Legal Requirements For Starting A Business In Nigeria: Every society subtly reminds you of the overbearing importance of a side hustle or you probably have realized that the white-collar system is not for you! So you have come up with a stellar business plan that will fetch you millions hopefully.
However, you are not certain about the requirements of the law you have to fulfill and you obviously want to avoid spending valuable time and resources appeasing the gods in the event of a default! Thankfully this article is here to open your eyes to the legal requirements you should meet before you can successfully operate a business in Nigeria.
You may have come across the popular reasoning that human life is short, brutish, and nasty without the law.
Hence, despite the seemingly rigorous nature of these requirements, one can arguably say that they were established to create a healthy business environment for all business owners and business enthusiasts.
On the flip side, if you are a natural non-conformist, you still need to know these requirements because like Matshona Dilwayo said “bend the rules only if you have learned them and break the rules only if you have mastered them.“
Let’s dive in.
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Top 5 Legal Requirements For Starting A Business In Nigeria
1. Business Registration/Incorporation
Business registration and incorporation are related concepts but they are not the same thing. Let us explore their difference
Business registration refers to the process of officially registering a business with the appropriate government authorities. The appropriate government authority in this case is the Corporate Affairs Commission.
The purpose of business registration is to ensure that the government has information about the existence of the business and can regulate and tax it accordingly. This requirement is the most essential and yet the most ignored!
Small business owners are often oblivious of the need to register their business with the Corporate Affairs Commission (CAC). This is because no armed officer ever comes knocking to request proof of registration hence most businesses are presumably allowed to run without registration.
However, if you plan to run a sole proprietorship or a partnership, then it is very important you register your business before you commence operations for the following reasons.
- To protect Your Trademark And Business Name: Upon registration, you have exclusive business name ownership. No other business in Nigeria may bear a name similar to yours. However, a delay in registering your business may make room for another shrewd business owner to enjoy a business name you probably spent many sleepless nights coming up with.
- Getting Loans: The process of getting loans is already a tedious one for registered businesses. You can rightly imagine the look on the face of a potential creditor when an unregistered business owner comes by.
- Reputation With Customers And Employees: Everyone loves transparency! This is one of the key reasons to register your business. Registering your business will help gain the trust of your customers and potential employees.
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How Do I Register My Business?
The Corporate Affairs Commission is the body saddled with the responsibility of registering new businesses in Nigeria. The process involves conducting a name search and reservation, completing the relevant registration forms, and paying the required fees.
When registering a business, you typically provide details such as the business name, owner’s information, business address, nature of business, and other relevant information.
The process of registering a business used to be very difficult, expensive, and time-consuming. However, with websites like kudiconsult.com, you can register your business in a matter of days without stress!
Business Incorporation: This is a form of registration that applies to Limited Liability Companies. The registration process is a bit more technical than the regular sole proprietorship and partnership.
You must have a minimum of two directors before your business can be incorporated in Nigeria. You also need certain documents such as an Application form, Memorandum Articles of association, etc.
As a result of the technicalities involved, it is very important to consult the services of a professional such as a legal practitioner or certified accountant to help with the process of incorporation.
Yes! Tax! Well, just before you skip this part, it’s important you know that if no business owner complies with tax payments, there will be no electricity, no public hospitals, and so on.
Admittedly, the current corrupt state of events in the country is a proper reason to avoid tax. However, two wrongs don’t make a right! In addition to this, tax compliance could make your business more favorably disposed to loans and government grants.
As a legal rule, every new business set up must be registered with the Federal Inland Revenue Service for Tax Clearance Certificate, Tax Identity Number, and Value Added Tax numbers.
The Tax Identification Number would enable your business to remit its taxes. Obtaining a Tax Identification Number (TIN) is a fundamental requirement for any business in Nigeria.
The TIN is issued by the Federal Inland Revenue Service (FIRS) and serves as a unique identifier for tax purposes. In addition, you must register for the Value Added Tax (VAT) with the FIRS if your activities fall within the scope of VAT.
The scope of VAT includes goods manufactured /assembled in or imported into Nigeria, and all services rendered by any person in Nigeria except those specifically exempted under the law as follows: basic (raw) food items, baby products, medical services, and services rendered by Community Banks etc.
The Three Major Types Of Tax Concerned With Businesses
- Company Income Tax: It is a tax levied on the profits of a company and it is usually pegged at 30% for companies operating in Nigeria.
- Value Added Tax: This is the tax on the value added to goods at each stage of production and distribution and it is mandatory for businesses with a turnover of 25 million and above.
- Personal Income tax: This is the tax levied on the income of individuals. As a business owner with employees, you are expected to deduct this tax from your employee’s salary and remit it to the State Internal Revenue Service in your state.
3. Local Tax Office Registration
If your business is entirely digital and you don’t have a physical office space or factory, then there’s no need to register with a local tax office.
However, if you have an office space or factory, registering with the local tax office is a legal requirement you have to comply with. You will be expected to register for a Business Premise levy which is to be renewed annually.
This business Premises levy is collected by the State Internal Revenue Service.
4. Business Permits, Licenses, And Certification
Business permits, licenses, and certificate is the fourth Legal requirement for Starting A Business In Nigeria.
As a Nigerian, you don’t need any permit to run a business in Nigeria. However, if you are a foreigner looking to start a business or open a subsidiary of a foreign company in Nigeria, you need to get a business permit from the Ministry of Interior.
A license on the other hand is very compulsory for a business owner in Nigeria. Food and beverage producers need to obtain a license from the National Agency for Food and Drug Administration and Control (NAFDAC).
If you are looking to open a school, then you need to get a license from the Ministry of Education. The primary thing is to find the regulatory body in charge of your niche and comply with the procedure for getting a license or certification to operate your business.
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5. Labour Law Requirements
Are you looking to have employees and create jobs using your business? A positive answer to this question means you must comply with certain labor law requirements. They include but are not limited to;
- Employment contract: Every business looking to have employees must have an employment contract which must specify terms and conditions of employment, job description, salary and other remuneration, hours of work, and conditions for termination.
- Employee Benefits: Your business must provide its employees with certain benefits such as sick leave, maternity leave, etc.
- Minimum Wage: Funny as it may sound, the current minimum wage is pegged at #30,000. Most businesses don’t comply with this particular provision by the Ministry of Labour due to the poor enforcement system. Notwithstanding these poor enforcement measures, the minimum wage requirement is there to ensure that all and sundry enjoy a healthy standard of living.
- Health And Safety: You must ensure your employees’ environment and working conditions are safe and healthy. Any hazard within the environment may put you at risk of default.
Other minor requirements exist depending on the kind of business you seek to venture into. However, the above requirements are the ground rules you must adhere to before anything else.
These legal requirements exist to make the business world healthy for all! The terms and processes could be a little confusing, hence it is advisable to engage the services of a lawyer to avoid ” stories that touch the heart “. Now make that money!