Monthly Archives - June 2020

How to start a Foundation or NGO in Nigeria By Registering as an Incorporated Trustee with CAC

Hello FINT, I just laid my mom to rest. Rather than a flamboyant burial, I would like to start a Foundation in order to immortalize her legacy. What do I need to do?Answer: Please accept our condolences. That’s a wise decision to immortalize your mother’s legacy through a foundation. We will give you a detailed answer that explores pre-registration steps, registration steps, features of Incorporated Trustees and costs involved.In Nigeria, the vehicle for registering an NGO (Non-Governmental Organization) is Incorporated Trustees as provided under Section 590 of the Companies and Allied Matters Act (CAMA). NGOs are non-profit organizations set up for the purpose of furthering a cause, which could be “religious, educational, literary, scientific, social/cultural development, sporting and charitable”. In an earlier article, we made a comparison between two for-profits, a business name and a limited liability company.How to start a Foundation or NGO in Nigeria ribbonImage by Mary Pahlke from Pixabay 

Pre-Registration

To start an NGO, one has to pick a cause from any of the seven mentioned above. This is the vehicle used to register churches, religious ministries, initiatives and so on. 
  • After this, there should be a brainstorming session where the beliefs, purpose, mission and vision of the NGO are put on paper. 
  • There should also be a list of the activities the NGO intends to undertake. 
  • You will need this information during registration. 
  • The first step after picking a cause and doing all of the above is to reserve the name with CAC (Corporate Affairs Commission). 
  • Appoint trustee(s) who should be someone with a passion for the cause chosen and also above 18 years, not of unsound mind, not bankrupt and not a convict within the last five years. It is possible to have only one Trustee. Name, date of birth, nationality, address, occupation, government-issued ID and passport photograph, are the details each appointed trustee needs to present during registration.
  • Hire an accredited CAC agent. Note that not all lawyers are accredited with CAC, so ensure the lawyer you hire is accredited. Your lawyer will handle things like drafting of the NGO’s constitution, the publication of notices and requisite minutes of meetings.
 

Registration

Upon approval of the name reservation, your lawyer will begin preliminary data entry on the CAC portal. Remember that name reservation is only valid for 60 days. In the meantime, your lawyer will handle and prepare the following:
    • Publication of Notices in three national dailies. The publication is expected to notify the public of the intention to register the NGO, the name of the NGO, the name of the Trustees, the NGO’s aims and objectives and calls for objections to its registration within 28 days of publication. This should be done immediately the name is approved as the 28 days must have passed before it will be accepted by CAC.
 
  • Drafting of the Constitution which will contain the rules that will guide the NGO’s internal affairs and operations. It is expected to include the aims and objectives, statement of purpose, governance structure, a list of the members of the Board of Trustees, and so on.
  • Drafting of Minutes of Meeting for the appointment of the Board of Trustees. This minutes should also contain a list of members present and absent at the meeting, the voting pattern used for the appointment, and the authorization to apply to CAC for registration. The minutes is to be signed by the Chairman or Chairwoman and the secretary of the Board of Trustees.
 
    • Drafting of Minutes of Meeting for the adoption of the special clause into the constitution. The minutes is to be signed by the Chairman or Chairwoman and the secretary of the Board of Trustees.
 
  • The common seal of the NGO. The impression of the common seal will be needed on the minutes, the application form and some other documents. 
 
  • All of the above documents are to be prepared in duplicate. After which they are scanned, uploaded and filed on CAC portal.
  • Upon approval of registration, the original documents will then be submitted at the chosen CAC branch office for collection of the certificate of incorporation.
Features of Incorporated TrusteesImage by maz-Alph from Pixabay Important Features of Incorporated Trustees (Vehicle for registering an NGO with CAC)
  • It is not a business and does not distribute profits.
  • Income is generated through grants, donations, levies, membership fees, etc.
  • 100% of income must be applied solely towards its causes.
  • They are not liable for tax, except for income gotten through business or trade.
  • Just one person is sufficient to register it.
  • While the minimum number of trustees is at one, CAMA is silent on the maximum number. 
  • Upon incorporation, it obtains a distinct legal personality that can sue and be sued, and own properties.
  • The trustees alone, excluding members, are the ones clothed with a new legal personality.
  • Its correct legal name starts with “Incorporated Trustees of …”
  • Used to incorporate Associations, Foundations, Initiatives, Churches, Mosques, Clubs, etc.
  • The Board of Trustees is different from the executive members, also different from the sub-committee members and other members. An executive member may or may not be a member of the Board.
  • A bank account can be opened in the name of the NGO using the certificate of incorporation.
Although it is possible to have just an individual trustee, it is advisable to have at least two, so one can be the Chairman or Chairwoman of the BoT and the other can be the secretary. 

Cost and duration of registering an NGO

As you can see from the details above, registering an NGO involves several variables. You can expect registration costs to start from ₦200,000 and take at least six weeks to conclude. 

Can a foreigner be a member of the board of trustees?

Yes, a foreigner can be a member of the board of trustees. However, such a foreigner must have a valid residence permit, specifically the Combined Expatriate Residence Permit and Alliance Card (CERPAC). So, if you want a foreigner to join your BoT, they first have to obtain CERPAC. 

Why you should register your NGO 

It is actually possible to run a non-profit without registering it. However, those running it will not be able to access certain benefits that registration affords them. Some of these benefits include: 
    • Corporate legal personality. This is the first benefit of registration. The NGO becomes an artificial person distinct from the Trustees. It can sue and be sued. It can own properties in its name, and such properties belong to the NGO and not the individual Trustees.
    • Continuity. Where the founder dies or even leaves, the NGO will not die as long as there are other members of the Board of Trustees. NGO can only end through a court order.
 
