In recent years, changes have greatly impacted the rate and type of joint venture operations in Nigeria. These changes include inflation and changes in regulations and consumer behaviour, as considered here.

Inflation

The inflation rate in Nigeria as of July 2024 is 34.19%, which represents a jump from 22.79% in 2023. Also, it was reported that – on a month-on-month basis – the inflation rate in June 2024 was 2.31%, which was 0.17% higher than the rate recorded in May 2024 (2.14%).

The rising inflation and fluctuating exchange rate between the naira and other foreign currencies (such as the US dollar, pound sterling, and the euro have) prompted corporations and investors to seek alternative business collaborations, either by exploring new joint venture options other than the conventional joint venture business used in Nigeria or deviating entirely from it. Corporations and investors are now intensifying efforts in using joint ventures to mitigate financial risks and share cost as a strategic means by which to navigate the economic volatility.

Regulatory Reform

Within the period under review (2023–24), there have been some significant regulatory reforms in Nigeria. The following are among these reforms.

• The enactment of the Business Facilitation Act 2023 – the law amended some of the provisions of the Companies and Allied Matters Act 2020 (CAMA) (Nigerian company law). One of the significant provisions of the new law will impact greatly on foreign direct investment (FDI) in Nigeria. The law expanded the categories of foreign companies that may be exempted from registration under CAMA. This provision aims to promote the ease of doing business in Nigeria and essentially attract foreign investors and collaboration with local businesses, thereby enhancing collaboration between businesses not only locally but also on a global scale.
• The recapitalisation of banks in Nigeria – the Central Bank of Nigeria recently issued directives to banks in Nigeria to increase their share capital across different licence categories. This development will mainly affect joint ventures in terms of financing and investment. With increase in share capital by banks, banks will be able to provide more funding for businesses (including joint ventures) without exceeding their single obligor limits.
• The enactment of the Electricity Act 2023 – the law aims to promote PPP across the industry and introduced tax incentives for businesses that generate energy from renewable sources. This is an incentive many renewable energy providers may wish to consider.
• The Immigration Act of 2015 made it mandatory for any business in Nigeria with foreign a shareholder to apply and obtain a business permit from the Minister of Interior before commencing business in Nigeria. Pursuant to the Handbook on Expatriate Quota Administration 2004, one of the conditions for the grant of a business permit is that companies with a foreign shareholder must have a share capital of at least NGN10,000,000. However, in 2022, the Minister of Interior issued a revised Handbook on Expatriate Quota Administration, which increased the minimum required share capital of companies with a foreign shareholder to NGN100,000,000. Some companies with foreign shareholding have commenced the implementation of this new policy within the time period in question.

These enactments were aimed to stimulate the Nigerian economy and drive growth. It is believed that these reforms will create an investment-friendly environment, leading to increased collaboration and sustaining the continuous need for businesses (including joint ventures) in Nigeria.

Consumer Behaviour and Market Demand

Evolving consumer needs and market demand have particularly shaped businesses’ adopted joint venture, mainly for the purpose of risk allocation, shared resources, tapping into new markets, and aligning with market trends. Companies are partnering and collaborating to expand and meet the rising demand of their consumers while aiming to maintain relevance and penetrate new markets and audiences.

Sectoral Trends

During 2023–24, joint venture trends have emerged in the following sectors.

Fintech activities

Collaboration between fintech companies is a common trend in the fintech space, as local fintech start-ups are collaborating with international institutions to develop innovative consumer-based solutions to meet rising market demand and penetrate new geographical markets. Thus, Nigeria is seeing increasing fintech joint venture collaboration, as the sector keeps experiencing rapid growth and innovations.

Renewable energy projects

The global clamour for an environmentally friendly source of energy (ie, energy transition) is contributing hugely to global and local collaboration. Renewable energy projects are now being built by joint ventures – for instance, the Nigeria Sovereign Investment Authority (NSIA) had entered into a joint venture agreement with North South Power Company Limited to pioneer a renewable energy project in Nigeria.

The enactment of the Petroleum Industry Act 2021 (PIA) has crucially impacted joint ventures in the oil and gas sector. The PIA makes provision for the voluntary restructuring of the joint operating agreement (JOA) – entered into by parties in upstream petroleum sector. For further details, please see 4.1 Significant Recent Decisions or Regulatory Developments.

In Nigeria, joint ventures are a common business model used to foster collaboration and essentially pull resources together to achieve a business objective. The following types of joint venture are commonly used in Nigeria.

