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Introduction

At Independence from British Colonial Rule in 1960, and until the establishment of the Central Bank of Nigeria (“CBN”), foreign currencies earned by exporters, most of who dealt in agricultural produce, were retained in Foreign Bank Accounts with the Nigerian Pound tied at par to the British Pound Sterling, thus ensuring easy currency convertibility.

With the discovery of crude oil, the establishment of the CBN, the “shock” fall in crude oil prices, etc. the Exchange Control Act was enacted to restrict and require both Importers and Exporters to possess a Licence before they could participate in the Foreign Exchange Market (“the FX Market”).

Exchange Controls were discarded in 1986 with the second-tier Foreign Exchange Market introduced in its place, to enable the FX Market evolve its own market-driven, transparent and robust foreign exchange rate mechanism.

Foreign Exchange Policy reversals continued in 1987 with the merger of the first and second-tier FX Markets. In 1992, the Nigerian Currency, the Naira, was completely floated in the FX Market. In 1994, the Naira exchange rate was formally pegged to that of the US Dollar, with the centralisation of foreign exchange regulations with the CBN; restrictions on Bureau de Change dealing in the FX Market; the reaffirmation of the illegality of the Parallel Black Market; etc. The latter are but some of the frequent policy reversals that the FX Market has experienced.

The constant Foreign Exchange Policy reversals led in 1995 to the establishment of the Autonomous Foreign Exchange Market (“AFEM”) with some guided deregulation introduced into the FX Market. AFEM Metamorphosed in 1999 into a daily two-way Quote Inter-Bank Foreign Exchange Market.

Unfortunately, the Foreign Exchange Market in Nigeria continues to be unstable. An examination of the enabling legislation that regulates transactions in the FX Market is therefore necessary to enable you have a better appreciation of how the Foreign Exchange Market is expected to function under Nigerian Law. 

The Foreign Exchange (Monitoring & Miscellaneous Provisions) Act, 1995

The Foreign Exchange (Monitoring & Miscellaneous Provisions) Act 1995 established the Autonomous, Independent Foreign Exchange Market, with a charge to the Central Bank of Nigeria (“CBN”) to regulate foreign exchange transactions in the FX Market. Also, with the approval of the Minister of Finance, the CBN issues from time to time the Guidelines which regulate the protocol for transactions in the FX Market.

Transactions in the FX Market are usually between members of the public and Authorised Dealers licensed by the CBN. Transactions in the FX Market can also be undertaken between the Authorised Dealers themselves.

All transactions in the FX Market shall be conducted in any easily convertible foreign currency in the commonly known money market instruments like Foreign Bank Notes, Coins, Travelers’ Cheques, Bank Drafts, Telegraphic Transfers, etc.

The importation and exportation of the Naira remains prohibited except as permitted under the Guidelines issued by the CBN.

CBN 2016 FX Revised Guidelines

In June 2016, the CBN issued its Revised Guidelines for the Nigerian Inter-Bank Foreign Exchange Market (“FX Guidelines”). These Guidelines are intended to achieve a liberalised, efficient, liquid and transparent FX Market.

From the provisions of the FX Guidelines, the CBN established a Single Market Structure for the Autonomous Inter-Bank Market (“FX Inter-Bank Market”), with the CBN participating in the FX Inter-Bank Market either through direct interventions or through indirect secondary interventions.

Participants in the FX Inter-Bank Market include licensed Authorised Dealers, Licensed Buyers, Oil and Oil Service Companies, Exporters and other end-users, etc.

According to the CBN FX Guidelines, in addition to the CBN direct intervention in the Market, the FX Inter-Bank Market will also be supported with the introduction of additional risk management products offered by the CBN and CBN Licensed Authorised Dealers.

To also promote global competitiveness in the Market, the CBN is authorised to appoint FX Primary Dealers (“FXPDs”), from the already Licensed Authorised Dealers, to transact with the CBN as large FX Traders on a two-way or one-way Quote basis and in accordance with the other obligations stated in the FXPD Guidelines.

FX Market Disclosure of Sources

In furtherance of efforts to liberalise the Nigerian economy, and subject to the existing Money Laundering Regulations on appropriate transaction documentation and Know-Your-Customer (“KYC”) compliances, persons transacting business in the FX Market, with persons who maintain Domiciliary Accounts, are not obligated to disclose the source of any foreign currency that they trade on in the Market.

