Category: Law and Business

Everyday Law Law and Business

A Simple Guide to Personal Income Tax in Nigeria

fredericknkobowo

August 9, 2023

What Law Guides Personal Income Tax (PIT) in Nigeria

The Personal Income Tax is guided by the Personal Income Tax Act Cap P8 LFN 2004 (as amended)

What is your Personal Income?

Your personal income is total amount of money you make from any trade, business, profession or vocation and pension received from such.

Who is to Pay the Personal Income Tax and to Whom is it paid

The tax is imposed on income of all Individuals, Communities, Families and Trustees or Executors and is to be paid to the State of their residency for each year, i.e., the State’s Internal Revenue Service (IRS). Residents of FCT – Abuja, persons employed in the Nigerian Armed Forces (Army, Navy and Air Force), Police officers, officers of the Nigerian Foreign Service and a person resident outside Nigeria who derives income or profit from Nigeria, are all to pay to the Federal Inland Revenue Service (FIRS).

I don’t reside in Nigeria, do I need to pay my income tax to Nigeria?

Note that some nonresidents of Nigeria may still be taxed in Nigeria under certain conditions, such as where the business or trade producing the income for them is wholly or partially carried on or deemed to be carried on in Nigeria.

What is “gross income”?

“gross income” means income from all sources less all non-taxable income, income on which no further tax is payable, items exempted from tax and all allowable business expenses and capital allowance.

Will all my income be taxed?

No, not all of your income will be taxed. “Chargeable/taxable income” is the amount of the total income of an individual for a year, after any income exempted has been excluded and the deductions allowed by the Act have been made.

Income exempted from taxation are those as stated in the Third Schedule of the Personal Income Tax Act.

While the deductions to be made before arriving at your taxable income are all outgoing and expenses, or any part thereof, wholly, exclusively, necessarily and reasonably incurred during that period and ultimately borne by you in the production of the income. Such as:

  1. payable interest on money you borrowed as capital in acquiring the income;
  2. the rent and premiums on land or buildings occupied for your trade, business, profession or vocation for that period;
  3. any expense incurred for repair of premises, plant, machinery or fixtures employed in acquiring the income, or for the renewal, repair or alteration of any implement, utensil or article so employed;
  4. bad debts incurred in your trade, business, profession or vocation;
  5. a contribution or an abatement deducted from the salary or pension of a public officer under the Pensions Act or under any other approved scheme or the Nigeria Social Insurance Trust Fund or other retirement benefits scheme for employees throughout Nigeria; Etc.

Additionally, the government has granted a tax relief under the heading “Personal relief and relief for children, dependents”. The government is giving up taxing you a part of your annual income. They expect that you use this money to take care of yourself, children and dependents. It is called the “Consolidation Relief Allowance” and it is N200,000.00 or 1% of gross income whichever is higher, plus 20 % of the gross income.

The balance from all these deductions, exemptions and relief is what shall be taxable.

What deductions may be made?

There shall be allowed a deduction of the annual amount of any premium paid by the individual during the year preceding the year of assessment to an insurance company in respect of insurance on his life or the life of his spouse, or of a contract for deferred annuity on his own life or the life of his spouse

Are deductions made automatically?

No. No deduction shall be allowed to you unless you claim it in writing in such form as the relevant tax authority may prescribe.

How much is my Personal Income Tax?

The rate of the tax ranges from 7% to 24%, depending on the amount of chargeable income – Individuals are subject to minimum tax of 1% of gross income where the income is less than N300,000 per annum.

After the relief allowance, deductions and exemptions had been granted in accordance with the law, the balance of income shall be taxed as specified in the following tax table:

  1. First N300,000 @ 7 %
  2. Next N300,000 @ 11 %
  3. Next N500,000 @ 15 %
  4. Next N500,000 @ 19 %
  5. Next N1,600,000 @ 21 %
  6. Above N3,200,000 @ 24 %

Who calculates the tax I’m to pay?

You do. A taxable person (such as yourself) is required to file a return of income and in the return, calculate the amount of tax payable in the prescribed form.

How will Government verify my calculated tax?

Every taxable person (such as yourself) is required to keep Books of Accounts which will be used by the tax authority to verify your calculated tax. If you fail or refuse to keep books of accounts which, in the opinion of the relevant tax authority, are adequate for the purpose of the tax, you are be liable on conviction to a penalty of N50,000 for individuals and N500,000 for corporate entities.

Furthermore, for the purpose of obtaining full information in respect of your income or gain, the relevant tax authority may give you notice requiring you to complete and deliver any return to the tax authority, personally attend before an officer of the relevant tax authority for examination with respect to any matter relating to such income gains, produce for examination any book, document, account and return which the relevant tax authority may deem necessary or give orally or in writing any other information including a name and address specified in the notice.

If you are in salary employment as your only source of income, the above does not apply to you because your employer is responsible for your PAYE tax.

What duty do I owe the State aside from payment of my tax?

You are required by law to file a return of income every year, without notice or demand, with the tax authority of the State in which you are deemed to be a resident. The return of income is expected to state the amount of income and particulars to any such income, allowance, relief, deduction or otherwise as may be material for that purpose from every source of the preceding year. Notwithstanding that a tax authority requires you to file a return containing the amount of your income for each year, a person whose only source of income in any year of assessment is employment is such that he earns N30,000 or less from that source is not required to file return of income.

When should I file my returns of income?

The due date for filing returns of the tax is 31st March of every year (within ninety days from the commencement of every year of assessment). Note that a person who files his/her return within the time specified for filing of the return shall, if there is no default in the payment arrangement, be granted a bonus of 1% of the tax payable.

What if I fail to file my returns?

You shall be liable on conviction to a fine of N5,000 and a further sum of N100 for every day during which the failure continues or imprisonment of six (6) months or both. Also, the relevant tax authority may proceed to assess you as a taxable person chargeable with income tax after the expiration of the time allowed for the delivery of the return (after 31st March of every year).