Contractual/Corporative Joint Venture

In this type of joint venture, the parties collaborate based on a binding agreement without incorporating a new entity. The joint venture will be regulated by the terms and conditions contained in a contract, which the parties have agreed to bind their activities. The agreement, among other things, outlines the roles, responsibilities, and profit-sharing arrangement. This type of joint venture is very common in the Nigerian upstream oil and gas sector. It is common for Nigerian National Petroleum Corporation Limited (NNPCL) to enter into contractual joint ventures both with international oil and gas companies and indigenous oil and gas companies to develop and explore oil and gas assets in Nigeria.

Advantages of the contractual/corporative joint venture are:

• flexibility in creation, management and dissolution, given that it is based on agreement entered by the parties and no new legal entity is incorporated;
• parties formulate and agree on the terms and conditions that will govern the joint venture; and
• it is not heavily regulated.

Disadvantages of the contractual/corporative joint venture are:

• less commitment by the parties involve;.
• the contract is easy to breach and render frustrated;
• limited scope of collaboration; and
• there may be lesser financing and investment options.

Limited Liability Company/Equity Joint Venture

This type of joint venture involves the incorporation of a new limited liability entity/corporation, usually known as a special purpose vehicle (SPV), for the realisation of specific business objective. An essential feature of this joint venture is that it allows the parties to the joint venture to isolate the risks and obligations of the joint venture from their other business activities.

Advantages of the limited liability/equity joint venture are:

• the risks and obligations of the venture are isolated from the party’s other business activities;
• it provides structure to the business; and
• ease of raising funds and investments.

Disadvantages of the limited liability/equity joint venture are:

• it is regulated;
• complexity in management and cost;
• complex decision-making processes; and
• complexity in dissolution.

Consortium Joint Venture

This type of joint venture is often formed for large and complex projects that require various expertise and capital intensive investment.

Advantages of the consortium joint venture are:

• it promotes industry and inter-industry collaboration;
• risk is shared between the parties; and
• it provides access to new market and technology.

Disadvantages of the consortium joint venture are:

• complex decision-making processes;
• possible conflicts of interest; and
• possible regulatory challenges.

The need to choose the right joint venture cannot be overemphasised, as this will determine the success of the business and the relationship between the parties involved. Choosing the right joint venture will involve considering several essential factors that will ensure strategic goal alignment, operational needs and risk management. The following are among these keys factors.

• Business objective – the nature of the business to be undertaken may significantly influence the type of joint venture the parties will opt for. By way of example, it is very common for upstream oil and gas companies to enter into an unincorporated joint venture for operating oil and gas assets.
• Control, structure and management – the business structure, control, and management composition are further strategic factors joint venture parties should consider when choosing a joint venture model. If the joint venture parties want a business that will be properly structured with clear hierarchy, it may be better for them to go for an IJV.
• Duration – for a business venture of short duration, it might be more efficient to have an unincorporated joint venture that will give the joint venture parties the necessary flexibility to liquidate the business at the end of the business tenure.
• Legal and compliance – the legal regime might also determine the kind of joint venture parties can establish. Under Nigerian law, a foreigner coming to carry on business in Nigeria is required to set up a company for the purpose of such undertaking. Therefore, a foreign entity desiring to start a business in Nigeria with another Nigerian business might need to first incorporate its business in Nigeria. The business may form a joint venture with another business (whether incorporated or unincorporated).
• Financial, investments, tax and resources consideration – capital raise, investment opportunity and tax consideration could potentially influence the type of joint venture that should be established. Joint venture partners that view capital raise (either from capital markets or a bank) and future investment as something they will consider in the future will typically opt for an IJV. Since the joint venture will have a corporate structure, the entity can source for capital or investments by relying on its balance sheet, with little support from the joint venture partners. Similarly, if the joint venture partners prefer the joint venture to distribute the profits while each joint venture partner handles their own tax returns, the unincorporated joint venture will be the best model to achieve this tax objective.

Other factors include:

• risk and profit sharing; and
• cultural and geographical consideration.

The primary regulators and statutory provisions are dependent on the type of joint venture, the parties to the joint venture, and the sector in which the joint venture is operating.

Regulators

The primary regulators are:

• the Corporate Affairs Commission (CAC);
• the Securities and Exchange Commission; and
• the Nigerian Investment Promotion Commission (NIPC).

Other sector specific regulators include:

• the Central Bank of Nigeria;
• the Nigerian Electricity Regulatory Commission (NERC);
• the Nigerian Upstream Petroleum Regulatory Commission (NUPRC);
• the Nigerian Midstream and Downstream Petroleum Regulatory Authority; and
• the Nigerian Communications Commission (NCC).

