The formation of Group Company, Holding Company and Consortium in Nigeria
By: Teingo Inko-Tariah
Introduction
There are certain business
structures that could be created to foster easier operations and management, or
to accomplish some other agreed specific purpose. Businesses can be structured
in the form of a group, holding or consortium to achieve the aforementioned
goals. It is imperative to note here that a single company cannot be structured
using any of these methods because there must be a minimum of two companies in
existence before any of these structures can be adopted. The procedure for
registration of each of these will now be considered in turn.
structures that could be created to foster easier operations and management, or
to accomplish some other agreed specific purpose. Businesses can be structured
in the form of a group, holding or consortium to achieve the aforementioned
goals. It is imperative to note here that a single company cannot be structured
using any of these methods because there must be a minimum of two companies in
existence before any of these structures can be adopted. The procedure for
registration of each of these will now be considered in turn.
Group of Companies
A group of companies
comprises of a minimum of three companies that all have common shareholders and
similar names. These companies will in turn become the shareholders of the
Group Company. An example of a Group Company in Nigeria is Dangote Group.
Its associate companies include Dangote Sugar, Dangote Flour, & Dangote
Cement. The law prohibits the use of the word ‘Group’ in the name of a company.
Accordingly, appropriate consent must be obtained from the Registrar-General of
the Corporate Affairs Commission (CAC) before the word can be used. Before
consent can be obtained to use the word ‘Group’ in the name of a company, the
following requirements must be met in the process of registration of a Group
Company:
comprises of a minimum of three companies that all have common shareholders and
similar names. These companies will in turn become the shareholders of the
Group Company. An example of a Group Company in Nigeria is Dangote Group.
Its associate companies include Dangote Sugar, Dangote Flour, & Dangote
Cement. The law prohibits the use of the word ‘Group’ in the name of a company.
Accordingly, appropriate consent must be obtained from the Registrar-General of
the Corporate Affairs Commission (CAC) before the word can be used. Before
consent can be obtained to use the word ‘Group’ in the name of a company, the
following requirements must be met in the process of registration of a Group
Company:
1.
Payment of a non-refundable application for
consent fee.
Payment of a non-refundable application for
consent fee.
2.
Formal application for consent to use the
word ‘Group’.
Formal application for consent to use the
word ‘Group’.
3.
Evidence of not less than three associate
companies to form the proposed Group company which will be a distinct entity.
Evidence of not less than three associate
companies to form the proposed Group company which will be a distinct entity.
4.
Similar names of associate companies and
evidence of similar ownership or shareholdings of the associate companies.
Similar names of associate companies and
evidence of similar ownership or shareholdings of the associate companies.
5.
Resolution of the associate companies
indicating consent to the ‘Group’ relationship
Resolution of the associate companies
indicating consent to the ‘Group’ relationship
6.
Updated annual returns of all associate
companies.
Updated annual returns of all associate
companies.
7.
Evidence of Company secretary of associate
companies.
Evidence of Company secretary of associate
companies.
8. Statement by the majority of the directors
of the proposed Group company that the share capital shall not be less than the
highest share capital amongst the associate companies. For an illustration of
this point, let us assume that there are 4 associate companies as follows:
Divine Nigeria Limited with share capital of N1m, Divine Farms Ltd with share
capital of N1m, Divine Global Resources Ltd with share capital of N2m and
Divine Travels Ltd with share capital of N5m. The share capital of the Group –
Divine Group of companies cannot be less than N5m.
of the proposed Group company that the share capital shall not be less than the
highest share capital amongst the associate companies. For an illustration of
this point, let us assume that there are 4 associate companies as follows:
Divine Nigeria Limited with share capital of N1m, Divine Farms Ltd with share
capital of N1m, Divine Global Resources Ltd with share capital of N2m and
Divine Travels Ltd with share capital of N5m. The share capital of the Group –
Divine Group of companies cannot be less than N5m.
9. Evidence of compliance with S.553 CAMA
where applicable. This applies to banks, insurance firms, deposit, provident or
benefit societies.
where applicable. This applies to banks, insurance firms, deposit, provident or
benefit societies.
10.