Also, no foreign currency imported into Nigeria, invested or held in domiciliary accounts in Nigeria shall be expropriated or seized save where such transaction relate to goods or services absolutely prohibited under Nigerian Law. Examples of some of the prohibited items contained in the Export Prohibition List include Cassava, Maize, Beans, Rice, Yam, all imported food items, etc.

Foreign currencies purchased or imported into Nigeria and invested in Nigeria, with the dividend or profits accruing, net of all local taxes, are also guaranteed unconditional repatriation but only through an Authorised Nigerian FX Dealer.

Offences and Punishments

Based on the current practice in Nigeria, it must be highlighted that it remains a criminal offence under Nigerian Law for any person to make cash withdrawals from a Domiciliary Account and sell such cash withdrawn from a Domiciliary account to an unauthorised Dealer or person, whether in or outside of Nigeria.

It is also an offence for any person, with the intent to defraud another person, to forge, mutilate, alter or deface any foreign currency, travelers’ cheques or such other instrument of exchange used in the FX Market.

Punishments for the various infractions in or outside the FX Market include terms of imprisonment and fines in multiple times the amount involved in the infraction. The foreign currency or instrument of exchange shall also be forfeited to the Federal Government of Nigeria (“FGN”) after a Court hearing with the further option of the assets of any Corporation involved in the offence also forfeited to the FGN after such a Corporation is wound-up by the Federal High Court.

Where an Authorised Dealer is found guilty of a foreign exchange offence, its FX Market Licence, in addition to some of the above penalties, may be suspended or revoked.

Conclusion

The Foreign Exchange Market is still principally funded by the FGN through the CBN utilising the proceeds from the sale of crude oil for this purpose. Any time there is a fall in the price of crude oil, the FX Market gets destabilised and the economy suffers until crude oil prices appreciate upwards.

The lack of political will and discipline to encourage local production, reduce imports and diverse the Nigerian economy towards more non-oil exports to shore-up the external foreign exchange reserves and the Exchange rate will continue to inhibit the economic development and prosperity of Nigeria.

Government interference, with the adoption of different exchange rates for different economic activities, a mono foreign exchange earner – i.e. sale of crude oil, weak exports and high imports, various FX policy reversals, the CBN’s conflicted dominant role in the FX Market, etc continues to undermine the confidence that a transparent and robust FX Market must have; the latter development is therefore discouraging long-term local and foreign investments in the Nigerian economy. These have sadly allowed the illegal Black or Parallel FX Market to thrive with the exchange rate of the illegal FX Market now used to benchmark the exchange rate for transactions outside the official FX Market.

Disclaimer

This is a free educational material, which does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek, from qualified Legal Practitioners, professional legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore ONLY be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship is explicitly acknowledged, and our Disclaimer Notice is prominently displayed.

Introduction

The very significant drop in crude oil prices, with the resulting recession or decline in economic activities, has again brought to the fore-front the necessity to diversify from a sole oil export dependent economy, to a multi-faceted products and services economy.

The generally held opinion that more legislation is required to promote non-oil export businesses may not be absolutely correct unless a prior review of the existing export legislations, and how well these existing legislations have fared in diversifying the economy, is examined.

Export (Incentives & Miscellaneous Provisions) Act

The Export (Incentives and Miscellaneous Provisions) Act provides for various incentives to exporters of locally manufactured goods.

The Nigerian Export Promotion Council (“NEPC”) is, to the exclusion of all other Government Agencies, charged with administering all export incentives under Nigerian Law.

Export Licence?

Though the production of an Export Licence is no longer required, all raw or unprocessed commodities, whether mineral or agricultural, shall be exportable on the fulfillment of the following conditions precedent, namely; (a) registration with, and payment of an Export Levy to NEPC; (b) compliance with all applicable taxes; and (c) compliance with all existing Foreign Exchange Regulations by the Exporter.

Export Expansion Grant Fund

To diversify and increase the volume and the value of exportable goods, the Export Expansion Grant Fund is established to provide cash inducement to Exporters whose exports fulfill the objectives of the Grant.