When should I make payment after I have been assessed?

Income tax charged by an assessment which is not or has not been the subject of an objection or appeal, shall be payable within two months after the date of service of that notice.

If you do not pay within the period, a sum equal to ten % per annum of the tax shall be added, and the provisions of the Act relating to the recovery and collection of tax shall apply to the recovery and collection of that sum.

The relevant tax authority shall serve a demand note on you and, if payment is not made within one month from the date of the service of the demand note, the relevant tax authority may proceed to enforce the payment.

The penalty imposed is not be deemed to be part of the tax paid for the purpose of claiming relief.

If without lawful justification or excuse, of which burden of proving rests on you, you fail to pay the income tax within the period of one month, you are guilty of an offence.

Do I pay interest on late payment of tax?

Yes. The tax due from a taxable person shall carry interest on annual basis at bank base lending rate from the date when the tax becomes payable until it is paid.

How do I prove that I have cleared my tax?

By obtaining your tax clearance certificate. Whenever the relevant tax authority is of opinion that for the three years immediately preceding the current year of assessment, fully paid or that no tax is due on your income or that you are not liable to tax for any of those three years, it shall issue you with a tax clearance certificate within two weeks of your demand for the certificate. That the payment of current year tax shall not be made a condition for the issuance of the certificate unless you are leaving the country finally.

A tax clearance certificate contains the following in respect of the last three years of assessment –

  1. chargeable income;
  2. tax payable;
  3. tax paid;
  4. tax outstanding or alternatively a statement to the effect that no tax is due; and
  5. tax payer identification number (T.I.N).

Why do I need my tax clearance certificate?

A ministry, department or an agency of government or a commercial bank with whom you have any dealing with respect to any transactions may demand your tax clearance certificate for the three years immediately preceding the current year of assessment and shall verify the genuineness by referring same to the issuing tax authority before conducting such transaction with you.

Such transactions include:

  1. application for Government loan for industry or business;
  2. registration of motor vehicle;
  3. application for certificate of occupancy;
  4. application for award of contracts by Government, its agencies and registered companies;
  5. application for trade licence and import or export licence;
  6. application for transfer of real property;
  7. application for registration as a contractor;
  8. confirmation of appointment by Government as chairman or member of a public board, institution, commission, company or to any other similar position made by the Government;
  9. application for registration of a limited liability company or of a business name;
  10. appointment or election into public office.
  11. any other transaction as may be determined from time to time.

Note the following, if;

  1. for the purpose of obtaining a tax clearance certificate, you give incorrect information in relation to any matter or thing affecting his liability to tax; or
  2. obtain a tax clearance certificate through misrepresentation, forgery or falsification,

You are guilty of an offence and liable on conviction to a fine of N50,000 plus twice the tax payable by you or to imprisonment for three years or to both such fine and imprisonment.

A person, ministry, department or an agency of government or a commercial bank, who fails to request for your tax clearance certificate before performing such transaction with you is guilty of an offence and is liable on conviction to a fine of N5,000,000.00 or to imprisonment for 3 years or both fine and imprisonment.

What is P.A.Y.E?

P.A.Y.E. refers to “Pay As You Earn”. It is a method used to deduct personal income tax at the source the moment an employee earns their salary. It is deducted by the employer and paid to the relevant tax authority on behalf of the employee.

Every employer shall be required to file a return with the relevant tax authority of all emoluments paid to its employees, not later than 31st January of every year in respect of all employees in its employment in the preceding year failure which such employer shall be liable on conviction to a penalty of N500,000 in the case of a body corporate and N50,000 in the case of an individual.

When should I as an employer remit the P.A.Y.E tax of my employees?

As an employer, you are expected to remit the P.A.Y.E tax of your employees by the 10th day of every succeeding month. This day is called the due date for remittance.

Where do I go where dispute arise regarding my tax?

The Tax Appeal Tribunal has the powers to entertain all cases arising from operations of this Personal Income Tax Act.

Example of How to Calculate Personal Income Tax

CONSOLIDATED SALARY / GROSS EMOLUMENT

Determine the consolidated salary which is the gross emolument of the Tax Payer Per Annum. That is Basic Salary, Housing, Transport, Leave, Utility, Furniture, Meal Allowances etc.

Multiply by 12 to get the gross Per Annum

 ItemAmount (N)
1.Basic Salary50,000
2.Housing20,000
3.Transport10,000
4.Meal10,000
5.Furniture10,000
 TOTALN100,000

Total consolidated salary is N100,000 Per Month.

Therefore N1,200,000 Per Annum (N100,000 X 12)

  • CONSOLIDATED RELIEF ALLOWANCE (CRA)

A Tax relief of N200,000.00 or 1% of the Consolidated Salary, whichever is higher, plus 20% of the Consolidated Salary is given.

Less N200,000 from the N1,200,000

Also less 20% from N1,200,000 = N240,0000.

Therefore CRA = N200,000 + N240,000 = N440,000.

  • TAX EXEMPT ITEMS

Check Tax payer’s contribution in any of the following:

  • National Housing Fund Contribution (Mandatory contribution of 2.5% of monthly income of Nigerians earning N3000 and above per annum)
    • National Health Insurance Scheme (5%)
    • Life Assurance Premium (Tax deductibility applies if withdrawn within 5 years)
    • National Pension Scheme (8% of Basic, Housing and Transport)
  • ASCERTAIN CHARGEABLE INCOME

Compute taxable income based on steps 1 to 3 which is less CRA from consolidated salary.

N1,200,000 – N440,000 (CRA) = N760,000.

Therefore, for earnings of N1,200,000, the chargeable income therefore is N760,000.

