Introduction to Entrepreneurial Skills A T e xfb o o k for GES 3 0 I Published by General Studies Programme University of Ibadan UNIVERSITY OF IBADAN LIBRARY Introduction to Entrepreneurial Skills Edited by Prof. Gbemisola Oke, Director, Centre for Enterpreneurship and Innovation and Dr. Adeolu Adedapo, Faculty o f Veterinary Medicine, University o f Ibadan A Textbook for GES 301 UNIVERSITY OF IBADAN LIBRARY Published by The G eneral Studies Program m e (GSP) U n it All rights reserved. No part o f this publication m ay be reproduced, stored in a retrieval system, or transm itted in any form or by any means, electronic, mechanical, photocopying, recording, or otherw ise, w ith o u t the prior permission o f the publisher. First Published 2012 ISBN 978-31064-8-3 Printed & Bound by Tigerkids Publications Lim ited + 2 3 4 805 6040 350, (0 )8 02 2320 622 G eneral Studies Program m e (GSP) U n it U niversity o f Ibadan. Ibadan, N igeria UNIVERSITY OF IBADAN LIBRARY 9 Some Relevant Issues in Small Business Management in Nigeria Jadesola O Lokulo- Sodipe Faculty o f Law Objectives 1.1. The Sole Proprietorship (Individual Trader) At the end of this unit, the student should be able to: This is the simplest economic and legal unit. In this type 1. Identify the different forms of business of business organisation, an individual carries on organisations. business either entirely on his own or employs others. 2. Know the different types of incorporated Sole proprietorship is a popular business form because companies. it is simple and reasonably cheap to set up. It requires 3. Distinguish a private limited liability company from fairly small amount of money to start. Secondly, setting a public limited liability company. it up requires little or no formalities and the decision 4. Understand the nature of contract of insurance. making process is faster. This makes running the 5. Know the different regulatory bodies and their business flexible. functions. The sole proprietor, however, lacks continuity as the death of its proprietor would usually signify its end. 1. Forms of Business Organisation. Similarly, the liability of the proprietor is unlimited. There are three forms of organizations through which Consequently, the business can be terminated easily as businesses can be carried on. These are Sole it usually does not attract capital for expansion. Proprietorship (individual trader), Partnership and Corporate bodies. Each form has advantages and 1.2. Partnership disadvantages in complexity, ease of formation, cost, This is a relationship between persons carrying on liability of its members, periodic reporting requirements, business in common with a view to profit. Under the operating complexities and taxation. Consequently, law, the business name of a partnership may be registered choosing the right business form requires a delicate under Part B of the Companies and Allied Matters Act balancing of competing considerations. (CAMA), Cap C20, LFN 2004. UNIVERSITY OF IBADAN LIBRARY 130 In a partnership, the liability of each partner for the debt capable of being a party to legal relationships. In law, of the firm is unlimited. In addition the death of a partner an incorporated company is an artificial person. may result in the termination o f the partnership, Registered associations of this type are governed by particularly where the estate of the deceased partner is CAMA 2004 and are classified into three. This unwilling or unable to continue. The law, under S. 19 of distinction is based on the liability of the members. The CAMA, makes provisions for a partnership to consist three types are discussed below. of a minimum of 2 and a maximum of 20 people. Where the number exceeds 20, it should be incorporated as a 1) Company limited by shares - it issues shares to its company. Consequently, any partnership of more than members. Each share has a nominal value and the total 20 people will be illegal. Exceptions to this include nominal value of the shares allotted to members legal and accounting firms. Another characteristic of a represents the minimum amount of capital the members partnership is that, there are no limits to the nature and must contribute. A member’s liability is, therefore, business which the partnership can engage in and each limited to the nominal value of the shares that he/she partner has the right to participate in the management takes up, up to the amount unpaid on his/her shares. of the firm except the sleeping partner. Once he/she has paid the company for his/her shares, his liability is discharged completely and he cannot be 1.3 Incorporated/Registered Company made responsible for making up the deficiencies of the A company is a body or association of persons with company or of other shareholders. This option is the separate and distinct legal personalities. This is the most most popular and most adopted. Companies limited by important form of business organisation for modern shares can either be private or public. The name of a economic activities. It arises formally, as a result of a company limited by shares ends with the word Limited statutory process carried out by certain people. It is (Ltd) if a private company; and Public Limited Company incorporated or registered under the Companies Act in (PLC), if a public company. force at the relevant tim e, that is, the tim e o f incorporation. 