In addition to meeting the above objectives, Exporters must also produce evidence that they exported the subject goods, with further evidence of the receipt of the proceeds of the export been confirmed by the Central Bank of Nigeria (“CBN”). Where there is any discrepancy in the documents provided by the Exporter to NEPC, the documents from the CBN shall be relied upon by the NEPC when administering this and other Export Incentives.

Export Development Fund

The Export Development Fund was created to provide financial assistance to private sector exporting companies to cover some of their initial export promotion expenses; like for example, attending training courses, seminars, workshops; undertaking research, data collection, advertising and publicity campaigns in foreign market; product designs, etc.

Income to the Export Development Fund comes from contributions made to it by the Federal Government of Nigeria, and from private sector Exporters.

Export Adjustment Scheme Fund

The Export Adjustment Scheme Fund is another Export Incentive Scheme created to serve as a supplementary export subsidy, to hedge against any high cost of production arising from infrastructural deficiencies and such other factors that are beyond the control of the Exporter.

An Exporter intending to benefit from this Export Subsidy must apply to NEPC with accurate verifiable information regarding the exact cost to its export business, of the infrastructural deficiencies or such other factors, which must be beyond the control of the Exporter.

Manufacture-In-Bond Scheme

An Exporter wishing to benefit from the Duty Draw-Back, Duty Suspension or Manufacture-in-Bond Schemes is required to submit an application for participation in these Schemes to the NEPC.

According to customs.gov.ng website, a Manufacture-in-Bond is a Scheme designed to encourage only Export Manufacturers to import duty-free, scarce and urgently needed raw materials, for the manufacturing of goods in Nigeria, destined for the export market.

The mechanism of the Manufacture-in-Bond Scheme works by such imported raw materials been backed by a Bond issued on behalf of the Exporter, by a recognised Nigerian Commercial or Merchant Bank, or an Insurance Company, or the Nigerian Export-Import Bank (“NEXIM”).

The Manufacture-in-Bond is discharged - i.e. the imported raw material is deemed duty-free - once evidence of the imported raw material, and the latter export of the manufactured goods from the imported raw materials, and the repatriation of the foreign proceeds from such import, are produced and confirmed by CBN.

Pioneer Status - Export Incentive

Any Manufacturer, intending to export at least fifty percent (50%) of its manufactured goods is entitled to apply to NEPC for Pioneer Status tax exemption. It is the responsibility of NEPC to screen all such applications, and submit its recommendations to the Minister of Industry, Trade and Investment for approval.

Export Processing Zones - Incentives

The Nigerian Export Processing Zones Act provides for the establishment of Export Processing Zones in any part of Nigeria.

Export Processing Zones (“EPZ”) are duty-free centres designed to boost manufacturing activities that are primarily destined for export.

Exporters involved in export manufacturing activities in any EPZ enjoy numerous export incentives among which are exemption from all taxes, levies, duties and foreign exchange regulations within the EPZ; 100% ownership and easy repatriation of foreign exchange investment proceeds, including profits and dividends, arising from manufacturing activities within any EPZ; relaxed expatriate engagement within any EPZ; and subject to obtaining a valid permit and paying the appropriate duties, permission to sell up to 25% of its manufactured goods within Nigeria.

Disclaimer

This is a free educational material, which does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek, from qualified Legal Practitioners, professional legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore ONLY be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship is explicitly acknowledged, and our Disclaimer Notice is prominently displayed.

Introduction

From the late twentieth century, Equipment Leasing practices became a viable financial vehicle for stimulating a country’s trade, commerce and industry. In countries like Nigeria however, save for the Hire Purchase Act (as amended), which only regulated hire purchase practices, and the general common law implied terms of contract to hire purchase or equipment leasing transactions, there was no robust and expansive Equipment Leasing legislation until the Equipment Leasing Act was passed into Law in 2015.

An ordinary definition of what Equipment Leasing entails will be that Equipment Leasing is the renting of equipment from its Owner/Lessor, by a Lessee, who in return for enjoying the use of the Equipment leased, makes an agreed periodic payment for the use of the Equipment to the Owner/Lessor of the Equipment.

According to the Federal Board of Inland Revenue Service (“FIRS”), Equipment Leasing is now recognised as a very attractive means of financing the acquisition of Fixed Assets. This is in the light of the scarcity of foreign exchange to pay for the importation of these fixed assets; and the high cost of obtaining credit finance from local financial institutions to purchase such fixed assets outright.