  • Tax Avoidance. This is a legitimate way to reduce tax obligations. It is not the same as tax evasion which is illegal.
 
    • Protect the Name. Upon incorporation of the NGO, no one else can use the same or a closely similar name. This helps to protect the brand’s identity.
 
  • Banking and Credit. With the certificate of incorporation (CoI), an NGO can get its own bank account. With this bank account and the CoI, it can apply for credit financing to be used towards promoting its cause.
  Back to the question, to register a foundation for your mother, all you have to do is send us the objectives, details of the chosen trustees, IDs and of course fees, and we will handle the rest.You're also welcome to interact directly with the FINT Team. Join our Telegram Group: https://t.me/FINTConsulting or our Telegram Channel: https://t.me/FINTChannel. See you there.Alternatively, you can join our mailing list to stay updated with what we are doing and resources for innovative businesses.DISCLAIMER: This article is written for educational purposes only and should not be construed as legal advice. Consult a lawyer for tailored legal advice.
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Business Name VS Limited Liability Company: How Should I Register My Business With CAC?

Hello FINT, thank you for your answer to our number of founders' question. Now we want to take the next step to register our business. Should we register it as a business name or as a company?Answer: After validating a business idea, the very next step should be formalizing its existence by registering it with the appropriate authority. In Nigeria, the Corporate Affairs Commission (CAC) is saddled with this responsibility. There are different vehicles under which a business idea could be structured. Section 21 of the Companies and Allied Matters Act (CAMA) lists several options. But we will focus on two major options; Business Name and Limited Liability Company. The points below will help you in answering the question. 

Type of Business Idea 

Deciding between a business name and a limited liability company depends on the business idea. Some businesses, like law firms, can only be registered as a business name. In the same way, some businesses like those into FinTech can only be registered as a company.Business Name VS Company fundingImage by Tumisu from Pixabay

Venture Capital

If you do not intend to secure venture capital, that is bringing in investors, you can go ahead with a business name. If otherwise, then you need to register a company so you can issue equity to investors.

External Funding

Businesses hoping to secure external funding like grants, whether from the government or private should consider registering as a limited liability company. Generally, and in most cases, grants are not given to an individual, but rather to a formal entity reflecting the cause for which the grant was granted.

Government Bids

If you do not intend bidding for projects with the government, whether federal, state or local, you can go ahead with a business name. If otherwise, then you need to register a company. Government agencies will not acknowledge the bids unless it is a limited liability company. 

Sole Proprietorship

Business names work best for a sole proprietorship. So, if you are running a one-man or one-woman business, and you simply want to structure things in order to get access to benefits like a corporate account, then a business name suffices. If you opt for a company, you must comply with the mandatory requirement of a minimum of two (2) shareholders. Although, there can be more than one proprietor for a business name registration, so it is suitable even for partnerships. However, once there are more than twenty (20) partners, then it needs to be registered as a company. Exceptions include law firms and accounting firms.

Contributions and Ownership Stakes

Business partners who want their contribution to the business to be clearly spelled out in public documents and also reflect their ownership stakes are better off registering as a company. As earlier stated, although business partners could still register as a business name, there must be a legal document that clearly addresses these points.

Separate Legal Entity

With a business name, there is no separate legal entity. You (and your business partners) are simply carrying on business in the name registered with CAC. This means that all risks and liabilities are borne personally by the business owner(s). With limited liability companies, whether private or public, there is a separate legal entity. That is, the company itself is an artificial person that is distinct from the shareholders/members. Thus, all risks and liabilities are borne by the company and not personally by the shareholders.

Business Continuity

A business name lacks continuity because when the owner dies, the business also dies. This is not the case with companies as it is a separate legal entity existing independent of its shareholders/members. Moreover, ownership of shares can be transferred, while ownership of a business name cannot be transferred as it is not a separate legal entity.Business Name VS Company own propertiesImage by Nattanan Kanchanaprat from Pixabay 

Own Properties

This follows immediately after separate legal entity, because only a person, artificial or natural can own properties in Nigeria. What this means is that a business name cannot buy properties nor own shares. A limited liability company can own properties, take up shares in another company and also own a business name.

Capacity to Sue or Be Sued

Business names cannot sue or be sued. The individual(s) behind them are the ones who can sue or be sued. Companies can sue or be sued, without involving the shareholders/members. This is however subject to the principle of lifting the veil, especially when criminal matters are involved.

Formality and Costs

Registering a business name is less formal and does not require much documentation. Ideally, just the application form, receipts and IDs. business owners can register a business name themselves, saving on costs. A limited liability company is more formal, both during registration and even when in operation. Things like annual general meetings, board resolutions, etc are some of the mandatory formalities. A lawyer is needed to register a company, this means more costs.

Financial Bill 2020

The recent financial bill grants tax concessions to companies with annual profits below ₦25 million. This concession does not apply to business names.Finally, if you choose to register as a company, you also need to decide on private or public. If private, you need to check CAC guidelines for the minimum share capital allowed for your type of business. Also, only a maximum of 50 shareholders are allowed in a private company, otherwise it needs to be registered as a public company instead. We hope the above points will help you in deciding on an appropriate structure for your business idea. Do not make the mistake of opting for the cheapest option (a business name) when it does not adequately reflect the nature and risks of your business idea. It could become an expensive mistake.Simply consult a lawyer to check out all of these and help you make an informed decision.You're also welcome to interact directly with the FINT Team. Join our Telegram Group: https://t.me/FINTConsulting or our Telegram Channel: https://t.me/FINTChannel. See you there.DISCLAIMER: This article is written for educational purposes only and should not be construed as legal advice. Consult a lawyer for tailored legal advice.
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