2) Companies limited by guarantee - this is one where What distinguishes the incorporated company from its members make a promise to contribute a fixed other forms of business associations is the fact that it amount if necessary to pay the company’s debt when has a separate and distinct legal personality. Once the company is wound up. The company has no share incorporated, the association of persons is treated as an capital. It is usually not incorporated with the purpose entity in itself, having a personality of its own and of profit. It is used mainly by professionals, research or UNIVERSITY OF IBADAN LIBRARY 131 trade associations which exist to provide services to its 1.5. Differences Between A Public Company and a members; it obtains income to meet its expenses by Private Company charging fees for its services. The name of a company 1. Membership of a private company is limited to fifty limited by guarantee ends with Limited by Guarantee (50). There is no limit to membership of public (Ltd/Gte). Examples include ICAN and Nigerian Stock companies. Exchange. 2. The minimum share capital of a public company is 3) Unlimited companies - the liability of a member in 500,000, while that of a private company is 10,000. this type of company is without limit. Consequently, 3. Shares cannot be allotted in paying for services each member’s liability to provide money for the rendered in public company, but such transaction payment of the company’s debt is without limit. The is possible in private companies. issue of liability arises only when the company goes into 4. The name of a public company must end with liquidation. The name of an unlimited company ends “Public Limited Company” (PLC), while that of a with Unlimited (Ultd). private company must end with “Limited” (Ltd), This type of company must be registered with a share 5. Loans and credit transactions for directors and capital. directors of holding companies are prohibited with some exceptions, for public companies. The above 1.4 Types o f Limited Liability Companies prohibition is not applicable to private companies. 6. The age disclosure requirement for directors is not Private Company: This is one which by its articles of applicable to private companies, save where the association, restricts the right to transfer shares, limits private company is a subsidiary of a public the number of its shareholders to fifty and prohibits company. invitations to the public to subscribe for the company’s shares or debenture. Its memorandum of association must state that it is a private company. Public Company: It is a company with no restrictions as to maximum number of members and subscription of its shares and debentures. Its memorandum of association must state that it is a public company. UNIVERSITY OF IBADAN LIBRARY 132 WKttBKSttSNBSSM Sole FORMS OF BUSINESS ASSOCIATIONS “-------------------- (ncorp< Regij Com j■B • ••: v - : • ••: >:• ..V. .• : : X '-. >. • I .:' '.;' : V I: : ilPljllltSM vlSliimllH■ l ..i i fy S I S i ...I.II m m m UNIVERSITY OF IBADAN LIBRARY 133 Revision Questions 1 2.2. Nature of Insurance Business 1. What are the various types of business A contract of insurance is one whereby a party, the organisations? “insurer”, promises, in return for cash consideration, 2. What does limited liability mean in relation to the “premium”, to pay to the other party, the “insured” company formation? or the “assured”, a sum of money or to provide him 3. What are the differences between a private with some corresponding benefit, upon the occurrence company and a public company? of one or more of the specified event(s). Please note that the event insured against must 2. Insurance involve some degree of uncertainty. The uncertainty 2.1. Introduction must be as to whether the event will ever happen or Insurance is very significant to commerce and industry. not, or if the event is one which must happen, the time Modern industrial and commercial enterprises would of its occurrence must be uncertain. not function efficiently without some form of organized Contracts of insurance are generally (except life insurance service. and personal accident) contracts o f indemnity. In business, insurance