  • INCOME TAX RATES

Apply the Tax Band to the Chargeable Income to arrive at the tax payable per annum:

First N300,000 @ 7% N21,000

Next N300,000 @ 11% N33,000

Next N500,000 @ 15% N75,000

Next N500,000 @ 19% N95,000

Next N1,600,000 @ 21% N336,000

Over N3,200,000 @ 24%

Therefore, for a Chargeable Income of N760,000 the Tax will be:

1st N300,000 @ 7% = N21,000 (Remaining N460,000)

Next N300,000@11% = N33,000 (Remaining N160,000)

Next N500,000 @ 15% = N160,000 X 15% = N24,000

Total Tax payable per Annum = N21,000 + N33,000 + N24,000 = N78,000 PA

  • MONTHLY TAX PAYABLE

The Tax Payable Per Annum is divided by 12

N78,000 divided by 12 = N6,500 Per Month.

Therefore the tax payable every month shall be N6,500 on the PAYE Scheme.

  • MINIMUM TAX DETERMINATION

Where the Chargeable Income obtained is lower than 1% of the consolidated or gross emolument then 1% of the consolidated salary shall be the Tax Payable Per Annum

Written by Imeh Imeh LLB, BL

What Law Guides Personal Income Tax (PIT) in Nigeria The Personal Income Tax is guided by the Personal Income Tax Act Cap P8 LFN 2004 (as amended) What is your Personal Income? Your personal income is total amount of money you make from any trade, business, profession or vocation and pension received from such. Who is to Pay the Personal

Law and Business

HTKYOB Episode 1 – Destruction is cheap.

fredericknkobowo

March 23, 2023

Falling from a mountain is way faster and easier than climbing one. I mean just leave the ropes (or whatever support it is you’re using), lean your back against the empty air and start falling while shouting on your journey down. Three short but sure steps. And Bam, you’ll be with your ancestors.

For the most part, the same thing applies to businesses.

In effect, building a business is pretty demanding but ruining one can take as short a period as 14 days. Yes, you read that right – 14 days and I swear, I’m not pulling your legs. Yes, you can check them (your legs), I am not pulling them.

On a sincere note, a multimillion-dollar company can become non-existent in just 14 days.

Take the story of one of the fastest growing cryptocurrency exchanges – FTX for example. Last year (2022), the company shut down its operations after having persistent trouble for 14 days.

Shocking one, no cap. But such sporadic collapse of successful companies is not peculiar to the cryptocurrency industry.

In 2008, Lehman Brothers – an investment bank that had been in operation for over 150 years, came to a grinding halt as well.

Same thing with Encron, Myspace and Anderson just to mention a few. These were very successful companies and today? They are no more. You can visit Failory’s Graveyard to see some start-ups/companies that failed and why.

According to Investopedia as of 2021, 20% of startups failed in the first year, 50% within five years and 65% within 10 years of beginning their operations. That’s a pretty gloomy outlook if you ask me. But history repeatedly confirms that even the big companies are not immune from failure as well.

Our point is; destroying a business is in fact easier than building one. Way easier.

And it really doesn’t matter the size of the company. A big company can fold up as quickly as a small company could.

Destruction is cheap but…

But it can be avoided. It doesn’t have to happen to easily.

We also must say that while the eventual failure of a company might unfold in a very short period of time, the tale-tell signs often show themselves much earlier. If these signs are clearly kept from the Company’s books other cues usually exist; maybe the company’s unsustainable debt profile, its failing investments, its unsustainable business model, its failure to comply with Government regulations or even its failure to innovate its business.

Hey, we need to hold ourselves in all ready, this series is on destruction and not the other way round.

So yes, our point is, destruction is cheap. It can be avoided and we will show just how you’ve been courting destruction for your business. If you are not already, we’d show you how to jump with your business into bed with destruction.

For now, remember destruction is cheap.

Falling from a mountain is way faster and easier than climbing one. I mean just leave the ropes (or whatever support it is you’re using), lean your back against the empty air and start falling while shouting on your journey down. Three short but sure steps. And Bam, you’ll be with your ancestors. For the most part, the same thing

Law and Business

How to legally kill your own Business (HTKYOB) Series

fredericknkobowo

March 22, 2023

Welcome to business destruction class 101.

In this class we will let the can of worms open. We will tell you everything you need to know to successfully and legally run your own business to the ground. Yes, you read that right, our assignment is settled and violence for your business is the goal.

Don’t get worried, this class is health and safety (HSE) compliant. So, we won’t be needing guns, knives or cutlasses for the destruction. Well, unless…

Besides we can bet that you are already doing a lot of what we will be talking about.  For ease of digestion and application, we have structured the class into episodes. You can click the link below to read a particular episode. They are short as possible. No plenty grammar but loads of practicable tips.

As we proceed with each episode, you will find a link to our discussion in the episode here.

Episode 1 – Destruction is Cheap.

Cheers and Welcome on board.

Welcome to business destruction class 101. In this class we will let the can of worms open. We will tell you everything you need to know to successfully and legally run your own business to the ground. Yes, you read that right, our assignment is settled and violence for your business is the goal. Don’t get worried, this class is

Law and Business

Should Your Startup Worry About Corporate Governance?

fredericknkobowo

September 14, 2022

The common factor amongst all startups is the need to grow a valued and sustainable long term business. In so doing, many startups focus on seeking the right investors to raise capital for the business and seek to hire a good management which is usually a Chief Executive Officer (CEO), who is experienced in the objectives of the business. While this is significant, a good business that will stand the test of time must give great consideration to the guiding principles of corporate governance from the formative stages of the Company. Corporate Governance is a major promoter of business prosperity and corporate accountability in any jurisdiction of the world, irrespective of the type of company or the industry within which the company operates.

