Case: KUNSHAN INT’L LTD & ANOR v. MANLAY HOLDINGS LTD & ORS
The Court of Appeal clarified a critical distinction between owning shares in a Nigerian company and carrying on business in Nigeria.
The Court held that a foreign company does not become a company carrying on business in Nigeria merely because it:
- Incorporates or co-founds a Nigerian company;
- Holds shares in a Nigerian company; or
- Invests in a Nigerian company that carries on business in Nigeria.
This is because a company, once incorporated, acquires a separate legal personality distinct from its shareholders. Therefore, the business carried on by the Nigerian company remains the business of that Nigerian company and not the business of its foreign shareholders.
Accordingly, a foreign company that only participates as a shareholder in a Nigerian-incorporated company is not in breach of CAMA and is not required to register in Nigeria merely on account of that shareholding.
Key Principle
Ownership of shares in a Nigerian company does not amount to carrying on business in Nigeria for the purpose of CAMA.
The Court reaffirmed that the doctrine of separate corporate personality established in Salomon v. Salomon & Co Ltd remains applicable. The activities of a Nigerian subsidiary or joint venture company cannot automatically be attributed to its foreign shareholders.
Practical Implications
For Foreign Investors. A foreign investor may:
- Invest in a Nigerian company;
- Hold majority or minority shares;
- Form a joint venture with Nigerian investors; and
- Earn dividends from the Nigerian company,
without necessarily being regarded as carrying on business in Nigeria.
For Lawyers and Compliance Professionals
Before alleging that a foreign company is violating the provisions of CAMA, determine whether the foreign company is:
- Directly conducting business operations in Nigeria;
- Entering contracts in its own name within Nigeria;
- Maintaining a business presence in Nigeria; or
- Engaged in a continuous commercial activity in Nigeria.
If the foreign company’s only connection to Nigeria is shareholding in a Nigerian-incorporated company, the relevant provision of CAMA may not apply.
Practice Point
Do not confuse investment with business operations.
The proper question is not whether the foreign company owns shares in a Nigerian company, but whether the foreign company itself is carrying on business in Nigeria as a continuous commercial undertaking. Where the business is being carried on by a separately incorporated Nigerian company, the Nigerian company not its foreign shareholder is the entity carrying on business.
Takeaway
Before invoking CAMA against a foreign investor, verify that the investor is conducting business in Nigeria directly. Mere share ownership, even majority ownership, in a Nigerian company does not constitute carrying on business in Nigeria.