Equipment Leasing Act 2015

The Equipment Leasing Act was passed into Law in 2015 to regulate the businesses and practices of Equipment Leasing, so that the relationship between the Lessor and the Lessee and third parties with Notice are properly identified and protected.

The Equipment Leasing Act, in furtherance of the above objective, created the Equipment Leasing Registration Authority with one of the principal function of this Authority being to register all Equipment Leasing Agreements and certify Professional Equipment Lessors.

Agreements Must Be In Writing

The Equipment Leasing Act requires that all Equipment Leasing Agreements must be in writing, with a detailed description of the equipment that is been leased, the cost or the price of the equipment, the selection process for the contracted equipment been leased, the installmental lease rental payments that the parties to the equipment lease have agreed on, among other terms and conditions.

All Equipment Leasing Agreements must also include a provision that the Lessee shall, during the duration of the lease, remain a mere Bailee or Trustee of the Owner/Lessor of the equipment, with no proprietary or ownership rights of any kind except where expressly provided for at the completion of the lease payments, as in the case of Equipment Finance Leases.

Lastly, all Equipment Leasing Agreements must also contain the provision that until the Equipment Leasing Agreement is renewed or the Lessor agrees to sell the equipment to the Lessee, the Lessee will compulsorily deliver the equipment to the Lessor in good order and condition, reasonable wear and tear exempted, once the lease rentals are paid in full, and the Equipment Leasing Agreement is extinguished or terminated.

Registration Certificate

A Registration Certificate is required to be issued for every Equipment Leasing Agreement which satisfies the Registration Requirements under the Equipment Leasing Act (“ELA”).

It is now also mandatory that a copy of the Equipment Leasing Agreement, after its execution by both parties, must be delivered or given to the Lessee.

Equipment Leasing Registration Authority and Companies

Only an incorporated limited liability company, with the express object of carrying on business as an Equipment Leasing Company that is subsequently registered by the Equipment Leasing Registration Authority (“ELRA”) can legally carry on business as an Equipment Leasing Company.

In addition to registering Equipment Leasing Companies, the ELRA is also charged to register all Equipment Leasing Agreements and maintain a Register for all such Agreements, as any Agreement that is not registered by ELRA is of no legal effect whatsoever between the Lessor and the Lessee. Third parties without notice of a registered Equipment Leasing Agreement, who acted in good faith for value, can enjoy an exemption from the terms of such an Agreement without prejudice to the rights of the Lessor and the Lessee.

Ownership of Leased Equipment

The ELA requires the Lessor to conspicuously inscribe or affix his or her or its name on all equipment that is/are leased.

The ELA also ascribes to the Lessor an implied term of ownership on all registered equipment leased by the Lessor. Thus, the Lessor’s interest to the equipment takes priority in the event that the Lessee is liquidated or wound-up or declared bankrupt.

Lessee’s Rights and obligations

Provided the Lessee abides by the terms and conditions of the Equipment Leasing Agreement, the Lessee has the right to use and quietly enjoy the possession of the leased equipment. This right includes protection from a unilateral termination of the Equipment Lease even if the Lessor is declared insolvent or bankrupt or wound up.

In addition to paying the Lease Rentals, some of the other obligations of the Lessee under an Equipment Lease arrangement include the proper and reasonable care of the equipment, in the condition in which it was leased, fair wear and tear exempted.

Another very important right that Equipment Lessees’ now have is the right to sue the Equipment supplier or manufacturer for damages and compensation arising from the supplier or the manufacturer’s equipment default. This is without prejudice to the Lessor’s rights against the Lessee or the supplier or the manufacturer of the equipment.

Taxation and Equipment Leasing   

Under the ELRA, the Lessor is now entitled to claim all tax allowances and benefits permitted under the Companies Income Tax Act. This may however pose a challenge as the existing tax laws do not allow a Lessor in an Equipment Finance Lease arrangement to claim Capital Allowance from such an Asset. Only Lessors to a Equipment Operating Lease can claim the Capital Allowances to such a leased asset/equipment.

The resurrection of the requirement that a Certificate of Acceptance of Capital Expenditure must be obtained from the Federal Ministry of Industries, Trade and Investment, before a Capital Allowance can be claimed from a capital expenditure will apply to the Lessor or the Lessee’s right to claim any capital or tax allowance or deduction from an Equipment that is leased.

