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Nigeria: Diversification – 5 Legal Considerations to Scale Your Business

The over reliance of the Nigerian economy on the oil sector for sustenance has proven to be a flawed model for economic development. With a population of over 200 million people and the recent decline in oil prices due to global price wars as well as the pandemic, it has become more urgent for the government to promote investment in other sectors of the economy, including the agriculture, manufacturing, solid minerals and technology sectors.

To improve the economy, it is now more likely that government would promote opportunities for businesses in these sectors to grow, either through more accessible loans and incentives or foreign/local investments.

It is therefore wise that businesses in these sectors are properly positioned for growth opportunities. If this applies to you, here are 5 legal considerations to be positioned to scale your business.

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  1. Suitable Company Structure –If you currently operate with a business name, we advise that you convert to a limited liability company structure. This would position you for equity investments and loans, as investors prefer to work with structured companies.
  2. Suitable Contracts in Place – Ensure you have entered into contracts that govern your relationship with your stakeholders including Shareholder Agreements, Founders’ Agreement, Employee Contracts and Supply Contracts. Also, document the terms of all investments in your business including your own investment. Your investment could be structured as a convertible loan or an outright loan to your business which you can claim back once the business is profitable; or use to purchase equity in your business. It is important to have these terms agreed upon before third party investors or shareholders join as at such a stage it would be difficult to justify.
  3. Protect your Intellectual Property Rights (IPR)–There is value in your intellectual property (including your brand name, inventive steps and designs). Prior to growing your business ensure you protect your IPR as this is an asset which can improve your valuation. It also enables you protect your intellectual investment in your business and prevent imitators from using it. Note that if you intend to go global, you should register your IPR in other countries you wish to operate in.
  4. Be Due Diligence Ready – An investor interested in your business would carry out due diligence on your business to ascertain the risk in investing and determine the value of your business. Matters such as your compliance with State and Federal tax laws, Regulatory requirements, updating your records at the Corporate Affairs Commission would be checked. Ensure your business is compliant or take steps now to put your books in order to avoid issues at the Due Diligence stage.
  5. Have a Good Corporate Governance Culture –It is advisable that you adopt good corporate governance practices in your operations. This is because it gives a level of comfort to investors that the business is operated with integrity. You can adopt the principles in the Nigerian Code of Corporate Governance 2019. The Code sets out rules for good governance practices in your business this includes ensuring your board of directors is properly structured for accountability and transparency.

Regardless of whether the Nigerian government effectively takes the necessary steps to diversify the economy, the world is now a global village and investors are seeking good investment opportunities. By adopting the steps above, your business is better positioned to attract such investments.

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