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Legal Requirements For Entrepreneurs When Starting A Business

Legal Requirements

For entrepreneurs, starting a business requires planning, making key financial decisions, and completing a series of legal activities. There are legal requirements that entrepreneurs must complete when starting a business in Nigeria.

See Also: Top legal documents every entrepreneur and start-up should have.

Most entrepreneurs are unaware of the legal requirements required by the law when starting a business in Nigeria. This ignorance results in either closure of their business or a threat of legal action. The law is the law and entrepreneurs must comply with the law when starting their business or face the consequences. Ignorance is not an excuse.

Start Your Business in 30 Days Even If You Don't Have An Idea
Start Your Business in 30 Days Even If You Don’t Have An Idea

See Also: Understanding the different legal business structures

The law state the legal requirements which an entrepreneur is required to obtain when commencing a business. These legal requirements include the necessary permits, licenses, tax registration numbers, insurance policy, labor laws requirements, etc.

In this article, we will list and explain the legal requirements businesses and entrepreneurs must fulfill when starting their businesses.

See Also: 100 Profitable business ideas to start now for aspiring entrepreneurs and investors.

Legal Requirements When Starting A Business

Business Registration

This legal requirement isn’t compulsory for an entrepreneur(s) to obtain when starting a business but it’s important. The Companies and Allied Matters provide for different companies that an entrepreneur can register to carry out his business.

The recommended structure for entrepreneurs is a private company limited by shares (private limited liability company). It’s registered by at least two people with a minimum share capital of N500,000 (Five Hundred thousand Naira).

See Also: Factors to consider before choosing a legal structure for your business.

The Company and Allied Matters Act do not require that the share capital be fully paid before the business starts. However, an entrepreneur who does not have the resource to register as a company can register as a business name.

A business name certificate is a requirement in obtaining documents, licenses, and permits from the government or private organizations on behalf of the business.

A new business intending to operate as a partnership cannot be registered under the current regulatory framework of the Company and Allied Matters Act.

See Also: Benefits of registering your business with Corporate affairs commission.

However, certain states as Lagos state provide for a Partnership Law. So, a new business intending to operate as a partnership in Lagos State may register the intended partnership.

Registration of a new business gives it the additional benefit of being eligible for certain tax and investment incentives under the appropriate law.

You can register your business directly on the Corporate Affairs Commission website or hire the services of ReDahlia. ReDahlia is a brand dedicated to providing solutions to entrepreneurs.

Registration Of The Company With The Nigeria Investment Promotion Commission (NIPC)

Go from idea to starting your business in 30 days
Go from idea to starting your business in 30 days

This legal requirement is required of a company or business with foreign participation. NIPC is the statutory body responsible for the promotion of foreign investment in Nigeria.

Businesses/Companies with any foreign participation are required under Section 20 of the NIPC Act to register with them and obtain the commission certificate of registration.

The major requirement in carrying out such registration is the company’s incorporation documents. Additional requirements include the nature of the business and details as to capital importation.

See Also: Networking tips to build and grow your business network.

Tax Requirements

One important legal requirement required of entrepreneurs when starting a business is compliance with tax regulations. New Businesses are required to register with the Federal Inland Revenue Service for Tax Clearance Certificates, Tax Identification, and Value Added Tax Numbers.

This registration would enable the new business to remit its required taxes to the proper authority. These taxes include company income tax, (personal income tax for a sole proprietor or business name), value-added tax, withholding tax, personal income tax of employees, tertiary education tax, and information technology tax.  

However, in practice, a new business upon registration with the Corporate Affairs Commission is immediately assigned TIN, TCC, and VAT Numbers.

Obtaining A Business Permit From The Ministry Of Interior

Businesses wholly owned by foreigners are required to apply for a business permit from the Ministry of Interior. But, a business with a partly foreign investment need not apply for this permit.

Statutory Licenses

New businesses intending to operate in certain sectors are required to obtain permits or licenses from the regulatory body in that sector before it can commence business within that sector.

These sectors include banking, insurance, capital markets (stockbroking), medicine, telecommunications, etc. For instance, a business intending to carry out the business of the provision of telecommunication services is required to obtain a license from the Nigeria Telecommunication Commission (NCC).

Failure by a business to obtain such permits before commencing operations attract serious penalties from the regulatory body as specified in the law establishing it.

See Also: How to start a successful photography business in Nigeria.

Intellectual Property Registration

It is important that new businesses with authentic creative work or design or logo or an invention or all of these which is exclusive to the goods and services they intend to provide, register it.

Registration aids the business to protect the intellectual property from infringement. Also, it prevents the business from infringing on another intellectual property. It gives the business unfettered rights to the use of its intellectual property.

In Nigeria, three types of intellectual property are recognized; copyrights, patents, and trademarks.

Copyrights are creative works such as literary works, artworks, musical works, artistic works, etc. The primary piece of legislation governing the registration of copyrights is the Copyright Act. The body charged with the enforcement of this act is the Nigeria Copyrights Commission.

Patents are innovations mostly related to technology while trademarks are graphic designs, logos, signs, and phrases. Trademarks are often used in creating a business brand. Patents are registered under the Patents Acts while Trademarks are registered under the Trademarks Act. 


Entrepreneurs often view insurance as an additional cost when setting up a business. It is frequently used only in the protection of the fixed assets of the business. However, certain unforeseen risks may arise when carrying out business operations. Hence, the business should be protected when such unforeseeable risks arise. Therefore, the need to take out insurance for the business.

Under the law, not all businesses are mandated to take out insurance. Only businesses with high risky ventures are mandated to. These businesses include marine business, transport, and logistics, aviation, health, construction, real estate, etc. Failure to take out such insurance may result in the seizure of the business license or permit or fine or imprisonment.

Also, the law mandates businesses to take out insurance for the protection of their employees. Section 4(4) of The Pension Reform Act of 2014 makes it mandatory for employers to maintain a Group Life Insurance policy in favor of every employee for a minimum of three times the annual total pay of the employee.

Where an employer fails to do so, he must make arrangements to make the payment of such claims arising in the event of the death of its staff during such a period.

See Also: Payroll management tips for entrepreneurs and small business owners. 

Compliance With Labor Laws

In starting a new business, entrepreneurs are required to be compliant with labor laws pertinent to their employees. Entrepreneurs in procuring labor are to ensure that the terms of such procurement are in line with the Labor Act. 

Also, entrepreneurs are required under the Employee’s Compensation Act to make a minimum contribution of 1% of the total monthly payroll of their employees to the Employee Compensation Fund. This fund was set up to provide compensation for employees or their dependents in the event of injury, diseases, or disability which occurred during employment.

See Also: Step by step guide on how to start producing your own podcast.

In addition, entrepreneurs are also mandated to make regular contributions to the pension schemes of its employees under the Pensions Reform Act. Furthermore, a new business owned by foreigners is required to be compliant with the Local Content Act when procuring labor.

These legal requirements stated above are generally applicable to new businesses intending to conduct business in any sector of the economy.

However, certain sectors of the economy have their specific legal requirements before one can commence business in that sector, in addition to these requirements. So, ensure you do your due diligence before starting your business.

Certain of these legal requirements are not mandatory but they are important in establishing a legal identity for the business in the growing economy. Also, they protect the business and make it easy to conduct business.

To generate more sales and revenue, you need visibility. This is what we offer businesses at Entrepreneurs.ng. Contact us today to put your business on the world map.

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