After consent is successfully obtained for
the use of the word ‘Group’, the new entity which is the Parent/Group Company
can then be registered in accordance with the usual company registration
procedure.
After consent is successfully obtained for
the use of the word ‘Group’, the new entity which is the Parent/Group Company
can then be registered in accordance with the usual company registration
procedure.
Holding Company
A holding company is a
parent company that has more than half (50%) of the shares in another company
in order to control its policies and management. The main purpose of holding
company is to control the ‘daughter’ company. Where the parent company owns
100% of the shares of a daughter company, it is called a ‘wholly owned
subsidiary’. An example of a Holding company in Nigeria is First Bank
Holding Company Nigeria Plc. The subsidiaries include FBN Bank (UK) Ltd,
FBN Bank Ghana, FBN Bank Guinea, & FBN Merchant Bank. Like the Group
company, the law also prohibits the use of the word ‘Holding’. Accordingly,
requisite consent must be obtained from the Registrar-General of the CAC before
the word can be included in the name of a company. The procedure for
registration of a holding company is as follows:
parent company that has more than half (50%) of the shares in another company
in order to control its policies and management. The main purpose of holding
company is to control the ‘daughter’ company. Where the parent company owns
100% of the shares of a daughter company, it is called a ‘wholly owned
subsidiary’. An example of a Holding company in Nigeria is First Bank
Holding Company Nigeria Plc. The subsidiaries include FBN Bank (UK) Ltd,
FBN Bank Ghana, FBN Bank Guinea, & FBN Merchant Bank. Like the Group
company, the law also prohibits the use of the word ‘Holding’. Accordingly,
requisite consent must be obtained from the Registrar-General of the CAC before
the word can be included in the name of a company. The procedure for
registration of a holding company is as follows:
1.
Payment of non-refundable application for
consent fee.
Payment of non-refundable application for
consent fee.
2.
Formal application for consent to use the
word ‘Holding’.
Formal application for consent to use the
word ‘Holding’.
3.
Evidence of not less than 2 subsidiary
companies.
Evidence of not less than 2 subsidiary
companies.
4.
Statement by majority of the directors of
the proposed holding company that the company shall acquire more than half in
the nominal value of the share capital of each of the subsidiaries within 90
days of incorporation.
Statement by majority of the directors of
the proposed holding company that the company shall acquire more than half in
the nominal value of the share capital of each of the subsidiaries within 90
days of incorporation.
5.
Evidence of updated annual returns of all
subsidiary companies
Evidence of updated annual returns of all
subsidiary companies
6.
Evidence of appointment of company
secretary of each subsidiary company.
Evidence of appointment of company
secretary of each subsidiary company.
7.
Evidence of compliance with S.553 CAMA
where applicable. This applies to banks, insurance firms, deposit, provident or
benefit societies.
Evidence of compliance with S.553 CAMA
where applicable. This applies to banks, insurance firms, deposit, provident or
benefit societies.
8.
After consent is successfully obtained for
the use of the word ‘Holding’, the new entity which is the parent company can
then be registered in accordance with the usual company registration procedure.
After consent is successfully obtained for
the use of the word ‘Holding’, the new entity which is the parent company can
then be registered in accordance with the usual company registration procedure.
Consortium
A consortium refers to a
corporate entity composed of different companies that agree to collaborate for
the achievement of certain agreed objectives. Each component entity is only
responsible to the consortium to the extent of its obligations as set out in
the consortium agreement. Thus the component entities are independent and can
carry on their normal operations without interference so long as it has nothing
to do with the operations related to the consortium. An example of a consortium
in Nigeria is 4power Consortium which comprises of Taleveras Group of
Companies Ltd, Paradise Powers Nig. Ltd, Bayelsa Electricity Company Ltd,
Skyview Power Technologies Ltd etc. 4Power Consortium has majority ownership in
Port-Harcourt Electricity Distribution Company (PHEDC). Again, like the case of
‘Group’ and ‘Holding’, the word ‘Consortium’ is also prohibited and so requires
consent of the Registrar General of CAC before the word can be used as part of
the name of a company. The procedure for consent is the first step in the
registration of a consortium and this requires:
corporate entity composed of different companies that agree to collaborate for
the achievement of certain agreed objectives. Each component entity is only
responsible to the consortium to the extent of its obligations as set out in
the consortium agreement. Thus the component entities are independent and can
carry on their normal operations without interference so long as it has nothing
to do with the operations related to the consortium. An example of a consortium
in Nigeria is 4power Consortium which comprises of Taleveras Group of
Companies Ltd, Paradise Powers Nig. Ltd, Bayelsa Electricity Company Ltd,
Skyview Power Technologies Ltd etc. 4Power Consortium has majority ownership in
Port-Harcourt Electricity Distribution Company (PHEDC). Again, like the case of
‘Group’ and ‘Holding’, the word ‘Consortium’ is also prohibited and so requires
consent of the Registrar General of CAC before the word can be used as part of
the name of a company. The procedure for consent is the first step in the
registration of a consortium and this requires:
1.