It is also important to know that there is no singular approach to imbibing corporate governance into the operations of a company but there are guiding principles that have been set up by the Nigerian Code of Corporate Governance 2018 (NCCG) that companies are encouraged to closely consider in setting up processes and structures that best suit the objectives of the company. Now although corporate governance is not necessarily mandatory for companies, it is important to note that all public companies, private companies that are holding companies of public companies and all regulated private companies that file returns to any regulatory authority other than the Federal Inland Revenue Service (FIRS) and the Corporate Affairs Commission (CAC), are required to report on the application of the NCCG in their annual report.[1]

The Companies and Allied Matters Act (CAMA 2020) has enabled the existence of novel forms of corporate organizations such that unlike its predecessor, there can be a company with a single membership[2] or single directorship[3]. The CAMA 2020 has also given a lot of concessions to small companies[4]. As such, it is legal for a startup company to have a single member or a single director. However, the question that follows would be whether it is advisable for a startup to stop at the minimum threshold permitted by the CAMA 2020? The Nigerian Code of Corporate Governance 2018 recognizes that there are various companies of varying sizes and complexities and encourages companies to explain and apply the Code to the peculiarities of their own situation.

Many startups as part of their long term plans, hope to attract foreign investors. Situations in the future may arise that might lead to a corporate restructuring for a start-up company. In a Merger transaction for example, it is of utmost importance for merging companies to conduct due diligence and in so doing, the merging companies are on the lookout for:

  1. The due incorporation of companies
  2. Memorandum and Articles of Association of Companies
  3. Authorised Share Capital and Share Classification and Distribution of Shares among the shareholders
  4. Resolution and Minutes of Meetings
  5. Keeping statutory books and filing statutory returns
  6. Details of Corporate bodies in which the companies own shares
  7. Shareholders Agreement and other similar agreements
  8. Directors of the company and any service contract
  9. Copies of license to do business
  10. Any change in the status of the company
  11. Annual returns and in case of financial institutions, the Statement of Affairs in addition
  12. Corporate properties of the companies, their titles and encumbrances
  13. Disputes, pending litigations involving the companies
  14. Labour issues, collective agreement with labour/employees
  15. Intellectual property and technology ownership and licensing issues
  16. Tax Obligations

From the foregoing, it is obvious that it would be difficult for merging companies to scale through the hurdle of due diligence without the mechanism of Corporate Governance firmly in place.

What then should startups really take into cognizance at the early stages of the company?

  1. Board of Directors: More often than not, most people just enter the name of family and friends into the section that requests for the information of the first directors at the incorporation of the company. While this is common practice, it is important to know that this is a wrong approach because the Board is very central to corporate governance as it is the highest governing group in a company[5] and therefore requires people that are qualified, willing, available and experienced in the objectives to which the company was incorporated, to form part of the board of directors.

It is also important that after these directors are appointed and registered at the Corporate Affairs Commission, they undergo an onboarding process[6] to ease them into their duties as directors of a company. This is to ensure that they have an understanding of their role and responsibilities in the company and avail them with all resources required to make them most effective in their duties to the company.

The Companies and Allied Matters Act[7] has stipulated that ‘a director shall always act in a what he believes to be in the best interest of the company as a whole, so as to preserve its assets, further its business, and promote the purposes of how it was formed, and in such manner as a faithful, diligent, careful and ordinary skillful director would act in the circumstances’.

In choosing members of the board, it is also important to stress the need for diversity and an adequate number of persons on the board[8]. Diversity is important because it is important for a company to show that they exhibit equal opportunity which could range from gender, race, religion and even age group. Further, the Code[9] recommends that a company should have a written, clearly defined procedure to guide the selection of persons as Director of a company.

 A typical board usually comprises of executive directors who are employees of the company and take part in the day to day operations of the company, non-executive directors who are not involved in the day to day operation of the company, and independent non-executive directors who are not representatives of any of the company’s shareholders and has the ability to exercise expertise and independent judgment in the best interest of the company.

Photo by Rodeo Project Management Software on Unsplash
  • Management: These comprises of the Chief Executive Officer/Managing Director, Chairman of the Board of Directors, The Company Secretary, The Executive Director, The Non-Executive Directors and The Independent Non-Executive Directors.

The Code of Corporate Governance urges startup companies to go beyond the legally permissible single directorship to ensuring that there are sufficient Directors to effectively undertake and fulfill the business of the company[10]. The Code further recommends that the Chairman is distinct from the MD/CEO[11]. The Code advises that in a model Board, the Non-Executive Directors should be more than the Executive Directors[12].

The Code further stipulates that while the MD/CEO should be an Executive Director, the Chairman of the Board should be a Non-Executive Director (NED).

Amongst the Non-Executive Directors (NED), the Code recommends that the Independent Non-Executive Directors (INED) should be the majority of the Non-Executive Directors(NED) should be Independent Non-Executive Directors(INED).

For the purposes of clarity, an Independent Non-Executive Director (INED) is a Non-Executive Director (NED) who:

  1. does not possess a shareholding in the Company the value of which is material to the holder such as will impair his independence or in excess of 0.01% of the paid up capital of the Company;
  2.  is not a representative of a shareholder that has the ability to control or significantly influence Management;
  3.  is not, or has not been an employee of the Company or group within the last five years;
  4. is not a close family member of any of the Company’s advisers, Directors, senior employees, consultants, auditors, creditors, suppliers, customers or substantial shareholders;
  5.  does not have, and has not had within the last five years, a material business relationship with the Company either directly, or as a partner, shareholder, Director or senior employee of a body that has, or has had, such a relationship with the Company;
  6.  has not served at directorate level or above at the Company’s regulator within the last three years;
  7.  does not render any professional, consultancy or other advisory services to the Company or the group, other than in the capacity of a Director;
  8. does not receive, and has not received additional remuneration from the Company apart from a Director’s fee and allowances; does not participate in the Company’s share option or a performance-related pay scheme, and is not a member of the Company’s pension scheme; and
  9. has not served on the Board for more than nine years from the date of his first election.
  • Company Secretary: The Company Secretary is vital[13] to the efficient and effective operation of the company as he/she works closely with the Board and Senior Management in developing good corporate governance practices within the Company.  The Company Secretary is also considered the custodian of all company records, ranging from incorporation documents to post incorporation documents of the company.