Statutory Provisions

The main statutory provisions are:

• CAMA:
• the Companies Regulations 2021;
• the Business Facilitation (Miscellaneous Provisions) Act 2023 (BFA);
• the Nigerian Investment Promotion Commission Act (NIPC);
• the Investment and Securities Act; and
• the Securities and Exchange Rules and Regulations 2013.

Other sector-specific statutory provisions include:

• the Central Bank of Nigeria Act and its circulars;
• the Electricity Act 2023;
• the PIA; and
• the Nigerian Communications Act.

There are various AML regulations in Nigeria. The primary AML is the Money Laundering (Prevention and Prohibition) Act 2022 (the “Money Laundering Act”). The Money Laundering Act repeals the Money Laundering (Prohibition) Act 2011, thereby creating a stronger legal framework to prevent and prohibit money laundering activities in Nigeria. It places an obligation on financial institutions and designated non-financial businesses and professions to conduct stricter customer due diligence by verifying customer identities, understanding their business, and assessing money laundering risks.

Additionally, the Money Laundering Act also mandates certain entities to report suspicious transactions to the Nigerian Financial Intelligence Unit. The Money Laundering Act further creates the Special Control Unit Against Money Laundering under the Economic Financial Crimes Commission (“SCUML”). SCUML supervises designated non-financial businesses and professions and ensures compliance with AML regulations.

Other AML regulations in Nigeria include:

• the Central Bank of Nigeria (Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation Financing of Weapons of Mass Destruction in Financial Institutions) Regulations 2022;
• the Terrorism Prevention (Freezing of International Terrorists Funds and Other Related Measures) Regulations 2011;
• the Terrorism (Prevention and Prohibition) Act 2022 (TPPA);
• the Nigerian Financial Intelligence Unit Act 2018;
• the Economic and Financial Crimes Commission (Establishment) Act 2004;
• the Advance Fee Fraud and Other Related Offences Act 2006; and
• the Nigeria Police Act 2020.

There are restrictions on co-operating with joint venture partners in Nigeria due to sanction laws. Nigeria, as a member of the United Nations, is obligated to comply with the United Nations Security Council (UNSC) resolutions. This includes international sanctions imposed by the UNSC. The UNSC has a sanctions list called the United Nations Security Council Consolidated List. This list includes individuals, groups, undertakings, and entities that are subject to sanction measures imposed by the UNSC. Engaging in a business transaction or entering into a joint venture with a sanctioned entity is considered a violation of these international obligations and Nigerian sanction laws.

National security regulations apply to the formation of a joint venture in Nigeria and any other form of business. These include the TPPA and the Regulation for the Implementation of Targeted Financial Sanctions on Proliferation Financing 2022. The TPPA creates the Nigeria Sanctions Committee, which plays a crucial role in implementing resolutions passed by the United Nations Security Council regarding targeted financial sanctions against individuals and entities linked to terrorism. The Nigeria Sanctions Committee is also responsible for maintaining list of designated individuals and entities identified by the United Nations or Nigerian authorities as involved in terrorism or terrorism financing. This list is called the Nigerian Sanctions List.

Individuals and entities in Nigeria cannot enter joint ventures or business collaborations with the persons or entities listed in the Nigerian Sanctions List or the UNSC Consolidated List. This will be considered as aiding or financing terrorism.

In Nigeria, the primary legislation governing antitrust and competition matters is the Federal Competition and Consumer Protection Act 2018 (FCCPA). The FCCPA establishes a merger control regime that applies to certain M&A, including joint ventures. The FCCPA defines merger and includes joint venture as a way of achieving a merger. Additionally, the Federal Competition and Consumer Act Merger Review Regulations 2020 supports the antitrust framework already established by the FCCPA.

One of the key provisions in the FCCPA is the notifications requirement imposed on mergers. Under the FCCPA, there are two types of mergers: large mergers and small mergers. Generally, parties to a small merger are not required to notify or obtain approval from the Federal Competition and Consumer Protection Commission (FCCPC) before implementation of the merger unless the FCCPC requires them to do so. However, for a large merger, the parties are required to notify the FCCPC of the merger and obtain the unconditional approval of the FCCPC before implementation of the merger. These are some of the measures put in place by the FCCPA to safeguard competition and prevent monopoly in the Nigerian market.

