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A Comprehensive Guide To Launching a Business in Nigeria.
Launching a business can be rewarding and worthwhile. But it is also a well-known fact that without proper help, things can get frustrating. In this guide, you will the help you need to launch your business with ease.
- How to identify the right business sector & conduct a feasibility study
- Registration with the Corporate Affairs Commission
- Other necessary permits and licenses
- Opening a bank account
Identifying Your Business Sector & Conducting A Feasibility Study
Why is important to identify your business sector? Knowing your business sector well helps you understand your ideal customers, competition, and potential opportunities. This makes it a critical activity. You cannot hope to be successful in what you don’t know. Start by diving into some market research and taking a good look at your own skills, knowledge, and experience. Who knows, as you conduct your research, you might even unearth some hidden strengths that you can capitalize on!
A feasibility study is a way to look at crucial details about your business idea, such as the market, target audience, competition, and financial factors (like production costs, marketing expenses, and potential revenue streams).
Here are some steps you can take in conducting a feasibility study:
- Use surveys to gather feedback from potential customers and understand their preferences, needs, and buying habits.
- Seek information and more in-depth insights from a group of individuals who fit your target audience.
- Conduct a SWOT analysis to identify the strengths, weaknesses, opportunities, and threats of your business idea and develop a strategy to address them.
- Use spreadsheets and software to estimate the costs and revenue projections of your business idea.
- Read industry reports to gather valuable information on the market size, growth potential, and trends in the industry that the business idea falls under.
It is also important to know that whatever industry your business would be operating in, can influence your business registration structure. Take for instance; if you’ll be operating as a full-fledged Tour and Travel business, the Corporate Affairs Commission prescribes a minimum share capital of 30 Million.
Choose A Business Structure
Every business is unique, with its own purpose and characteristics. That’s why there are different business registration structures, as governed by the Corporate Affairs Commission (CAC) in Nigeria, which regulates business registrations.
These different structures exist based on business operations. Picture them like custom-made compartments, designed for different types of businesses and their unique operations. The following structures are provided by the CAC:
1. Sole Proprietorship (Business Name)
This registration structure exists for the single business owner/entrepreneur. This business registration structure is under what the CAC terms the registration of a business name. In this structure, the owner is completely liable (i.e. held responsible) for the business. The following businesses can be registered as sole proprietorships (Business Name):
- Vendor shops
- Beauty parlours/Salons
- Liquor stores
- Trading businesses
- E-commerce shops, etc.
2. Partnership (Business Name)
A Partnership is a type of business that involves two or more individuals and/or corporate entities as the name suggests. It is also categorized by the CAC under the business name registration. The owners are also completely liable for the business. Businesses that can be registered as partnerships are small businesses like those of the sole proprietor, but involving more than one individual as the owners.
3. Limited Liability Company (LLC)
Limited liability companies, whether privately or publicly traded are businesses registered as corporate bodies separate from their owners. The owners are only partially liable for the business by the number of shares held. Businesses like the following can be registered as limited liability companies:
- Manufacturing businesses
- Mining & Trading
- Travel agencies
- Bureau de change, etc
Within the limited liability company structure, there are variations on the minimum amount of share capital certain businesses must possess. For example, a school can be registered with a minimum of 1 million share capital, whereas, a bureau de change must be registered with a minimum of 35 million share capital.
4. Company Limited by Guarantee
This is a form of company registration structure where responsibility is not by shares but by guarantee. A guarantee is what each “owner” or “member” chooses to be liable for if the company winds up. Companies limited by guarantee are not entirely for profit maximization. Examples of businesses that fall within this category are:
- Social enterprises
- Social clubs
- Community projects
- Educational associations, etc.
5. Unlimited Liability Company
Within this business registration tier, the liability of the owner(s) is not limited. It is usually large corporations that opt for this because of the benefits accrued to unlimited companies like closed financial records.
6. Incorporated Trustees
This structure exists to accommodate non-profit organizations. It comprises persons or associations of persons established for any religious, educational, literary, scientific, social, development, cultural, sporting, or charitable purpose, authorized by a community, body, or association.
7. Limited Partnership
This is a business structure designed to be more robust than the usual business partnership, stipulating different partnership roles and responsibilities. Usually, there is a Limited partner and a general partner, and their liabilities are not shared equally.
8. Limited Liability Partnership (LLP)
A slightly higher form of a business partnership is the Limited liability partnership. Here, the liabilities of the partners are limited to the amount agreed to be contributed or what is outstanding, in the event of winding up. LLPs are often used for professional service companies, like law and accounting firms.