Depending on whether the Lease is a Finance Lease or a Operating Lease, and on whom the eventual ownership or title to the asset will lie at the termination of the Lease, statutory taxes - Companies Income Tax, Withholding Tax, Value Added Tax and Capital Gain Tax, will still apply to incomes and benefits earned under an Equipment Leasing Arrangement.

Termination and Repossession

A Lessor of a Leased Equipment has the right to terminate a Equipment Leasing Agreement and apply ex-parte - i.e. without notice to the Lessee - to a Federal High Court for a warrant of repossession of the Leased Equipment on the condition that the Statutory Notice of Default or Breach was served on the Lessee and the Lessee has failed to remedy the default or breach within the fourteen (14) days stipulated in the Notice.

The Lessor’s right to repossess the equipment leased is without prejudice to the Lessor’s other rights to recover any lease rental amounts that have not been paid, with any damages arising from the Lessee’s breach of the Equipment Leasing Agreement.

Conclusion

The generalisation and treatment of Equipment Leasing in the ELRA, without careful attention been paid to the distinction between the different kinds of Equipment Leasing and their tax treatment under the existing tax laws is a recipe for grave implementation challenges. An amendment of the ELRA, in consultation with the tax authorities and other Equipment Leasing stakeholders is therefore highly recommended.

Another matter deserving of mention is the Central Bank of Nigeria (“CBN”) requirement that Companies engaged in finance leasing businesses must apply to the CBN for a Finance Company License. Such companies shall also be subjected to the CBN’s prudential and regulatory guidelines as may be published by the CBN from time to time. Of concern is the likelihood of over regulation by the Central Bank of Nigeria, the Equipment Leasing Registration Authority and the Equipment Leasing Association of Nigeria (“ELAN”); this is especially as Equipment Leasing is more specially designed for micro, small and medium scale businesses.

Disclaimer

This is a free educational material, which does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek, from qualified Legal Practitioners, professional legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore ONLY be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship is explicitly acknowledged, and our Disclaimer Notice is prominently displayed.

Introduction

The Companies Income Tax Act recognises that companies will incur expenses/expenditure from which they will earn an income, and the income after expenses will attract taxable profits.

As capital expenditure impacts on a company’s income and the final corporation tax paid, close attention is paid to all verifiable capital expenditure, as it is known that a prudent capital expenditure increases a company’s production capacity and its long-term profitability; in contrast to fictitious or non-related expenditure to a company’s bottom line or net earnings.

With the recession in the economy, and the natural inclination to increase the taxes collected, the requirement for a Certificate of Acceptance of Capital Expenditure or Assets, issued by the Director of the Industrial Inspectorate Division, which Division is in the Federal Ministry of Industries, Trade and Investments, has being resurrected.

Notice of Capital Expenditure

It is the primary function of the Industrial Inspectorate Division (“IID”) in the Federal Ministry of Industries, Trade and Investments to inspect, investigate, verify and certify any capital expenditure incurred on any capital asset or undertaking that is in excess of 500,000 (Five Hundred Thousand Naira) in value. Capital Assets and undertakings contemplated under this regime include land, buildings, industrial plants, equipment or machines and other similar capital assets.

The Industrial Inspectorate Act requires that before or after any capital expenditure that is in excess of 500,000 is incurred by any company, whether or not desirous of claiming an Investment or Capital Allowance, as a tax deductible expense from the tax authorities, against such a capital expenditure, Notice of the nature of the capital expenditure must be served on the IID Director, who is required to investigate, inspect, verify and certify such a capital expenditure.

IID Certificate of Acceptance

The IID Director shall on his or her satisfactory investigation, inspection and verification of the true value of such a capital expenditure, issue the IID Certificate of Acceptance of such a capital expenditure.

No Capital or Investment Allowance can be claimed on a capital expenditure, as a tax deductible expense, where no IID Certificate of Acceptance is furnished to the Tax Authority. Thus, any Certificate of Acceptance of a capital expenditure issued by the IID Director or arising from a final Arbitrator’s Decision or Award on an IID application shall be accepted by the Tax Authority, which is the Federal Inland Revenue Service (“FIRS”), and any other department of any tier of Government.

