you should read this informative article focusing on the key terms to negotiate. It is necessary to read any legal document before signing it, but reading is not enough, you may have to take things a step further by negotiating the terms to better suit your interest.
One of the documents that most Small to Medium Enterprises (SMEs) will come in contact with is a loan agreement. In many cases, these agreements will come from financial institutions and would be largely non – negotiable. While this is often the case, this is not always the case. Before you get a loan from any commercial institution it is fundamental that you try to negotiate the key terms. Before you sign any legal document, I would always advise that you contact a lawyer; the lawyer should review the agreement and explain to you exactly what you are getting into.
Having said that there are some key terms that you should focus on in any loan agreement.
1. The time frame for repayment: Ensure that you understand and can see clearly spelt out the time frame within which you must repay the amount that you have borrowed. If you have discussed one thing with your bankers, and another thing is reflected in the document, this is a BIG deal. The bankers you negotiated with today may lose their jobs and all your oral assurances may go with them, but you will remain bound by your written agreement.
2. The time frame for demand of late payments: I remember reviewing a loan agreement for a client and the time frame for demanding for late payment was only one week. This was ridiculous, according to the agreement if he missed paying an instalment by one week, the entire sum of money advanced to him would become immediately recoverable and the security he provided would be lost. Ensure you get a fair amount of time. At least a month is reasonable.
3. Waivers of your legal rights: You will find that in many loan agreements, the bank will urge you to waive rights you have under the Conveyancing Act or Property and Conveyancing Law. Kindly consult your lawyer and see how you can waive as few rights as possible.
4. Rights to direct debit unrelated accounts: Watch out for any clauses giving the bank the right to debit accounts that are unrelated to the loan transaction which you or other directors in your company may have in the same bank.
I could write a book about some of the outrageous and unfair clauses included in some of the standard form loan agreements in circulation today. You should obviously pay attention to what happens if you do not timeously repay the loan for example, insurance obligations and so on. Regardless of how desperate you may be for funding, you do not want to do anything that would be counter – productive to your business. Therefore it is important that you negotiate and review your loan agreements properly. If you do it NOW, you will thank me about this later.
If you have questions about loan agreements and how they are reviewed, you can always contact me. An SME owner needs all the legal help they can get to prevent and avoid mistakes and costly litigation.
Morenike Okebu is a qualified Legal Practitioner that graduated from the University of Sheffield at the top of her class. She has several years of experience practicing in leading law firm owned by a Senior Advocate of Nigeria and now is a partner in a law firm GM George – Taylor & Co. which powers her own business, Reni Legal. A law business which focuses on uniquely solving the legal problems facing SMEs and Start-ups. Send an email to [email protected] and she will be in touch.
The Founder’s Quagmire: Finding The Right Share Formula – Morenike Okebu
When you want to start a business, particularly a small one on a small scale, you will be faced with what I call the founder’s quagmire. You will have to decide whether you would own the business alone or whether you will give shares of your business to other people (partners). If you choose to give away shares of your business, you would need to decide how many shares you would give away and the terms upon which you would give them away.
First of all, you need to understand that there are rights attached to shares, particularly voting rights. The fact that you have the most shares in your company does not necessarily mean that you have full control of your company. Therefore, in determining how many shares to give away, you should also narrow down the number of people you give shares to as each shareholder ordinarily has a voting right.
At a company meeting, by virtue of your ordinary shares you are ordinarily entitled to just ONE vote. This means if your company has 4 shareholders with you owning 70% of the shares and the other three persons owning 10% each, there would be 4 members of the company with rights to 4 votes. If a decision you made comes to a vote and the 3 other members of the company vote against you, your decision would not stand.
This is why founders should be reluctant to give away ordinary shares unless they have carefully chosen their partners. Founders should also ensure that they seek legal advice on the appropriate type of shares to give the persons they want to involve in their business. Shareholders agreements are useful in situations like this to ensure that the founder retains a certain level of control over the business and the decision making powers in respect of the company.
It is not necessary that all the shares you wish to give away to potential partners are given to them instantly. There are ways you can set conditions for vesting shares which would require the potential partners to reach milestones before the shares are vested in them. In the alternative, you can create different classes of shares within your business and only award a certain type of shares to the potential partners.
Before you give away shares of your business ask yourself these questions:
- How many shares do I want to give away?
- What type of shares do I want to give away?
- When do I want to give the shares away?
- How much control of my business do I want to retain?
- How many shares do I want to retain for future investors.
These questions will get you off to a good start in determining the correct ‘share formula’ for your business.
Morenike Okebu is a qualified Legal Practitioner that graduated from the University of Sheffield at the top of her class. She has several years of experience practicing in leading law firm owned by a Senior Advocate of Nigeria and now owns her own business which focuses on solving the legal problems facing SMES and Start-ups called Reni Legal.
Email: [email protected]
Startups: The Ideal Partnership Agreement
Today, I was thinking about the number of friendships turned businesses that have been destroyed because of one simple thing – no partnership agreement. We have all been there, you have this eureka moment! You want to share it with your friend and both of you decide to go into business together. This is fantastic! This is worth celebrating! However, along the line disagreements slip in, he wants it that way and you want it this way. He’s wondering why you didn’t ask him before you hired the new manager, on and on and at the end of the day one partner leaves the business with hurt feelings and the greater loss is that you lost a good friend.
This should not be your story. Why? Because you are reading this article *chuckle*
I know that in the past I have mentioned the importance of having a partnership agreement, but I need you to understand that not just any partnership agreement will do. You need one that covers everything that is important to your partner and everything that is important to you. There is nothing like a generic partnership agreement because people are not generic. A generic agreement cannot cater to your unique needs and preserve your friendship.
Simply put, at the point where you decide to do business with your friend, you should get a lawyer. If your friend is a lawyer, get another lawyer so it can be clear that the agreement is independent. A good lawyer should help you with the agreement but these are a few things you need to agree on which can be reflected in the agreement:
- Who is managing the company?
- If there is conflict in decision making who has the final say?
- How much is each person investing?
- How are you sharing loss?
- Who pays for company registration, etc
- Who makes hiring decisions?
- Who makes spending decisions?
- What kind of account would your business run? Must you both be signatories? Which bank?
When someone comes to me requesting for a partnership agreement, they receive a LONG list of questions and issues which I request that they discuss with their partner before I ever put pen to paper. There are instances where some of my previous clients have called me that they had a disagreement with their partner, but the partnership agreement I drafted for them already covered the situation so it was easily resolved. This is the goal! Avoiding litigation and conflict! Anticipating the conflict beforehand and resolving it. Another thing I always do is speak to BOTH partners. I know you think you know your best friend and you can answer all the partnership questions on his behalf, but it is important that the lawyer speaks to him or her too and confirms that you are both on the same page, in legal words, confirms that there is consensus ad idem.
In summary, the partnership agreement you need to get off to a good start is one that fully takes into consideration the needs and interests of both partners. It is one that also anticipates future conflict and resolves them.
Morenike Okebu is a qualified Legal Practitioner that graduated from the University of Sheffield at the top of her class. She has several years of experience practicing in leading law firm owned by a Senior Advocate of Nigeria and now is a partner in a law firm GM George – Taylor & Co. which powers her own business, Reni Legal (www.renilegal.com). Reni Legal is a law business which focuses on uniquely solving the legal problems facing SMES and Start-ups. For more information on partnership agreements please contact me on [email protected]
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