NIGERIAN BUSINESS ENVIRONMENT

BAM 218
TOPIC 1: THE CONCEPT OF BUSINESS ORGANIZATION IN NIGERIA

DEFINITION OF BUSINESS ORGANISATION

Business organization can be defined as an entity formed for the purpose of carrying on
commercial enterprise.
Such an organization is predicated on systems of law governing contract and exchange, property
rights, and incorporation.
FORMS OF BUSINESS ORGANISATION
1. SOLE PROPRIETORSHIP BUSINESS:
The vast majority of small businesses start out as sole proprietorships. These businesses
are owned by one person, usually, the individual who has day-to-day responsibility for
running the business. Sole proprietors can be independent contractors, freelancers or
home-based businesses.
ADVANTAGES OF SOLE PROPRIETORSHIP BUSINESS
i. Owner receives all the profits
ii. Profits are taxed only once
iii. Owner makes all decisions and is in complete control of the company.
iv. Easiest and least expensive form of ownership to organize
DISADVANTAGES OF SOLE PROPRIETORSHIP
i. Unlimited liability if anything happens in the business. Your personal assets are at
risk (including your home in Victoria Garden City))
ii. Limited in raising funds and may have to acquire consumer loans
iii. No separate legal status
2) PARTNERSHIP BUSINESSES
In a Partnership, two or more people share ownership of a single business. Like proprietorships,
the law does not distinguish between the business and its owners. The partners should have a
legal agreement that sets forth how decisions will be made, profits will be shared, disputes will
be resolved, how future partners will be admitted to the partnership, how partners can be bought
out or what steps will be taken to dissolve the partnership when needed.

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ADVANTAGES OF PARTNERSHIP BUSINESS
i. Easy to establish (with the exception of developing a partnership agreement)
ii. Separate legal status to give liability protection
iii. Profits taxed only once
iv. Partners may have complementary skills
DISADVANTAGES OF PARTNERSHIP BUSINESS
i. Partners are jointly and individually liable for the actions of the other partners
ii. Profits must be shared with the partners
iii. Divided decision making
iv. Business can suffer if the detailed partnership agreement is not in place
3) CORPORATIONS
A corporation is considered by law to be a unique entity, separate from those who own it. A
corporation can be taxed, sued and enter into contractual agreements. The corporation has a life
of its own and does not dissolve when ownership changes.
There are three types of corporations: *C-corporation, *S-corporation and *Limited Liability
Company.
i. C-corporation
A C-corporation is a corporation that is taxed separately from its owners. It gives the owners
limited liability, which can encourage more risk-taking and potential investment.
Advantages of C-corporation
i. It is limited liability.
ii. In regards to transfer of ownership, shareholders can sell their shares.
iii. Capital is easier to raise through the sale of stock.
iv. The company pays fringe benefits.
v. There are tax benefits.
Disadvantages of C-corporation
i. It is subject to double taxation. (Corporation and shareholder earnings are taxed.)
ii. It can be costly to form.
iii. There are more administrative duties. This entity type is required by law to have annual
meetings, notify stockholders of the meeting and keep minutes of meetings.
iv. C-corporations pay corporate taxes at a different time than other forms of business.

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 ii. S-Corporation
An S-corporation offers the owners limited liability. S-corporations do not pay income taxes; the
earnings and profits are treated as distributions. The shareholders must report their income on
individual income tax returns.
Advantages of S-Corporation
i. It enjoys limited liability.
ii. It avoids double taxation.
iii. Profits are taxed only once.
iv. Capital is easier to raise through the sale of stock.
v. It offers transfer of ownership
Disadvantages of S-Corporation
i. It can be costly to form.
ii. Stockholders are limited to individuals, estates or trustees.
i. Iii. It is subject to required administrative duties.
iii. It cannot provide company paid fringe benefits.
iv. Stockholders are limited to citizens or resident aliens of the Federal Republic of
Nigeria.
iii. Limited Liability Company
A limited liability company or LLC is a hybrid business structure that provides the limited legal
liability of a corporation and the operational flexibility of a partnership or sole proprietorship.
However, the formation is more complex and formal than that of a general partnership.
Advantages of Limited Liability Company
i. It is the most common business structure and is specifically created for small
businesses.
ii. This entity type requires insurance in case of a suit.
iii. It is a separate legal entity.
iv. LLCs are usually taxed as a sole proprietorship.
v. LLCs can have an unlimited number of owners.
Disadvantages of Limited Liability Company
i. It can be costly to form.
ii. It requires yearly administrative costs.

