Jul 7, 2016

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.


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:

1.     Payment of a non-refundable application for consent fee.

2.     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.

4.     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

6.     Updated annual returns of all associate companies.

7.     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.

9. Evidence of compliance with S.553 CAMA 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.
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:

1.     Payment of non-refundable application for consent fee.

2.     Formal application for consent to use the word ‘Holding’.

3.     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.

5.     Evidence of updated annual returns of all subsidiary companies

6.     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.

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.

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:

1.     Payment of non-refundable application for consent fee.
2.     Formal application for consent to use the word ‘Consortium’.
3.     Evidence of not less than 3 companies forming the consortium.
4.     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.
6.     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.
8.     Inclusion of a clause to wind up the consortium in the articles of association.
9.     Evidence of updated annual returns of component companies
10.                        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.
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.

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.

*Please note that adequate 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.
 

 Ed’s Note: This article was originally posted here.
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3 comments:

  1. I want to start a holding company but I want to register it first. Which of the three options(register a company, register a business name or incorporate trustee) should I register under. The company will be private for now and how do I register other subsidiaries under the holding company.

    ReplyDelete
  2. I want to start a holding company but I want to register it first. Which of the three options(register a company, register a business name or incorporate trustee) should I register under. The company will be private for now and how do I register other subsidiaries under the holding company.

    ReplyDelete
  3. Thank you for your comment Charles. Apologies for the delayed response. Only got to see this today. Please be informed that you can only register a company limited by shares (LLC) for what you want to achieve. Kindly contact a professional for the service of registration for holding company for proper guidance. The articles already gives you an idea of what you need. Hope this helps.

    ReplyDelete

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