By virtue of Section 330 of the CAMA 2020, it is not required for a small company to have a Company Secretary. However, it is desirable and commercially expedient for startup companies to have a qualified Company Secretary.

It is important to note that the Companies and Allied Matters Act 2020 outlines the qualification to act as a company secretary to include; a legal practitioner, a member of the Institute of Chartered Secretaries and Administrators, a member of the professional body of accountants, a person who has held the position of secretary in a public company for at least three years, and a corporate body that consist of members who are qualified legal practitioners and accountants[14].

  • External Auditors: Whilst a company may have an internal auditor[15], the Code of Corporate Governance requires that a company engages the services of an external auditor review and share an unbiased opinion on the financial performance of the company to all stakeholders involved in the business of the company. The external auditors are usually appointed by the board of directors on the recommendation of the board audit committee. It is important for the external auditor appointed to have a good understanding of the business of the company, adopt international best audit practices, show professionalism and independence in their operations.

By the provisions of the CAMA 2020[16], the external auditor of a company must not be:

  1. an officer or a servant of the company
  2. a person who is a partner of or in the employment of an officer or a servant of the company
  3. a corporate body
  4. a person disqualified for appointment as auditor of any subsidiary, holding company or subsidiary of a holding company of a body
  5. a debtor to the company or to a company that is deemed to be related to the company by virtue of interest in shares, in an amount exceeding N500,000;
  6. a shareholder or spouse of a shareholder of a company whose employee is an officer of the company;
  7. a person who is or whose partner, employee or employer  is responsible for the keeping of the register of holders of debentures of the company;
  8. an employee of or consultant to the company who has been engaged for more than one year in the maintenance of any of the company’s financial records or preparation of any of its financial statements

The Code of Corporate Governance further recommends that an external auditing firm should have tenure of ten (10) years and should not be re-appointed after seven (7) years of the disengagement[17].

  • Company Policies: The establishment of policies and monitoring mechanisms ensures the promotion of good conduct and increases investor confidence[18]. Policies that address whistleblowing, risk management, code of business and ethics, conflict of interest, health and safety, amongst others is highly recommended.
    • Risk Management Framework: This framework identifies, assesses, and manages major risks associated with the objectives of the company. It ensures that there is a functioning internal control system whose ultimate goal is to ensure that the business for which the company was established is achieved. This framework typically states the risk policy, risk appetite and risk limit of the Company. Please note that the board of directors have the responsibility of approving the Risk Management Framework, as well as ensuring that senior management incorporates the same into the day-to-day operations of the company.
    • Whistleblowing Policy: This policy sets the standard for disclosing unethical and illegal conducts within the company to ensure that remedial actions are taken, reoccurrence is at minimal and that the company is better protected. Please note that a standard whistleblowing policy must be reliable, accessible, confidential and guarantees the anonymity of the whistleblower.
    • Code of Business and Ethics Policy: This policy highlights the commitment of the company to uphold the highest standard of professional and ethical behavior as well as sustainable business practices. This policy commits the company, its board and senior management, employees, contractors and other company owned entities.
    • Conflict of Interest Policy: This is a major policy that gives definition to various activities within the company that can be summed up to mean a conflict of interest and would usually include insider trading and related third party transactions. The policy also provides the procedure for disclosing any real or potential conflict of interest to the company which is usually done through the company secretary.
    • Health and Safety Policy: This policy highlights the procedures and strategies for the management of safety issues such as workplace fatalities, accidents and occupational incidents. It also addresses the management of severe diseases on employees and their dependents.
  • Meetings of the Company: Although the CAMA 2020[19] has stated that a small company or a company that has a single shareholder does not need to hold Annual General Meeting, it is desirable[20] and commercially expedient for a startup company to hold AGMs. This is because the AGMs provides an enabling environment for the members and the Management of the Company to interface. Records such as the minutes of the meeting would constitute as reliable evidence of such meetings being held, members in attendance and matters deliberated and decisions reached at such meetings. Additionally, the Board of Directors are encouraged to meet at least once every quarter of the year to carry on the business of the board. Minutes are also prepared to highlight decisions reached at the meeting and serve as evidentiary documents for the company.

Registering a company and having the necessary manpower is not enough when it comes to growing a successful company. Any company that would stand the test of time and limit its exposure to criminal and civil liability must incorporate good governance into its operations and this can be well done from the inception of the company.

Written By Inemesit Udongwo ESQ and Memabasi Udowoima ESQ

[1] Section 73 of the Financial Reporting Council of Nigeria Act 2011

[2] Section 18(2); 105(3) of the Companies and Allied Matters Act 2020

[3] Section 271 of the Companies and Allied Matters Act 2020

[4] A small company, by section 394 of the Companies and Allied Matters Act is:

(a) a private company;

(b) its turnover is not more than N120 million or such amount as may be fixed by the Commission from time to time;

(c) its net assets value is not more than N60 million or such amount as may be fixed by the Commission from time to time;

(d) none of its members is an alien;

(e) none of its members is a government, government corporation or agency or its nominee; and

(f) in the case of a company having share capital, the directors between themselves hold at least 51% of its equity share capital.