has two main functions, Indemnity implies that the insured is to be placed (by namely: primary and secondary functions. The primary the insurer) in the same position as he was before the function is to ensure that the financial losses of the happening of the event he insured against The assured individual are fairly and equitably distributed over the cannot recover more than his actual loss. insured community. The policy holders or the insured The agreement between the parties to the contract pay a premium into a common pool, out of which those is set out in the poiicy of insurance. The purpose of the who suffer losses are compensated. The secondary insurance policy is to function of insurance relates to the incentive it gives the businessman to venture into viable but risky i. define the risk that is being insured against; businesses, by way of the promise to be indemnified in ii. state the conditions and the terms of the contract; the event of loss. and Insurance policies are good securities for loan iii. clarify the procedure that will be followed in the advances from banks. The large sums of money event of a loss occurring. accumulated by insurers are invested in profitable capital The policy document evidencing the contract of market securities which in turn help in capital market insurance must be delivered to the insured not later than capitalization. In addition, the insurance industry is an 60 days after payment of the first premium. Note that important employer of labour. UNIVERSITY OF IBADAN LIBRARY payment of an insurance premium is a condition 3. How many types of insurance businesses do we precedent to a valid contract of insurance and there will have in Nigeria? be no cover in respect of the insured risk unless the premium has been paid in advance. 3. REGULATORY BODIES In relation to business organisations the regulatory 2.3. Types of Insurance Businesses bodies are: There are two types of insurance businesses in Nigeria. These are: 3.1. The Corporate Affairs Commission (CAC) 1. Life-assurance business. The affairs of companies are regulated by the Corporate 2. General insurance business Affairs Commission (CAC). The CAC is saddled with Life insurance business is sub-divided into: the underlisted duties. i. individual life assurance business; a. Regulating and supervising the formation, ii. group life assurance and pension business; and incorporation, registration, management and iii. health insurance business. winding up of companies under the Companies and General insurance business is divided into eight Allied Matters Act (CAMA), Cap C20, LFN, 2004. categories. b. Establishing and maintaining companies’ registry a. fire insurance; and offices in all the states of the federation. b. general accident insurance; c. Arranging or conducting an investigation into the c. motor vehicle insurance; affairs of any company where the interests of the d. marine and aviation insurance; shareholders and the public so demand. e. oil and gas insurance; d. Administering the business names and incorporated f. engineering insurance; trustees’ parts of the CAMA. g. bonds credit guarantee and surety ship insurance e. Performing such other functions as may be business; and specified by the CAMA or any other law. h. miscellaneous-insurance business f. Undertaking any other activities as are necessary or expedient for giving full effect to the provisions REVISION QUESTIONS 2 of the CAMA. 1. What are the characteristics of an insurance Although the CAC has wide powers, an order of contract? mandamus may be obtained to compel it to carry out 2. What is purpose of the insurance policy? specific duties where it fails or neglects to do so. UNIVERSITY OF IBADAN LI RARY 135 3.2. The Securities and Exchange Commission Trustees (SEC) Reporting Accountants The Securities and Exchange Commission came into Solicitors being in 1979 following the promulgation of the Investment Advisers, etc. Securities and Exchange Commission Decree No. 71 of 1979 to supersede the Capital Issues Commission. ♦ Securities: The Commission has powers to regulate and develop Equities the Nigerian capital market, in addition to determining Debentures the prices of issues and setting the basis for allotment Debt instruments of securities. Unlike its two predecessors, the Collective investment schemes Commission at this stage was excised from the CBN, although it continued to receive funding from the apex (2) On or Off site Inspection. The Commission, at bank. regular intervals, calls for information from capital In regulating the market, the Com m ission market operators. It also undertakes and conducts undertakes the following activities in order to protect inquiries and audits of any participant in the market investors, market operators and also ensure market