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 iii. LLCs have a personal tax liability.
iv. Legal and accounting assistance is recommended for LLCs.
PROCEDURE FOR ESTABLISHING A BUSINESS IN NIGERIA AND THE
RELEVANT REGULATORY AGENCIES
Edoabasi (2018) designed the following procedure to help business people including Micro,
Small and Medium Scale Entrepreneurs navigate the legal and regulatory considerations relevant
to starting-up and doing business in Nigeria: Follow the steps below:
1. DECIDE ON THE BUSINESS STRUCTURE
When deciding on how to participate in the Nigerian market, you will need to choose between
establishing a new company or acquiring an existing company. If establishing a new business, a
variety of business structures are available. The four main types are: sole proprietorship;
partnerships; incorporated trustees; and companies. You need to decide on the company structure
that will best suit your business needs. The business structure will determine the cost, tax, legal,
regulatory and financial risk implications. Your situation may require advice from a Solicitor.
TYPES OF REGISTRABLE ORGANIZATIONS IN NIGERIA
Registrable business organizations in Nigeria include:
i. A company limited by shares (Ltd or Plc)
ii. A company limited by guarantee (Ltd/Gte)
iii. An unlimited liability company (Ultd)
Any of the above companies may be a Private Company or a Public Company.
iv. Business Name (registered as Sole Proprietorship or Partnership)
v. Incorporated Trustees (usually formed for not-for-profit or charitable purposes)
ADVANTAGES OF COMPANY LIMITED BY SHARES OVER A BUSINESS NAME?
A company is its own legal entity. Its identity is separate from the shareholders, directors and
employees. It has perpetual succession – meaning that the business can continue despite the
resignation, bankruptcy or death of directors or shareholders. The shareholders and directors
have protection of limited liability tied to their personal guarantees and/or the value of shares the
hold in the company. It is relatively easy to expand or to scale-up by selling shares or offering a
stake in the business to outside investors. The company can sue or be sued in its own name. A
company has more credibility. It is easier to raise large sums of money for the business or sell a

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part of the business. It can take advantage of the investment incentives, pioneer status and tax
exemption offered by government.

2. RESERVE A NAME
You can only use a name that is not identical to an existing registered organization in Nigeria. A
name availability search must be conducted at the Corporate Affairs Commission (CAC) registry
to see if the name is available for use. Where it is available, same will be approved for
registration. Name availability check and reservation can be effected within 24 hours.
3. REGISTER THE APPROVED NAME
Businesses in Nigeria must be registered with the Corporate Affairs Commission either as a
Business Name or as a Company. Foreign investors interested in entering the Nigerian market
may wish to establish a new Nigerian company or establish a new Nigerian subsidiary which
also operates as a distinct legal entity from the offshore parent company.
4. PREPARE AND FILE REGISTRATION AND INCORPORATION DEEDS
Companies must have a Memorandum of Association and Articles of Association (MEMART), a
Solicitor can assist you draft a MEMART to suit your business objects and file a copy of same at
the Corporate Affairs Commission registry; make payment of stamp duties on the incorporation
deeds and conclude registration of the company as a legal entity. Company's MEMART or
Business Name's Partnership Deed will deal with ownership and management issues and contain
the rules governing how the business is run. The deed will pin down the key issues and set out
any restrictions on what the business can do and how decisions will be made.
5. COMPANY SHARE STRUCTURE
All categories of company shares (i.e. whether ordinary or preferential) issued by a company in
Nigeria must carry one vote in respect of each share. Shares with weighted voting right are
prohibited. A company must have at least 2 directors (non-employee shareholders). However,
private companies must not have more than 50 non-employee shareholders.
6. APPOINT THE DIRECTORS
The directors are the shadow of a company and at the heart of corporate governance. A company
can have either foreign or Nigerian directors, and the directors may be resident or non-resident.
7. REGISTER YOUR PATENT AND TRADEMARK