[5] Section 269 of the Companies and Allied Matters Act 2020; Principle 1, Code of Corporate Governance

[6] Principle 13, Code of Corporate Governance 2018

[7] Section 305(3) of the Companies and Allied Matters Act, 2020

[8] Principle 2, Code of Corporate Governance 2018

[9] Principle 12, Code of Corporate Governance 2018

[10] Principle 2.1 of the Nigerian Code of Corporate Governance 2018

[11] Principle 2.7, Nigerian Code of Corporate Governance 2018

[12] Principle 2.3, Nigerian Code of Corporate Governance 2018

[13] Okeowo v. Miligore (1979) 11 SC 138 SC; Wimpey (Nig) Ltd v. Balogun (1986) 3 NWLR (pt.28) 324

[14] Section 332 of Companies and Allied Matters Act, 2020

[15] The Head of the Internal Audit Unit of a company should be a member of the Senior Management with the requisite qualifications, objectivity, competence, experience who is also a member of a professional body. Principle 18.3 of the Nigerian Code of Corporate Governance 2018

[16] Section 403 of the Companies and Allied Matters Act

[17] Principle 20.2 of the Nigerian Code of Corporate Governance 2018

[18] Principles 24, 25, 26 of the Nigerian Code of Corporate Governance 2018

[19] Section 237 of the Companies and Allied Matters Act

[20] Principles 21, 22 and 23 of the Nigerian Code of Corporate Governance 2018

The common factor amongst all startups is the need to grow a valued and sustainable long term business. In so doing, many startups focus on seeking the right investors to raise capital for the business and seek to hire a good management which is usually a Chief Executive Officer (CEO), who is experienced in the objectives of the business. While

Everyday Law Law and Business

If I get injured at work, can I get compensated?

fredericknkobowo

May 14, 2022

Have you ever heard of the Employee’s Compensation Act? This crucial law will be the focus of this article. However, before we dive into the main discussion, as usual, lets place issues in context. In workplaces and offices across Nigeria, it is common to hear stories of workers or employees getting hurt, losing their lives or suffering from work related injuries or diseases while carrying out their duties[1]. These occurrences are usually traced to the risks or hazards associated with the jobs some of these workers are involved in or exposed to[2]. Sadly too, sometimes these workers suffer these injuries, diseases or disabilities without being compensated by their Employers. This is the exact situation that the Employee’s Compensation Act exists to correct.

The Employee’s Compensation Act applies to all employers and employees in Nigeria[3]. It does not matter whether they are employed in the private or public sectors. The only persons exempted from the provisions of this law are members of the Armed forces who are not employed in a Civilian capacity. It is also interesting to know that the provisions of this law apply to apprentices, part-time workers as well as workers/employees who are employed in the informal sector of the economy.

So please do not limit your mind to thinking that this law and what we will discuss here only applies to workers in big banks and factories. This law applies even to domestic servants helping out with house chores.

What should all Employers/Business Owners know under this law?

This law places a duty on all Employers/Business Owners in the Country to make a monthly financial contribution to the Employee’s Compensation Fund. The Employer is to contribute 1% of his total monthly payroll to the fund. The fund is managed by the National Social Insurance Trust Fund Management Board (the Board). This contribution is a compulsory one required by the Law[4] and it is not to be (directly or indirectly) deducted from the Employee’s Salary[5].

So when planning your next payroll as an Employer, do not forget to include this deduction for every Employee. The law will not exclude or forgive your ignorance.

If you need further assistance on how to calculate your payroll liabilities including the contribution to the fund we have just mentioned, Accountinghub.ng has an amazing resource on this subject that would guide you simply visit https://accountinghub.ng/online-courses/ . We are not affiliates to accounting up and the recommendation made is entirely value based. Also, we get no commissions from any purchases made on Accountinghub’s website.

Also every employer is duty bound under the Act to report to the Board, any disease or death that arises in the course of the employee’s carrying out his/her job. Failure to make this report is an offence – Section 5 of the Act.

Hospital patient

If I suffer a work related injury/disease – am I entitled to compensation?

Yes, by provisions of the Employee Compensation Act, if as an employee, you suffer a work related injury or disease, you would be entitled to compensation. To state that more elaborately, all employees who suffer from mental stress, occupational injuries and diseases, as well as the dependents of an employee, who dies due to occupational injuries, are entitled to compensation by Law. This notwithstanding, the procedure for getting the compensation as provided by the Law must be followed, if not an injured employee stands the risk of losing out and not getting compensated.

If I have an accident while on my way to work – am I entitled to Compensation?

The circumstances of the individual accident would have to be carefully examined. This is one of the reasons we advise very clearly that once you suffer a work place injury, you endeavor to reach out to a lawyer who would appraise the circumstances of the injury and give you proper legal advice.

That said, to answer the question here, if one suffers an injury on the way to work, whether or not he or she will be compensated depends on the circumstances of the accident. The law is to the effect where an employee is entitled to compensation if suffers an accident while on the road or way between his place of work and

(a)  the employee’s principal or secondary residence;

(b) the place where the employee usually takes his or her meals; or

(c) the place where he or she usually receives remuneration (that is payment),

provided that the employer has prior notification of such place. – Section 7 of the ECA

what if my work gives me mental stress – can I be paid compensation?

Shocking as it may sound, the Law provides for compensation when an Employee suffers mental stress as a result of the nature of the work[6]

If an Employee dies due to work related injury – are his family members entitled to compensation?

If an Employee dies due to a work related injury, even his/her family members are entitled to be paid compensation. The law has gone on to even provide a scale for the compensation of the bereaved family[7]. Again, the circumstances differ but in summary, the scale of compensation is a percentage of the salary of the deceased employee which is to be paid to the family on a monthly basis.

If I suffer a work related injury, what should I do?

As already mentioned, we advise that you contact a lawyer who would ensure you take the proper steps under the law to receive compensation for the work related injury.

That said, it is necessary to state again that the law (in this case the ECA) has provided for a procedure that anyone seeking compensation is to follow so as to get compensated. Where this procedure is not followed, such a person stands the risk of not being compensated.

  • Also, more importantly, it is necessary to mention that by the Law, the injured Employee or his dependents (in the case of death) are to inform the Employer of the injury within 14 days of its occurrence. Section 4 of the Act
  • This report of the injury or death to the Employer is to be made with all the details required by the law in Section 4 of the Act.
  • Once the Employer receives this report, he is to make a further report to the Board and the National Council for Occupational Safety and Health in the State within 7 days of the occurrence or of his being notified about it.
  • An application can then be made to the Board (that is the National Social Insurance Trust Fund Management Board) within 1 year after the occurrence of the injury.

