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A holding company is a type of business structure that owns other companies’ outstanding stock. It is a popular structure for many Nigerian businesses looking to expand their operations and consolidate their holdings. However, determining whether your company is ripe for a holding company structure can be a daunting task. In this article, we will explore some tips to help you determine whether your company is ripe for a holding company in Nigeria, backed by statistics, examples, and laws.

1. DIVERSIFICATION OF BUSINESS OPERATIONS: If your company has multiple business operations, it may be time to consider a holding company structure. A holding company can hold multiple subsidiaries, each with their unique operations, while the holding company oversees the management and governance of these subsidiaries. According to the Nigerian Bureau of Statistics, the top five sectors that contributed to the country’s Gross Domestic Product (GDP) in the second quarter of 2021 were Agriculture, Trade, Information and Communication, Manufacturing, and Oil and Gas. Companies that operate in multiple sectors and want to streamline their management can benefit from a holding company structure.

2. EXPANSION PLANS: If your company is planning to expand its operations to other locations or countries, a holding company structure can be beneficial. A holding company can hold subsidiaries that operate in different locations, making it easier to manage operations in various countries or regions. According to the National Bureau of Statistics, in 2020, Nigeria’s export trade was dominated by crude oil, accounting for 73.27% of total exports. Companies looking to expand into the export market can benefit from a holding company structure.

3. LIMITED LIABILITY PROTECTION: A holding company structure can provide limited liability protection for its subsidiaries. This means that the holding company’s assets are separate from the subsidiary’s assets, protecting the holding company’s assets from any liabilities or debts incurred by its subsidiaries. This protection can be crucial for companies operating in high-risk sectors, such as the oil and gas industry or construction sector. The Companies and Allied Matters Act (CAMA) 2020 governs holding companies in Nigeria, and it provides provisions for limited liability protection for holding companies and their subsidiaries.

4. TAX PLANNING: A holding company structure can also provide tax planning benefits. Holding companies can take advantage of tax incentives, such as tax holidays, and can also reduce their tax liability by consolidating tax returns for their subsidiaries. This tax planning can be crucial for companies that operate in sectors with high tax rates, such as the telecommunications industry.

5. SIMPLIFIED CORPORATE GOVERNANCE: Holding companies can simplify corporate governance by consolidating the management and decision-making processes for their subsidiaries. This consolidation can reduce bureaucratic processes and improve decision-making efficiency. For example, Dangote Industries Limited, a Nigerian multinational conglomerate, has a holding company structure that oversees the operations of its subsidiaries, including Dangote Cement, Dangote Sugar Refinery, and Dangote Flour Mills.

In conclusion, determining whether your company is ripe for a holding company structure in Nigeria requires a thorough evaluation of your company’s operations, expansion plans, risk management, and tax planning. By considering these tips, your company can take advantage of the benefits of a holding company structure, such as diversification of operations, limited liability protection, tax planning, and simplified corporate governance. With the recent passage of the CAMA 2020, Nigerian businesses can now enjoy more flexibility and options in structuring their businesses.

Regville Associates offers end-to-end legal, tax and compliance service for companies. We assist Companies in becoming and staying regulatory compliant.

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Tolulope Oguntade 
Regville Associates