Registering with the Corporate Affairs Commission (CAC)
The first step in the business registration process is the business name reservation, followed by the registration/incorporation. Your chosen business names (2 – 3 options depending on the business registration option you’re going for) have to be approved by the CAC based on the following criteria:
- Name availability, i.e. the proposed name must not be identical or too similar to an existing business on the CAC database
- The proposed business name must not be offensive, deceptive, or violate any Nigerian laws or regulations.
- The proposed business name must be appropriate for the legal structure of the business. For example, a business name proposed for a sole proprietorship cannot end with “Limited” or “Ltd.”, as they are reserved for companies. Rather “Venture” or “Enterprises” are acceptable for sole proprietorships.
- The proposed business name must be relevant to the nature of the business and the industry or sector it operates. The CAC may reject a business name if it is deemed irrelevant or misleading.
- Register the business with the CAC by completing the necessary forms and paying the required fees
Subsequently, the CAC requires items like a valid Government-issued ID card of the business owner(s) to incorporate the business, etc. Every other requirement is easily procured.
Tax identification number (TIN)
The tax identification number is unique to you or your business. It helps the government keep track of who’s paid their taxes and who hasn’t.
But TINs aren’t just for taxes – they can also come in handy when you’re doing other financial stuff, like opening a bank account or applying for a loan. At the completion of business registration, the CAC automatically assigns a tax identification number to businesses except the Business Name. In this case, the tax identification number can be gotten from the Federal Inland Revenue Service (FIRS).
Other necessary permits and licenses worth mentioning
Apart from the CAC permit and a tax identification number by the Federal Inland Revenue Service, other necessary permits for businesses include:
- Environmental permits from the Federal Ministry of Environment through its agencies like the National Environmental Standards and Regulations Enforcement Agency (NESREA), for businesses that engage in activities that may have an impact on the environment. Such permits include:
- Environmental Impact Assessment (EIA) Permit
- Effluent Discharge Permit
- Hazardous Waste Management Permit
- Air Pollution Control Permit, etc.
- Health and Safety Permits for businesses that engage in activities that may pose a risk to public health or safety. These permits can be obtained from the Federal Ministry of Health, through its agencies like the National Agency for Food and Drug Administration and Control (NAFDAC), the Federal Fire Service, the Ministry of Labour and Employment, and the Nigerian Electricity Management Services Agency (NEMSA). Such permits include:
- Food Handling Permit
- Fire Safety Permit
- Occupational Health and Safety Permit
- Electrical Safety Permit
- Health and Safety Compliance Certificate
- Food Establishment License
- Industry-Specific Licenses for businesses that are within such industries to operate, such as telecommunications, transportation, medical or financial services. They are issued by specific industry regulatory agencies. Examples of such licenses include:
- Product Registration
- Drug Manufacturing License
- Medical Device Establishment License
- Permit to Import or Export Regulated Products
- Oil and Gas Exploration License
- Telecommunications License
- Mining License
- Aviation License
- Broadcasting License,
- Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) License by the Special Control Unit against Money Laundering (SCUML), etc.
- Business Permits which some states and local governments require businesses to obtain to operate within their jurisdiction.
Opening A Bank Account
After completing the registration process and obtaining the necessary permits and licenses, the next step is to open a bank account for your business. Opening a bank account is crucial for businesses, as it allows easy management of finances and transactions. The following documents are typically required to open a bank account for your business:
- Certificate of incorporation from the CAC
- Tax identification number (TIN)
- Means of identification (national ID, driver’s license, or international passport) of the account signatories
- Utility bill showing the company address
- Board resolution authorizing account opening and signatories, where applicable
Launching a business requires dedication, proper planning, and the right guidance. This guide provides you with the necessary information to get started, from identifying the right business sector, conducting a feasibility study, registering with the Corporate Affairs Commission, obtaining necessary permits and licenses, and opening a bank account.
Remember that choosing the right business structure is very crucial to the success of your business. The Corporate Affairs Commission has provided several business registration structures, and it is important to choose the one that best fits your business operations.
We hope you find this guide helpful in your entrepreneurial journey. It’s time to take the leap and start that business you’ve always wanted. Good luck!
The information contained on this guide, whether free or paid, is for educational and informational purposes only. The Company assumes no responsibility for errors or omissions in the contents of the guide. The information contained on this guide is not intended as, and shall not be understood or construed as, legal or tax advice. The information contained on this guide is not a substitute for legal advice from a licensed attorney who is aware of the facts and circumstances of your individual situation. We have done our best to ensure that the information provided on this guide is accurate and providing valuable information. Regardless of anything to the contrary, nothing available on or through this guide should be understood as a recommendation that you should not consult with an attorney to address your particular information. The Company expressly recommends that you seek advice from an attorney prior to taking any actions. Neither the Company nor any of its employees, owners, or contributors shall be held liable or responsible for any errors or omissions on this guide or for any damage you may suffer as a result of failing to seek competent legal advice from a licensed attorney who is familiar with your situation.