Legal Practitioner and Author.
The mandatory requirement for incorporation of foreign companies intending to carry on business in Nigeria is contained in section 54 of the Act as follows:
Subject to sections 56 to 59 of this Act, 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 notices and other documents, as matters preliminary to incorporation under this Act.1
The Act further provides that:2 ‘Any act of the company in contravention of subsection (1) of this section shall be void’.
By virtue of Subsection (3) (a) and (b):
Nothing in this section shall affect the status of-
(a) any foreign company which before commencement of this Act was granted exemption from compliance with Part X of the Companies Act 1968;
(b) any foreign companies exempted under any treaty to which Nigeria is a party’’
The provisions contained in subsection (1) quoted above seek to prevent an unregistered foreign company from carrying on business in Nigeria and such a company will not be permitted to exercise any of the powers of a registered company in Nigeria. It should be noted that these powers are contained in section 38(1) of the Act3. The consequence of the foregoing is that the unregistered foreign company cannot validly carry on business in Nigeria notwithstanding any attempt to do so. Any act of the company in contravention of subsection (1) of section 54 is void4.
By virtue of subsection (3), the status of the following foreign companies is preserved and remains unaffected by the requirement of incorporation, that is, any foreign company which before the commencement of the Act was granted exemption from compliance with Part X of the Companies Act 1968 and any foreign company exempted under any treaty to which Nigeria is party.
Concerning the procedure for the local incorporation of a foreign company, it is submitted that it is basically the same as for any other company incorporated in Nigeria.
Penalties for contravening section 54 of CAMA
The penalties or sanctions are contained in sections 54(2) and 55 of the Act which are respectively civil and criminal in nature. Section 54(2) dealing with civil sanction provides that: ‘any act of the company in contravention of subsection (1) of this section shall be void’. This means that any contract or transaction consummated by the foreign company in Nigeria while not registered, will be void and no right thereunder can be enforced.
On the meaning of a void act, the Supreme Court of Nigeria held in Oyeniyi v Akinkugbe5 that:
a void act is an act which has no legal effect or consequence. It does not confer any legal rights or title whatsoever, and it does not also impose any legal obligation or liability on any one or make any party liable to suffer any penalty or disadvantages.
Notwithstanding the foregoing, it should be noted that a foreign company not incorporated in Nigeria can sue and be sued in Nigeria in line with section 60(b) of the Act.
It provides as follows:
Nothing in this Chapter shall be construed as affecting the right or liability of a foreign company to sue or be sued in its name or in the name of its agent.
The foregoing position has been given judicial recognition in some Nigerian cases.6 Whilst commenting on the same issue, Pats-Acholonu, JCA in the case of Watanmal (Singapore) Ltd v Liz Olofin & Co Ltd7, stated as follows:
To say that the appellant cannot sue to recover its money because it is not a company registered in Nigeria is to turn our companies doing business with foreign companies abroad into potential advance fee fraudsters. International trade or commerce is based on trust hence, credit is normally extended to domestic buyers. When he becomes indebted to the foreign creditors who later sued, he decides to take shelter under the umbrella of truncated construction of Section 54 of CAMA then it is good –bye to business in Nigeria. That will be cheating. The appeal is allowed.
Secondly, section 55 stipulates that:
If any foreign company fails to comply with the requirements of section 54 of this Act in so far as they may apply to the company, the company shall be guilty of an offence and liable on conviction to a fine of not less than N2,500; and every officer or agent of the company who knowingly and willfully authorizes or permits the default or failure to comply shall, whether or not the company is also convicted of any offence, be liable on conviction to a fine of not less than N250 and where the offence is a continuing one to a further fine of N25 for every day during which the default continues.
Exemptions from local incorporation under CAMA
There are stipulated exceptions to the requirement of local registration by foreign companies in line with section 56 (1) of the Act. Under the aforementioned provision, a foreign company may apply to the National Council of Ministers for exemption from the provisions of section 54 of the Act if that foreign company belongs to one of the following categories of companies:
- Foreign companies other than those specified in paragraph (d) below invited to Nigeria by or with the approval of the Federal Government to execute specific projects;
- Foreign companies which are in Nigeria for the execution of specific individual loan projects on behalf of a donor country or international organization;
- Foreign government-owned companies engaged solely in export promotion activities; and
- 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 body or person, where such contract has been approved by the Federal Government.
The application for exemption is required to be in writing and must be made to the Secretary to the Federal Government of Nigeria setting out a list of particulars8. By virtue of section 56(3), the Government after receiving and considering the application for exemption may if it deems it expedient in the circumstances, grant it specifying the period and/or project for which it is granted. Any exemption granted may be revoked by the Government if it becomes necessary to do so and both the grant of exemption and any revocation must be published in the Gazette9. A foreign company granted an exemption assumes the status of an unregistered company and must deliver to the Commission, every calendar year, a report in the prescribed form10.
At this point, it is essential to appraise the application of the exemption provisions in the Act to the Nigerian business environment. The point has been made that exemption from the local incorporation requirement may confer tax-free status on the beneficiary for the period of the exemption. However, a certificate for tax exemption has to be issued conferring the tax exempt status on the foreign entity11.
The grant of exemption status has become increasingly infrequent and companies previously granted this status have found it an uphill task to renew their status on expiration of the initial period.
It is suggested that the criminal sanctions for any infraction of section 54 of the Companies and Allied Matters Act in Nigeria should be made stiffer. As earlier stated, the fines are ridiculously low taking into account the sharp devaluation of the Nigerian currency over the years