The issue of compensation should be raised as early as possible by the injured employee. Why is this? It is because the Law requires that compensation (made under the ECA) claims are to be submitted to the NSITF board within One year of the occurrence of the accident. And in exceptional cases not more than THREE YEARS after the occurrence of the accident. If an injured employee does not submit his claim to the Board within the period stated above, he loses his right or opportunity to claim compensation from the board.

You may ask, so after three years, does it mean that an injured employee has no other remedy?

Not entirely. The three year period does not mean that the injured employee does not have a right to other legal remedies.

More precisely, depending on the circumstance of the case, the injured employee may still be able to sue his former Company or Employer and claim monetary compensation for negligence or sue to recover his benefits or unpaid gratuities. In either of these cases, it is very important to get the advice of a lawyer very timely.

Nkobowo Nkobowo BL

End note

Since 2010 when the Employee Compensation Act came into force, the Workmen’s Compensation Act was repealed (that is, it is officially no longer in force). Consequently, contracts, employee handbooks and other documents that are currently prepared for Companies/ Employers need to reflect or make reference to the Employee Compensation Act and not the Workmen’s Compensation Act.

[1] https://www.flyingdoctorsnigeria.com/2018/07/20/10-most-common-injuries-in-the-workplace/

[2] For example did you know that Pneumoconiosis is a globally well-known occupational disease; this is a chronic lung disease resulting from widespread exposures to silica, coal, asbestos and various mineral dusts in mining, quarrying, construction and other manufacturing processes. https://www.premiumtimesng.com/opinion/130871-prevention-of-occupational-diseases-a-case-for-decent-work-in-nigeria-by-emmanuel-obasi.html

[3] Section 2 of the Employee’s Compensation Act

[4] Section 33 of the Act

[5] Section 14 of the Act

[6] Section 8 of the ECA.

[7] Section 17 of the Act

Have you ever heard of the Employee’s Compensation Act? This crucial law will be the focus of this article. However, before we dive into the main discussion, as usual, lets place issues in context. In workplaces and offices across Nigeria, it is common to hear stories of workers or employees getting hurt, losing their lives or suffering from work related

Law and Business

Benefits of Registering your Business with the CAC in Nigeria

fredericknkobowo

March 23, 2022

Do you own and run a business in Nigeria? If so, in this article we will answer the question of whether indeed you should consider getting your business registered or incorporated with the Corporate Affairs Commission (CAC)[1]. We will also inform you of the various business structures that are currently available in Nigeria so that you take them into consideration when choosing which legal structure best fits your business needs and goals.

It is a surprising fact that many small and medium scale business owners in Nigeria do not consider it important to register or incorporate their businesses. Some of these business owners avoid registering their business because they believe that non-registration ‘protects’ their business from paying taxes.  But is this true? We will answer that too.

While controlling or minimizing tax obligations should definitely be a foremost consideration for every business, there is a proper way to go about that. Not registering your business is definitely not part of it. No one wants to shoot himself or herself in the foot. This is exactly what not registering your business is comparable to.

For any progressive business, the advantages of registration (especially using a well-considered business structure) completely outweigh the supposed advantages of not getting registered.

So let’s get to it.

In Nigeria, the benefits of registering your business include the following –

  1. It is one way to Protect your business name/identity – Now let’s imagine that you run a food business. In recent times your business has been booming and your bank account is in fact swollen to the limits. Your happy customers call and popularly know you as ‘Miss Pepeye’. Your food restaurant is also popularly known as ‘Pepeye Buka’.  In fact, once Pepeye buka is mentioned in any part of town, no one argues that it is your business that is being referred to.

If for whatever reason your business is not registered or incorporated with this name (or an identical name) or this name is not trademarked, there exists the risk of a Competitor coming up tomorrow to name its business with the exact same name that you have diligently built your business with over time – Pepeye buka.

So let’s imagine that Mrs Atiku – your competitor who is so jealous, approaches the Corporate Affairs Commission (CAC) to register her own food business with the Name – Pepeye buka. Guess what? If you did not register your business before Mrs Atiku’s move, there is nothing stopping her from succeeding with her move. She could get her own ‘Pepeye Buka Enterprises (or Nig Ltd)’ registered with the CAC; in effect successfully using the same name everyone knows you and your business by. And the result would be?  Mrs Atiku would automatically become the ‘legally recognized’ owner of the business entity legally recognized by that name and all your hard-work in building the ‘Pepeye Buka’ brand and getting the goodwill of customers will be ascribed to Mrs Atiku.

The point from our story here is – registering/incorporating your business is a major step towards legally maintaining exclusive use of the name you have given your business. Every business person knows how important branding can be. Once people get to know your business name (or brand) and attach goodwill and loyalty to it, the next most important thing is to prevent competitors from using that name or brand without your permission. In effect, registering your business is the first step to making your business identity exclusively yours and unique to you. No second business can validly be registered with the Corporate Affairs Commission using your business name once your business is registered/incorporated. For a second business to be registered with the same name, they would need your consent to do so. Section 852 of the Companies and Allied Matters Act

Registering your business even keeps competitors away from using a name that is identical or very similar to your business’ name. This is to prevent a situation where a competitor uses a name nearly resembling your business’ name for the purpose of outsmarting customers into thinking both businesses are owned or operated by the same person.

Benefits of registering your business with the Corporate Affairs Commission in Nigeria.
  • It helps you Set up a proper legal structure for your business – Registration helps you choose a legal structure that is best suitable for the long term growth and sustenance of your business. Therefore, you could choose to register your business as a business name, a limited liability company, a public liability company etc. Each of these structures are different and have their different legal implications. Building a business is almost identical to building a house. No matter how beautiful the exterior of a house is, its most important part is actually its foundation. Same thing with registering your business. When your business is registered with the Corporate Affairs Commission, you are able to structure your affairs properly.
  • It helps you Separate your business liability from your personal liability – Proper registration can help you separate your business liability from your personal liability. This effect (or concept if you would) of separating your business liability from your personal liability is called ‘limited liability’. Big grammar? I’ll break it into molecules. Liabilities of a business are simply what the business owes. While running a business, most times the business incurs debts. Suppliers, employees and maybe more persons could be owed. Now, you would not want these debts arising from the business to cross into your personal account. Put differently, you would not want to be personally liable for the debts of your business.