In addition to the none admittance of a capital expenditure to any tax relief or allowance, the failure by a company and its key management team to apply for a IID Certificate of Acceptance of a Capital Expenditure without a reasonable explanation is an offence which on conviction attracts a fine. More importantly, no Capital or Investment Allowance will be allowed by the Tax Authority as a business deductible expense where no IID Certificate of Allowance is tendered.

IID Arbitration

Where a company disputes the IID valuation of its capital expenditure or asset, such a company has the right to serve a Notice of Objection to such a valuation for it to be re-assessed by an Independent Sole Arbitrator agreed to by the IID Director and the challenging company. The nominated Sole Arbitrator must however be approved by the Minister for the Federal Ministry of Industries, Trade and Investments.

The Investment Valuation Decision by the Sole Arbitrator shall be final and binding on the parties to the Arbitration.

Conclusion

The revival of this regulatory Certificate of Acceptance of Capital Expenditure, at a time when the economy is in recession, will only further increase the number of permits, licenses and certifications, with their adverse impact on the escalating costs of doing business.

The certification timeline, which is a bureaucratic exercise and the acquisition of the asset timeline, may not align thereby delaying the acquisition of the asset or the forfeiture of the tax relief due to the delayed issuance of the IID Certificate of Acceptance. Where the Certificate of Acceptance is later issued, claiming the tax allowance or deduction or relief from such a capital expenditure, from the Tax Authority, can be another herculean exercise.

Multiple Licenses and Certifications have continued to impede legitimate businesses. The reduction and or harmonisation of these certifications and permits, including the IID Certificate of Acceptance, will likely encourage more investments in the country.

Requiring the Federal Minister for the Federal Ministry of Industries, Trade and Investments to approve a jointly nominated Sole Arbitrator could be prejudicial to the Arbitration exercise as the Federal Ministry of Industries, Trade and Investments, on behalf of the tax collecting government authority, is an interested party to any challenged valuation and the outcome of the Arbitrator’s decision.

Until the applicable legislation is amended, early planning for any capital expenditure, and its notification to the IID is highly recommended.

Disclaimer

This is a free educational material, which does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek, from qualified Legal Practitioners, professional legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore ONLY be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship is explicitly acknowledged, and our Disclaimer Notice is prominently displayed.

Introduction

It is not uncommon for a Board of Director’s Meeting or any other similar meeting, to be unnecessarily unwieldy and lengthy without the objectives for holding such a Board Meeting been achieved. A common reason for this failing is the lack of sufficient information and training regarding the importance of Board Meetings. Another reason is the lack of an appreciation of the role that the Directors of a company play in the success or failure of a company.

The following material is our contribution to the advancement of holding regular, efficient and productive Board Meetings, and the entrenchment of good corporate governance practices in the process.

Who are Directors?

As a company is an artificial creation of the Law, it’s “.. brain and mind …” is traditionally put to use by its appointed Directors. Thus, the Directors of a company direct and manage the business affairs of a company in a faithful, diligent, careful and skillful manner.

Due to the very important role that the Directors of a company play in a company’s success or failure, only Directors with the requisite industry-specific skills and maturity should be appointed as the Directors of a company. Board appointments that are driven by emotional or sentimental reasons will do more harm to a company, than any good. So too must the Directors of a company be rotated or changed every few years to meet the inevitable changes in the market.

As fiduciaries and trustees of a company, the Directors of a company must ensure that at all times, they do what is in the best interest of the company as a whole by among other things preserving the assets of the company, formulating, furthering and promoting the company’s business objectives.

While the Board of Directors of a company directs and manages the business affairs of a company, the day-to-day administration of the company is usually vested in one of the Directors who is called the Managing Director of the company. Where the Managing Director of a company is not also the Chairman of the Board of Directors, an independent outside Director is usually appointed to be the Chairman of the Board of Directors. The Chairman in turn manages the Board Meetings of the company.

Why hold Board Meetings?

The principal function of an effective Board of Directors’ Meeting is the formulation of a profitable Business strategy, which the Board must consistently monitor and realign to meet the demands of the target market whenever the need arises.

It is also a key function of an effective Board of Directors Meeting to monitor the financial performance of a company. This is because it is the financial performance of a company that provides the best indication of the effectiveness of its business strategies.