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Your business may have proprietary rights to certain intellectual assets. You will require the
services of a Solicitor to register and protect these rights as patents, trade secrets, copyrights or
trademarks and ward off infringements.
8. REGISTER AND OBTAIN LICENCE FROM RELEVANT REGULATORY
AGENCY
Certain businesses are subject to monitoring, regulatory control and licensing by relevant
government agencies such as National Agency for Food and Drug Administration and Control
(NAFDAC), Nigerian Investments Promotions Commission (NIPC), National Office for
Technology Acquisition and Promotion (NOTAP), Nigerian Copyright Commission (NCC),
Nigerian Customs Service, Central Bank of Nigeria (CBN), etc. You want to obtain the
necessary licence and comply with health and safety, environmental and other regulatory
obligations to avoid punitive liability.
9. REGISTER WITH THE TAX AUTHORITIES
The Federal Inland Revenue Service (FIRS) and State Board Internal Revenue are responsible
for the collection of corporate and personnel taxes, respectively. Every company, business name
or incorporated trustee must be registered with the FIRS and obtain Tax Identification Number
(TIN) and Value Added Tax (VAT) Number, and make and deliver to CAC the Annual Return in
prescribed forms within stipulated time. Filling of financial returns must be done within 18
months of incorporation/registration and must be completed and filed within 42 days after the
organization's Annual General Meeting. A financial year can in principle start on any given date.
There is criminal liability for tax default and evasion. You may request the services of a Solicitor
or accountant for information on taxation.
10. FIND A BUSINESS OR OFFICE LOCATION
If you are looking to acquire or lease a business or office location, a Solicitor can assist you on
available options. The acquisition and development of land in Nigeria are perfected at the state or
local government office where the land is situated. Approvals, assessments (including
environmental and structural assessment) and other regulatory requirements may differ between
state jurisdictions.
11. ISSUE EMPLOYMENT CONTRACTS

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Request the services of a Solicitor to prepare the employment contracts and work manual for
your staff (or addendums for your employees outside Nigeria) and comply with the requirements
under the Labour Act to avoid future legal liabilities.

12. PERFORM ADMINISTRATIVE OBLIGATIONS

You must submit annual accounts and tax returns to the Federal Inland Revenue Service (FIRS).
You must also file a statement of affairs or an annual return with the Corporate Affairs
Commission (CAC). You risk a fine if you miss deadlines or submit incorrect information. There
are a number of other statutory requirements. For example, there are obligations you must fulfil
under the Companies and Allied Matters Act, Labour Act, Insurance Act, Pension Reform Act
etc. An accredited Solicitor can advise you and help you perfect these administrative obligations
CAUSES OF BUSINESS FAILURE IN NIGERIA
1. Lack of proper marketing strategy: In every business, developing proper marketing
strategy is of utmost important. Because such strategy can put you on top of the game and
make you have competitive edge over your competitors. And it is through such marketing
strategy that you can increase sale and achieve the aims of your business.
2. Poor management: Poor management has been the major cause of business failure in
Nigeria. Any time business in manage by unskilled labour, such business cannot survive lest
alone to grow. This has been the situation in Nigeria. Where people who lack experience and
sound management competence are given leadership responsibility in business organization.
3. Poor funding: Poor funding has contributed to business failure in Nigeria. And has been one
of the major challenges facing businesses in Nigeria. There are some businesses with good
intention and vision that would have contributed to overall economy of Nigeria. But because
of lack of funds to finance the business, the business die and failed to achieve such laudable
objective.
4. Change of government policy: Change in government policy is another cause of business
failure in Nigeria. This happens particularly, where there is political instability. In this case,
there are some policies mage by the government that will not favour the business. But rather
affect the business adversely hence, the business will die. Look at a situation, where you are
into importation business peradventure. There is a policy made that banned the importation