In effect, it is best that business liabilities should remain as such while your personal liabilities remain absolutely different. You don’t want any situation where like an evil spirit, your business debts roam into your personal account and swallow all the money there. This means you want any future liabilities from the business to be ‘limited’ to the business. Registering your business as a Company helps your achieve this.

So that, when the loans were gotten by the company and in the worst case possible, the company is unable to repay these loans, all steps at recovering the debt will ‘generally’ be limited to the Company’s assets[2]. This is because of the limited liability concept.

The opposite or reverse of the limited liability concept is ‘unlimited liability’. Unlimited liability applies when the business is not registered and when it is registered as a business name. In effect, not all types of registered business entities enjoy limited liability. When liability is unlimited, there is no separation between business losses and the losses of its owners.

A simple illustration may be able to drive home this point better;

Lets imagine that you took a loan from the bank to start your mechanic business. Contrary to your projections, your business did not perform so well and your plans went south. The situation even becomes worse because due to the business problems, you are behind on your loan repayments and you now owe the bank.

Since the loan is in your name (or even when you took it using a business name), you are personally and fully responsible (liable) for repaying the loan. If the Bank sues, the bank may be authorized by the Court to take over any properties (assets) that are in your name (like your house and land) and sell them to recover the loan amount you are owing. This is a clear instance of “unlimited liability”. In this situation, your personal assets are at risk and business failure could lead to personal bankruptcy.

The reverse is the case where the liability is limited.

Thankfully, under the current CAMA 2020, one person can register a Company. This means, even though you are the only Director in the Company, by law, you are different from the Company. With this structure, and a proper management of the legal risks of the Company, your personal assets – such as your house and car, would be save from business debts (or liabilities).  

  • Registration Enables you Earn trust of Clients/Customers; People and other businesses generally find it easier to do business with a registered business. This is because a registered business has rights and duties under the law, and this will give them (especially new clients/customers) the confidence that they are transacting with a reputable entity. Registration also helps you gain business credibility when dealing with business investors or financiers as well as bigger companies. Most big investors don’t usually like dealing with one-man enterprises that have no projection towards achieving growth. Registering your business shows the existence of that projection.
  • Registration helps ensure business continuity; on this benefit, it is important to note that when a business is registered as a company, the Law considers the Company to be a different and separate legal entity from its owners/founders. Due to this, the Company can enter into contracts, buy properties and own properties too. This separation of the company from its owners means that the Company can continue to exist even when its original founders and owners are long dead. Also, since the company is an entity in itself, it is possible for its directors to change over time so that the business continues. This is usually not the case with one-man enterprises where the business is so connected to the its founder that if the founder for any reason is missing in action, the business is missing as well.

An example here might help make this point clear. First Bank of Nigeria was established in 1894, it is unimaginable to believe that the founders of the Bank are still alive. But even with their demise long ago, First Bank continues to exist as a going business concern.

“Proper Business registration can give your business long life”

To show how far reaching this benefit is, when a company runs into serious troubled waters, since it is in the eyes of the law a legal person, there are various legal means of saving the company or preventing its death (that is keeping it from going bankrupt). These means of keeping the company (and its business) alive are called ‘company restructurings’[3]. As a restructuring option, the failing company can be bought over by a more profitable one. It can even ‘marry’ [in legal parlance ‘merge with’] a more successful company and remain in business as a new company or a part of the more successful company. When the former Diamond Bank headed into a bit of business strain, Access bank bought it over and so the customers of the Bank and business (previously operated as Diamond Bank) was absorbed into Access Bank and business continued.

  • Easier Access to loans, business grants and Government incentives; As a registered business, it is relatively easier to access loans to start or expand your business operations. This is because as mentioned earlier, more established businesses and even government establishments (in many cases) find it easier to trust and do business with registered businesses. An example of government grant that was available to only registered businesses was the recent Federal Government payroll support for SMEs to help caution the devastating effects of the pandemic on these businesses.  
  • Helps you comply with the laws applicable in regulated industries/Business Sectors – most times registering your business is compulsory. This is because, there are industries and businesses that by law, you cannot undertake without properly registering a company. Because of how sensitive these industries and businesses are, it is actually compulsorily required that only registered companies run these kind of businesses. Examples of such businesses are the banking and insurance businesses. Before anyone can set up and run an insurance business or Banking business in Nigeria, the law compulsorily requires that a company is registered for that purpose. ‘Ever wondered why you have not seen a bank in Nigeria called Okorodichukwu & Sons Enterprises yet?’ 

The benefit of registering the business in an instance like this is that it helps you comply with government regulations governing your business so as to prevent your business operations from being shut down by the government.

  • Can open a business bank account – Usually before a Bank will accept to open a Bank account in the name of your business or enterprise, the Bank will ask for the registration/incorporation documents of your business. It is not arguable that using a corporate account for your business strengthens the trust, confidence and credibility of your business before clients/customers, bank and partners. Besides using a corporate account looks professional and beats using a private account. But to get one, you need to register your business with the Corporate Affairs Commission.

For further inquiries or clarifications on this piece – you can us chat up via; http://wa.me/+2347083595771 or Call us on +2347061432534.

[1] In this article we use the words ‘incorporate’ and ‘register’ interchangeably to refer to the process of having your company legally recognized and identified by the Corporate affairs commission

[2]  There are cases where this is not the case, that is to say, recovering a debt many tap into the personal assets of the Company’s owners or directors. This could happen where the Company directors sign person guarantees to get the loan and when the personal properties of the company directors are used as collateral for the loans.

[3] https://www.investopedia.com/terms/r/restructuring.asp

Registering your business with the Corporate Affairs Commission can be beneficial.

Read more to find out.