Joint ventures have proven to be a highly resilient market-entry structure for conducting business in Nigeria. These strategic partnerships allow foreign businesses to collaborate with local partners, not only to share investment burdens, risks, and costs but also to effectively manage and navigate local risks.
The nature of local risks can vary depending on the industry, level of regulation, counterparties involved, and government presence. These risks may be political or related to counterparties. Successfully addressing and managing local risks often requires strong alignment among all joint venture stakeholders.
One significant advantage of joint ventures is the flexibility they offer to investors. Through contractual agreements, investors can define the level of integration and the duration of the joint venture. Additionally, they can determine the nature of capital contributions from local partners. In some cases, we have advised clients who were comfortable granting equity to local partners specializing in government relations, community relations and political risk management. These arrangements allowed the foreign investor to waive the cash contribution requirement, with the local partner instead meeting pre-determined “equity-linked” project milestones, all while adhering to strict anti-corruption rules. Nigerian corporate law generally allows companies to issue shares in exchange for non-cash considerations, making such arrangements viable.
It is important to note that, except for specific sectors such as Oil & Gas, Shipping, Broadcasting, Advertising, Private Security, Engineering, Aviation, and Pharmaceuticals, foreign investors in Nigeria are permitted to own 100% shareholding in local companies. Furthermore, there is generally no mandatory requirement for foreign shareholders to appoint local directors.
What constitutes a Joint Venture?
In this context, a joint venture refers to a cooperative arrangement between two or more participants who come together to achieve a common commercial objective.
How are Joint Ventures Structured in Nigeria?
Nigeria does not have a specific legal form for joint ventures, allowing investors the freedom to choose the most suitable business structure based on their specific circumstances and objectives.
Joint ventures in Nigeria are commonly structured as limited liability companies, limited partnerships, limited liability partnerships, or general partnerships.
Alternatively, joint ventures can be unincorporated, established swiftly based on contractual agreements. In this arrangement, each party retains ownership of their assets, and taxation is determined based on their respective share of joint venture profits. Generally, joint venture parties are not liable for the debts of other parties, unless explicitly agreed upon in the joint venture contract.
Ultimately, the choice of legal structure for a joint venture depends on various factors, including tax considerations, risk appetite, the intended duration of the business venture, and the source of capital.
