What are the legal requirements that you must meet while using any of the available methods to raise capital for your business in Nigeria?
If you would like to know how to raise capital for your business in Nigeria, the first thing you must know is that there are several options available that you can use to raise capital. These options include using personal finance, obtaining business loans, selling equity, approaching angel investors or venture capitalists, and creating partnerships.
In addition, the law also specifies requirements that you must meet while using any of these options.
Legal Requirements for Using Personal Funds
The money must legally belong to you. This means that in the eyes of the law, you must be the owner of the money you intend to use.
You must have earned this money from a legitimate job. You cannot use illegal funds to run a business in Nigeria. If you do, it can lead to legal consequences for your business.
The money must solely belong to you. This means that no other person should be entitled to have a share in that money.
Legal Requirements for Obtaining Business Loans
Business Registration: For you to qualify for a business loan in Nigeria, the law specifies that you must register your business first with the Corporate Affairs Commission.
Legal Compliance: Your business must comply with every relevant local, state, or federal business law.
Loan Agreement: The law recommends that you should use agreements prepared or reviewed by a skilled business lawyer to obtain a loan.
Legal Requirements for Selling a Part of Your Business
Business Registration: You must duly register your business with the Corporate Affairs Commission.
Legal Compliance: Your business must comply with Nigeria’s relevant local, state, or federal business law.
Loan Agreement: The law recommends that you should use a shareholder agreement that is either prepared or reviewed by a skilled business lawyer
Legal requirements for using Angel Investors
Business registration: Your business must be duly registered under the law by the Corporate Affairs Commission.
Investor agreements: When you get an investor for your business, the law recommends drafting legally binding agreements that outline the rights and obligations of each party. This agreement must also be drafted or reviewed by a skilled business lawyer.
Legal Requirements for using Business Partnerships
Maximum number limit: In Nigeria, the law states that only 2-20 persons can come together to form a partnership. Any business that does not comply with this requirement will be declared a criminal organization.
Business registration: Your business partnership must be duly registered by the Corporate Affairs Commission. This could either be as a general partnership, a limited partnership, or a limited liability partnership.
Partnership agreement: It is advisable by the law that you use partnership agreements in Nigeria when creating a business partnership that clearly outlines the rights and obligations of each partner in the business. You must also ensure that this agreement is drafted or reviewed by a skilled business lawyer
Legal Requirements for using Business Grants
Business Registration: To qualify for a business grant in Nigeria, you may be legally required to register your business first with the Corporate Affairs Commission.
Legal Compliance: Your business must comply with Nigeria’s relevant local, state, or federal business law.
Conclusion
As an entrepreneur in Nigeria, you can use any of the above options discussed in Part 1 of this article to raise capital. But you must also ensure that when you use these options, you comply with the law in Nigeria. The law in Nigeria specifies legal requirements you must meet as a business owner before you can use any of these options. If you fail to comply with these requirements, your business is at risk of attracting legal consequences.
It should be noted that all of the options available to raise capital discussed in Part 1 consist of certain grey areas that business owners should avoid. It is hard to successfully raise capital if one falls victim to these grey areas.
In our new ebook titled An Entrepreneur’s Guide to Raising Funds Like a PRO, we have highlighted what these grey areas are and proffered legal advice on how to navigate these areas.
It is a step-by-step guide for every business owner who wants to raise funding that can be used to expand a business and it was prepared by our Principal Partner, Barrister. Temitope Odeyinka.
This ebook also contains free perks such as a list of financial institutions that charge little or no interest on business loans, a list of grants available in Nigeria for business owners, and what time of the year they open.
If you are interested, click here to buy a copy.