Payment of non-refundable application for
consent fee.
Payment of non-refundable application for
consent fee.
2.
Formal application for consent to use the
word ‘Consortium’.
Formal application for consent to use the
word ‘Consortium’.
3.
Evidence of not less than 3 companies
forming the consortium.
Evidence of not less than 3 companies
forming the consortium.
4.
Evidence of registration in home country,
in the case of a foreign company
Evidence of registration in home country,
in the case of a foreign company
5.
Resolution of each company in the
consortium indicating consent to the consortium arrangement and stating the
object of the consortium.
Resolution of each company in the
consortium indicating consent to the consortium arrangement and stating the
object of the consortium.
6.
Statutory declaration to wind up the
consortium in accordance with the provision of CAMA upon completion of the
object of the consortium.
Statutory declaration to wind up the
consortium in accordance with the provision of CAMA upon completion of the
object of the consortium.
7.
Statement of the object of the consortium
in the memorandum of association.
Statement of the object of the consortium
in the memorandum of association.
8.
Inclusion of a clause to wind up the
consortium in the articles of association.
Inclusion of a clause to wind up the
consortium in the articles of association.
9.
Evidence of updated annual returns of
component companies
Evidence of updated annual returns of
component companies
10.
Evidence of appointment of company
secretary of component companies.
Evidence of appointment of company
secretary of component companies.
11.
Evidence of compliance with S.553 CAMA
where applicable. This applies to banks, insurance firms, deposit, provident or
benefit societies.
Evidence of compliance with S.553 CAMA
where applicable. This applies to banks, insurance firms, deposit, provident or
benefit societies.
12.
After consent is successfully obtained for
the use of the word ‘Consortium’, the new entity which is the parent company
can then be registered in accordance with the usual company registration
procedure.
After consent is successfully obtained for
the use of the word ‘Consortium’, the new entity which is the parent company
can then be registered in accordance with the usual company registration
procedure.
Conclusion
The type of structure to
be adopted is based on the purpose sought to be achieved. Business owners,
promoters and entrepreneurs need to consider which of the structures above best
addresses the need. It should not be seen as a status affair to boast of owning
a group of companies as the registration of an additional company brings with
it additional compliance obligations and thus the formation ought to be
justified.
be adopted is based on the purpose sought to be achieved. Business owners,
promoters and entrepreneurs need to consider which of the structures above best
addresses the need. It should not be seen as a status affair to boast of owning
a group of companies as the registration of an additional company brings with
it additional compliance obligations and thus the formation ought to be
justified.
*Please note that adequate
professional guidance should be sought as this does not constitute legal
advice and is solely for enlightenment purposes.
professional guidance should be sought as this does not constitute legal
advice and is solely for enlightenment purposes.
Teingo Inko-Tariah
Teingo Inko-Tariah is
a Corporate Governance & Anti-money laundering practitioner as well as
a consumer protection enthusiast. She is a Partner at Accord
Legal, a law firm based in Port-Harcourt, Nigeria.
a Corporate Governance & Anti-money laundering practitioner as well as
a consumer protection enthusiast. She is a Partner at Accord
Legal, a law firm based in Port-Harcourt, Nigeria.
Ed’s Note: This article was originally posted here.