Where a company’s profitability is in doubt (or irredeemable), the Directors must take a decision on whether the company should remain in that line of business or realign such a business with other businesses or exit entirely from such a business.

A further reason for holding regular Board Meetings is for the Directors to monitor and ensure that all legal and other regulatory compliance issues are met by the company.

Holding Board Meetings

To efficiently perform its role, the Directors of a company are statutorily required to meet as often as they deem fit, to deliberate on the business strategies, and the effectiveness of such strategies to their company. The number of Directors required to constitute a quorum for a Board Meeting to be held is usually stated in the company’s Articles of Association. Where the number is not stated, two (2) Directors present at a Board Meeting can be deemed to constitute a quorum.

It is however not the primary role of the Board of Directors of a company to deliberate on the operational day-to-day activities of their company at their Board Meetings. Such a role is vested in the Managing Director and other senior members of the company’s management team. Where the operational activities of a company take up too much of a Board Meeting’s time, a change in the management team may be necessary.

Barring repetition, it is the role of an effective Board of Directors to at their Meetings deliberate and proffer advice and solutions on core business strategies that will keep the company profitable. Board Meetings should therefore be structured with this primary role in mind.

Checklists for Holding Effective Board Meetings

Early preparation is critical to an efficient Board Meeting. A well-structured Board Meeting should therefore adhere to the following step-by-step protocol:-

Notice – Every Board Meeting should be convened with the circulation of a Notice to the Directors. The Notice usually indicates the name of the company, the Meeting venue, the time, the duration and the agreed Agenda for the Meeting. The Chairman, the Managing Director and the Company Secretary to the company play very important roles in this regard.

Agenda – Embodied in the Notice convening a Board Meeting must be the Agenda for the Meeting. A well prepared and adhered to Agenda is critical to the success of any Board Meeting.

Board Reports – The early preparation, advance circulation, and the review of all Board Reports before any Board Meeting usually saves valuable time for meaningful deliberations at any effective Board Meeting. A clarification of any unclear item in advance of the Board Meeting also helps. Where the opposite occurs, the real purpose of the Board Meeting will not be sufficiently achieved.

Minutes of the Last Board Meeting – A review of the Minutes of the last held Board of Directors’ Meeting, with the matters arising/pending from such a Meeting enables the Directors to be brought up to date regarding the matters deliberated upon at their last Board Meeting, and the resolutions passed at such a Board Meeting. From the updates on the matters arising from the last Board Meeting, the Board is able to make progress on each item head that is outstanding for resolution.

Accounts – Prior to deliberating on business development issues, considerable time should be expended on reviewing the Company’s Management Accounts, its Income Statement, Budget performance and other financial records of the company. This is because it is these financial records that remain the best indicators of how well the existing business strategies of a company are performing.

Management Report – The Management Report is usually presented by the Managing Director of the company. It provides the Board of Directors with information on how well the existing businesses of the company are performing; as well as threats and opportunities; with any other new or prospective business.

Any Other Business – This item allows the Directors to deliberate on any other issue that may not be in the original Agenda for that Board Meeting but which issue can be properly deliberated upon at such a Board Meeting.

Date for Next Board Meeting – It is always important to select a date convenient to most of the Directors present at a Board Meeting, for the next Board of Directors’ Meeting. This enables the Directors not to lose momentum in regularly meeting to consider, review, monitor and advance the business objectives of their company.

The important role of a Chairman

An effective Board of Directors Meeting should always be led by a strong-willed, wise, matured, industry-knowledgeable and patient Chairman who commands the respect of the other members of the Board of Directors, the management team of the company, the industry Regulators in the line of business that such a company is engaged in, and members of the general public.

In addition to moderating concise and courteous deliberation in adherence to the Agenda for each Board of Directors’ Meeting, the Chairman of a Board also ensures that distractions and interruptions are curtailed and excluded during Board Meetings. Examples of such distractions include using electronic gadgets that have no relevance to the Board Meeting; too many side comments or conversation amongst some Directors; unnecessary movements into and outside the Board Room; etc.

Disclaimer

This is a free educational material, which does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek, from qualified Legal Practitioners, professional legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore ONLY be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship is explicitly acknowledged, and our Disclaimer Notice is prominently displayed.