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 of the product your business firm is dealing. Certainly, this policy will negatively affect the
business, and subsequently lead to the business death.
5. Bad economy: Unfavorable economic condition does affect businesses adversely. Such
condition comes with diverse economic problems that causes business failure. Many of these
problems include interest rate and exchange rate that is unbalanced. As a result, this has led
to high cost of goods and services hence, lessen the purchasing power.
6. Underrating competition: This is very crucial, and in most cases people do not consider. I
supposed, it is the reason why their businesses failed. You should not play game with your
competitors. Never take them for a joke. Otherwise they will move on top of the game, while
your business collapsed.
7. Lack of good customer care: It is very important that you make your customer care a
priority. A business with good customer care grows. Good customer care brings return
customers and return customers bring referral customers. If you do not treat your customer
well, they go to your competitors. Learn to show your customers that you appreciate them.
Always ask them questions about the product and offer them some percentage when they
give your product a review (either positive or negative review). If you are not close to your
customers, if you treat them like every other seller, they will only come when there is no
other option. Bad customer care has killed a lot of businesses.
8. Copying Others: What worked for Mr. Thomas may not work for Mr. Nathan. Many people
have gone into business or made a business choice because they see others doing it and think
they can be successful in it if they try. It is good you add your own idea after proper
consultation that will distinguish you from others. Copying without consultation leads to a
dead end.
9. Wrong location: Locating Tobacco Company in Zamfara state is a wrong location. It will
not sell because over 90 percent of people in Zamfara are moslems that don't smoke
cigarettes.
10. Not seeking professional advice: No matter how informed you feel you are, once you want
to start up a new line of business, it is pertinent that you seek professional advice. This will
help you ascertain whether or not the business is profitable as you thought. Most times,
entrepreneurs start up a business because they find others doing the business and profiting.
Yes, they might be profiting from the same business but there might be a secret behind the

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 success. It might be location, good customer service, knowing the right source to get raw
materials, etc.

PROBLEMS ASSOCIATED WITH THE NIGERIAN BUSINESS ENVIRONMENT

1. Access to Capital & Credit: One of the most difficult tasks, for any entrepreneur that wants
to start up their very own small business, is to raise capital for it. Simply put, capital is the
amount of money the business has available to spend on various business activities. Except
you’re one of the rich kids in the block, raising capital is never an easy task and often
requires a lot of determination and patience. Lack of financial capital is the single most
significant challenge when it comes to doing business in Nigeria.
2. Electricity / Power Supply: Getting access to constant electricity and a power supply is a
major concern for business in Nigeria. As of June 2018, an average household in Nigeria can
only have access to 6 hours uninterrupted power supply out of the 24 hours that exist in a
given day. This is why the use of generators as an alternative power source is so common in
Nigeria. Nine (9) of Ten (10) houses in Lagos State alone has at least one power generator as
an alternative source of power.
3. Corruption & Bribery: While Nigeria is among the world’s leading investment destinations
and is formally a well-functioning business environment, corruption and bribery are still
serious obstacles. The federal structure of the political system means there is a wide range of
regulatory agencies, which can lead to demands for bribes from public officials. In 2013,
Nigeria was ranked 14 most corrupt country in the world according to Transparency
International’s corruption perception index, and organized crime is a significant problem in
some parts of the country.
4. Insecurity: There is no investor who would want to put in millions of dollars in a country
where Kidnapping, Robbery, Terrorists and Religious extremism is on the increase with the
security officials having a total disregard for the law.
5. Very Poor Road Network: When you are traveling in Nigeria, you will keep praying
because that is what We Africans believe in so much. We will not do what is right and hope
on God to do it for us. How can you produce products and transport them across the country

