Company Law, Labour

SMEs In Nigeria: Legal Framework, Incentives And Restrains

Introduction

SMEs is simply an abbreviation for Small and Medium Enterprises, it is also sometimes referred to as MSMEs (Micro, Small and Medium Enterprises). This abbreviation is widely used by international organizations such as World Trade Organization, World Bank, among others.

According to the Financial System Strategy 2020 International Conference, “SMEs are a very important part of the Nigerian Economy”, In Nigeria, SMEs contribute 48% of national GDP, account for 96% of businesses and 84% of employment, 50% percent of industrial jobs and nearly 90% of the manufacturing sector, this figures is according to the Nigerian Bureau of Statistics.


The SMEDAN National Survey conducted in 2017 pegged the existing SMEs in Nigeria at 41.5 million.
According to the Central Bank of Nigeria, SMEs are basically businesses with turnover of less than 100 million per annum and/ less than 300 employees.

Legal Frameworks
The primary legal framework for the regulation of businesses and companies in Nigeria is the Companies and Allied Matters Act(CAMA).
Part B of the CAMA cover incorporated companies.
Part E of the CAMA deals with Business Names and Part F covers Incorporated Trustees.
SMEs may opt to be duly incorporated companies or have registered business names.
In reality, most SMEs in Nigeria are registered as business names under Part E of the CAMA because it is easy, less expensive and simply more convenient to register.

Business names do not require share capital, stamp duty or special taxes as the personal income tax of the proprietor or business owner suffices, however business names do not confer any legal personality on the registered business, the proprietor(s) can be sued in their own name in any legal action involving the business.
An SME opting to be duly incorporated as a company must fulfill the requirements contained in S.18 of the Companies and Allied Matters Act.

The Investment and Securities Act is another fundamental law regulating SMEs in Nigeria.
It protects investments and investors, sets standards for Capital Market Operators, empowers the Securities and Exchange Commission(a regulatory body established under the Act) to penalize SMEs carrying out illegal capital market operations.

The Standard Organization of Nigeria Act is also an important law regulating SMEs in Nigeria. It established the Standard Organization of Nigeria(SON) S.1 Standard Organization of Nigeria Act 2015, a body corporate vested with the powers to monitor products made by manufacturers including SMEs in order to ensure optimum quality is delivered to consumers/clients. The SON is also vested with the powers to prevent counterfeiting of products of SMEs.
Other legal frameworks include, The Federal High Court Act, Factories Act, Banks and Other Financial Institutions Act.

Existing Incentives For SMEs In Nigeria
Agricultural Sector:
◦ Full Tax Exemption for agro companies with small to zero profit.
◦ 100% tax free period for five years for processors of agricultural produce.
◦ 100% capital allowance on all agro and agro allied companies.
◦ Agricultural Credit Guarantee Scheme Fund administered by the Central Bank of Nigeria for agricultural production and processing.
◦ 1% duty on all agricultural and agro industrial machines/equipments.


Manufacturing Sector:
◦ Tax free dividend for first five years of operation for manufacturing companies with turnover of less than 1million.
◦ 20% tax rent for first five years of operation for companies with turnover of less than 1 million.


Pioneer Status:
It is a five year tax exemption granted to qualified industries within Nigeria. It is also granted for seven years to companies located at disadvantaged locations within the country.
Industries qualified for pioneer status are; real estate development and utilities, pharmaceutical, cement manufacturers, rubber plantations and manufacturing industries, solar energy powered equipments and gadgets industries,maintenance of aircraft industries.


These companies must submit applications for pioneer status within one year of commercial production otherwise they would be ineligible for grant of pioneer status.
Companies applying for grant of pioneer status must also have a minimum share capital of 10 million naira and must have incurred a capital expenditure of at least 5 million naira.

Federal Government of Nigeria Special Intervention Fund for MSMEs(Micro Small and Medium Enterprises):
The fund is a Federal Government of Nigeria initiative to provide subsidized loans to MSMEs at 9% per annum all inclusive interest rates.

Other sectors with incentives include; Petroleum sector, Solid Minerals sector,Telecommunications sector, Tourism sector etc.

Existing Restraints On Growth Of SMEs In Nigeria
◦ Poor/weak enforcement of existing legal frameworks.
◦ Non existent risk management structure:
SMEs are not immune to the unavoidable negative occurrences that plague daily living, occurrences like fire outbreaks, vandalism, flood etc. The lack of an insurance cover to mitigate the hardship caused by these occurrences has posed a big problem for SMEs in Nigeria.
◦ Lack of access to funding opportunities including loans, government grants etc.

Reference
www.cbn.gov.ng
Https://ioclaw.com
www.mondaq.com
www.nature.com
www.sme360.ng

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About Gift Odama

Gift Odama is a barrister and solicitor of the Supreme Court of Nigeria. She had her Law School education in the Nigerian Law School, Lagos Campus and is an alumnus of the University of Calabar. She also has an insight level certification from the Mediator’s Academy UK. Gift is interested in Human Rights Advocacy, is passionate about Women’s Rights and is involved in legal and non legal research. She is currently undergoing the mandatory National Youth Service with the Federal Ministry of Niger Delta Affairs. Gift can be reached via email at giftukehodama@gmail.com and is on LinkedIn as Gift Odama.