whenever necessary. integrity. SEC regulates the capital market by deploying (3) Surveillance is carried out over exchanges and the following tools: trading systems to forestall breaches of market rules as (1) Registration of securities and market intermediaries well as deter and detect manipulations and trading to ensure that only fit and proper persons / institutions practices which are capable o f causing market are allowed to operat/e in the market. disruption. ♦ Instruments and persons registered in the market are: (4) Investigation of alleged breaches of the laws and Securities/Commodity Exchanges/Capital Trade regulations governing the capital m arket and Points enforcement of sanctions where appropriate. Futures, Options and Derivatives Exchanges (5) Enforcement actions are taken against market Depository, Clearing and Settlement agencies operators who are found wanting after investigation is Capital Market Operators: Issuing Houses carried out, in minor cases, an all parties’ meeting is Securities dealers/Stock brokers/Sub- brokers convened by the Commission where it mediates between Registrars/Transfer agents parties involved in a dispute. However, if the case is UNIVERSITY OF IBADAN LIBRARY serious or where no resolution is reached or a party Publications (i.e. Journals, bulletins and cartoons) fails to comply with a directive given at the all parties meeting, the defaulting party will be called before the 3.3. The National Insurance Commission: Administrative Proceedings Committee (APC), which The National Insurance Commission (NAICOM) was is a quasi-judicial court, with only civil jurisdiction. set up by decree No. 1 of 1997 to ensure the effective Appeals against decisions of the APC are usually administration, supervision, regulation and control of made at the Investment and Securities Tribunal (1ST). insurance business in Nigeria. Enforcement action may be in the form of payment of NAICOM has powers to administer, supervise, fine, ban, suspension or even forwarding the case to the regulate and control insurance business in Nigeria. Nigeria Police Force (NPF), Economic and Financial Specifically, the Commission is vested with the Crimes Commission (EFCC) or the Attorney - General responsibility of performing the following functions: of the Federation (AGF) where allegations are found to be criminal in nature. • Establish standards for the conduct of insurance business in Nigeria; (6) Rulemaking by the Commission as developments • Approve rates of insurance premiums to be paid occur: This is to ensure that the Commission meets up in respect of all classes of insurance business; with international best practices. • Approve rates of commissions to be paid in respect (7) Market Development : In the area of market of all classes of insurance business; development, the Commission collaborates with relevant • Ensure adequate pro tection o f strategic stakeholders to introduce new products and processes. Government assets and other properties;• Regulate transactions between insurers and The SEC encourages improved investor participation reinsurers in Nigeria and those outside Nigeria; in the market through any or a combination of the • Act as adviser to the Federal Government on all following activities: insurance related matters; Workshops and seminars • Approve standards, conditions and warranties Town hall meetings applicable to all insurance business; Television/Radio programmes • Protect insurance policy - holders and beneficiaries Introduction of e-processes, e.g. e-dividend, e- and third parties to insurance contracts; allotment, etc. • Publish, for sale and distribution to the public, Secondary school quiz and essay competitions annual reports and statistics on the insurance Introduction of capital market studies in tertiary industry; institutions UNIVERSITY OF IBADAN LIBRARY . 137 Liaise with and advise Federal Ministries, extra REVISION QUESTIONS 3 ministerial departments, statutory bodies and other 1. Name the different regulatory bodies and highlight Government agencies on all matters relating to their functions. insurance contained in any technical agreements to which Nigeria is a signatory; REFERENCES Contribute to the educational programmes o f the Olakunle, Orojo, Nigerian Company Law Chartered Insurance Institute of Nigeria and the Irukwu J.O, Insurance Law and Practice in Nigeria. West African Insurance Institute, and Companies and Allied Matters Act, Cap C20, LFN 2004. Carry out such other activities connected or Investments and'Securities Act, 2007. incidental to its other functions under the 1997 NAICOM - www.naicom.gov.ng Act. Securities and Exchange Commission - www. sec. gov.ng NAICOM is, however, under the supervision of the Federal Ministry of Finance. UNIVERSITY OF IBADAN LIBRARY