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 with such road networks? Some of the big vehicles such as trucks often have accidents and
fall due to these poor roads.
6. Poor Transport system: Transporting goods from one state to another in bulk can be very
high. You will spend hundreds of thousands of naira just to transport a truck of yams and
people cannot afford it when you decide to sell at a price that will help you to recover your
expenses. This cannot encourage any entrepreneur to start a business in Nigeria.
7. Corruption and lack of respect for the rule of law: This is very common that people see it
as normal to an extent that they demand for it with boldness. I recently caught a thief trying
to steal from my compound and when I took him to the police station, they were demanding
for money for bringing him to the station. The asked me to pay for transporting the thief to
the next police station because they cannot handle the case in the smaller station; at the
bigger station, I was asked to pay to transport the thief to the court; I got fade up and I left
them with the thief there. They were not ready to do what they are paid to do but were
willing to collect my money. In some offices, you cannot win a contract based on
competence unless you pay your way; in fact even when you are due for promotion, you
cannot be promoted unless you pay your way. There are many of these instances of
corruption in Nigeria that has become a norm to many.
8. Poor Government Policies: The Central bank of Nigeria (CBN) gave an order that you must
have a Permanent National ID Card or Voters card or International Passport or Driver’s
license before you are allowed to open a Domiciliary Account in Nigeria. When you register
for a National ID card, it will take more than 4 years for you to receive the permanent one. I
did mine in 2019, but it is still not ready till now. The CBN knows of this delayance in
obtaining National ID Card but still insist in using the permanent ID card for opening a
domiciliary account. If you were doing any business internationally, it means you have to
wait pending when you obtain the ID Card. This is just one aspect of poor government
policies.
9. Lack of Enabling Environment and Infrastructure: The Nigerian business environment
lacks basic social amenities and infrastructural facilities that aid business development and
survival. For example, if an investor intends to start or set up a production firm, he or she
will find out that they need to provide their building, water supply, logistics and other
amenities needed

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10. Poor Accessibility of Funds: Finance and funding is a major aspect of setting-up and
running a business. Money is needed to buy materials, supplies, equipment, pay staffs and
lots more. In the country, funding is also part of the problems especially if an entrepreneur
does not have enough money to kick-start the business which occurs mostly in a one-man
business. Financial institutions (including banking and non-banking) that could help
investors have so much increased their interest percentage on available loans, thereby
become affordable for companies.
CONSEQUENCES OF BUSINESS FAILURE IN NIGERIA
1. Unemployment: The immediate effect of small scale business failure is unemployment and
poverty. There will be loss of jobs which might result to social problems to most citizens (the
entrepreneurs and dependents) and industrial peace and co-operation will be threatened.
2. Social Vices: The loss of jobs causes social problems to millions of people and as such,
societal peace and harmony will be threatened as vices will be on the increase. This is one of
the major causes of armed robbery, kidnapping, duping, hired killing and other evil
perpetrated in Nigeria, all in quest to get money. However, if these youths are gainfully
employed, they will not be used this way since they will always be busy going about their
business.
3. Economic Wastages: This is a national loss in terms of capacity wastage, idle inventory, loss
of revenue to office machineries, equipment and building as they will face rust and
deterioration and cause set back to developmental activities.
4. Financial Institutions Suffers Set Back: The financial institutions face losses as they don’t
get repayment of loans and interest on loans when these businesses fail. The recovery process
will be very long procedure oriented and problematic. The cash deposits they would have
gotten from the business will be cut short.
5. Employees Loss of Morale and confidence: The employees get disoriented and normally
loss their bargaining power wherever they go in search of jobs. It is difficult to dilute the
demoralization of the employees.
6. Scarcity of Raw Materials: The large companies will suffer because they depend on small
scale businesses to get raw materials and other necessary materials used in further
production. This may in turn slow down the economic activities of the nation.

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7. Reduced National income: The national income will also be affected because the number of
tax payers will reduce due to retrenchment of workers in small scale business as well as the
number of proprietors paying direct tax.
8. Rural urban migration will be encouraged as youths will look for survival: Most times
this movement encourages some social vices therefore jeopardizing or endangering lives of
poor citizens.
SOLUTIONS TO BUSINESS FAILURE IN NIGERIA
1. Value your customers: Have you ever heard this saying –the customer is king-? Well, it is
true. The customer determines the profit margin of your business. A satisfied customer
recommends your services to other people who in turn will patronize you. A dissatisfied
customer, on the other hand, will dissuade others from buying your goods or employing your
services. Therefore, it is vital you appreciate and maintain a cordial relationship with your
customers. Occasional discounts and gifts during festivities will go a long way in making
them feel appreciated. Also, it is recommended that you be friendly and courteous to every
customer, irrespective of class.
2. Have a marketing strategy that works: Every business requires marketing, no matter how
small it may be. The size of the business determines what kind of marketing or advertising is
necessary. An international business or brand would require nationwide marketing and
international marketing as well. A small-scale business may require a simpler marketing
strategy such as advertising in church brochures and the use of word-of-mouth.
3. Plan ahead for the unexpected: Things happen and there is only so much one can control.
So, always make room for exigencies. Save up for the rainy day. Keep some money aside for
the future, in case the economy crashes, prices sky rocket or you want to expand your
business. Make plans for eventualities, be them positive or negative.
4. Study your competitors: When people hear the word competition, they shrink in fear.
Competition should not connote negative meanings to entrepreneurs. Rather, business people
should be spurred on to push beyond their limits and aim for higher goals. Rivalry helps
people see what standards have been set and compete with such standards. It also lets them
work harder to surpass the competitors. Instead of being afraid of or mad at the competition,
learn from it and improve on their best.

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5. Hire the right staff: Never skimp on quality when hiring staff for your business. Do not
employ someone who is unqualified for a position, because you want to save a few Naira. It
will cost you more in the long run. The business is your idea and members of staff are the
executors of your brainchild or your dream. There must therefore make conscious effort to
employ the very best hands to bring your dream to fruition. Each member of staff must be
suitable for the position offered. He/she must have some experience or be a quick learner, in
order to move the business forward. Choosing your staff right may well be a solution to
business failure in Nigeria.
6. Keep records of every business activity: In the beginning of most businesses, entrepreneurs
keep financial records. However, as the euphoria wears off, they stop being diligent about
their records. This should not be the case. It is important to document the transactions that
occur in the life of a business. Records show the history of a business, progress made,
failures encountered, fluctuation in prices and profit or loss recorded.
7. Avoid huge debts or loans: When starting any business or even in the lifespan of a business,
it is wise to steer clear of heavy loans which may weigh down the business. Loans require
collateral and have a percentage interest and a fixed time for repayment. Yes, loans are meant
to boost a business. However, it would not be in your best interest to take a large loan,
especially when the business has not begun raking in huge profits. Inability to pay back a
loan used as capital for your business is simply one of the symptoms of business failure in
Nigeria. The first few years of any business are usually the most difficult because the
entrepreneur is trying to lay a foundation and get a place among people in the same niche.
This is certainly not the time to take on more than necessary.
8. Do SWOT analysis regularly: In any business, it is very important to do a SWOT (strength,
weakness, opportunity and threat) analysis. This assessment reveals the strong points of a
business, its weaknesses, opportunities that abound in the business and things that pose a
threat to the business. This analysis should be carried out regularly. Frequent SWOT test will
let the entrepreneur know if the business has increased in strength or there are more threats to
the business. It would also help determine if opportunities are being utilized to the fullest.
9. Go for training and retraining: Every member of any given business must go for training
and retraining often. The business owner and every other staff should be trained on various

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areas of making a business succeed. Refresher courses should also be given from time to
time, to ensure that grey areas are made crystal clear.

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