Generally, there are no specific rules in Nigeria directly addressing the participation of listed parties in joint ventures. However, there are some provisions in the Rulebook of the Nigerian Stock Exchange that require a listed company to disclose to Nigerian Exchange Limited (NGX) any information that is likely to have a material effect on market activity, prices, or the value of listed securities. Therefore, where a joint venture being contemplated by a listed company is likely to have a material effect on market activity, the listed company is obligated to disclose this information to the NGX, its investors and the public.

CAMA has provisions regarding disclosure of persons with significant control. CAMA mandates every person with significant control (PSC) over a company or a limited liability partnership (this includes an incorporated joint venture) to disclose particulars of that control to the company within seven days of gaining such control. CAMA also places an obligation on the company to submit this information to the CAC within one month of receiving such information. The company must also disclose the PSC information in its annual returns. The CAC maintains a register of PSCs for all companies. Additionally, the Person with Significant Control Regulations 2022 also establish a framework for obtaining and reporting PSC and ultimate beneficial owner (UBO) information.

Furthermore, the Securities and Exchange Commission has disclosure requirements for beneficial owners under the Securities and Exchange Consolidated Rules and Regulations 2013 and the Capital Market Operators Anti-Money Laundering and Combating the Financing of Terrorism Regulations 2022.

In addition to this, there are sector-specific regulations that mandate entities within their regulatory purview to seek approval or notify the regulator upon acquisition that triggers the threshold of a significant control. By way of example, the Banks and Other Financial Institution Act 2020 (BOFIA) provides that any agreement or arrangement that will result in the change of control of a bank or the transfer of significant shareholdings (that is, 5% or more of the paid-up share capital) of a bank is subject to the prior written consent of the governor of the Central Bank of Nigeria. Any acquisition of a significant shareholding without the prior written consent of the governor will only take effect where the transaction is subsequently ratified in writing by the Central Bank of Nigeria.

Also, where the shares of the target are listed securities and are acquired through the stock exchange, the bank is required to also notify the Central Bank of Nigeria and obtain a “no objection” letter from the Central Bank of Nigeria immediately after the acquisition. Where the Central Bank of Nigeria has an objection to any acquisition, a notice of the objection will be communicated to the bank and the bank must notify such investor(s) within 48 hours.

While there have not been any significant court decisions in the past three years relating to joint ventures, there have been some legal developments. These legal developments have taken place through the enactment of some legislations that play major roles in the formation of joint ventures.

CAMA and the Companies Regulations 2021 constitute some of these developments. Although CAMA was enacted four years ago, it led to significant changes that impact joint ventures in Nigeria, particularly in IJVs. CAMA provides the legal framework for incorporating and governing IJVs in Nigeria. IJVs follow the standard incorporation process outlined in CAMA for private or public companies, depending on their structure. CAMA also outlines rules for share capital and ownership structures. However, the joint venture agreement will determine the specific shareholding arrangement between partners in the IJV.

Another major legislative enactment is the BFA. The BFA was enacted to improve the ease of doing business in Nigeria and remove bureaucratic hurdles by amending existing legislation to promote a more business-friendly environment. The BFA amends some key legislations, including CAMA, the Investment and Securities Act, and the Nigerian Export Promotion Council Act.

Additionally, as mentioned in 1.2 Key Industries, there have been significant developments in this regard in the oil and gas industry in Nigeria. Traditionally, joint ventures in the Nigerian upstream oil and gas sector operated under a joint operating agreement. These joint ventures were not separate legal entities. In 2021, the PIA introduced IJVs in the oil and gas upstream sector. The PIA provides for the voluntary restructuring of joint operating agreements between NNPCL in respect of upstream petroleum operations as an IJV company. The PIA also makes extensive provisions for the organisation, governance, shares, principles, taxes and other special provisions applicable to these IJV companies. Currently, the sector has witnessed the development of a number of IJVs between NNPCL and other oil operators in upstream operations.

Documents that parties typically use during the negotiation of a joint venture include:

• memorandum of understanding or heads of terms or letter of intent;
• non-disclosure and non-circumvention agreement;
• definitive agreements that depend on the structure of the joint venture (but will typically include joint venture agreement, shareholders’ agreement, and consortium agreement – depending on the joint venture model adopted by the joint venture partners); and
• other agreements such as a technology transfer agreement.

Market standard provisions that should be covered at the pre-joint venture agreement stage depend on the business that will be undertaken by the joint venture and the industry in which the joint venture is to carry out business operations. Typically, a pre-joint venture action would be the conduct of extensive and all-encompassing (financial, legal, technical, environmental, etc) due diligence on the joint venture parties.

Regulatory requirement for disclosing a joint venture in Nigeria would largely depend on the industry/business of the joint venture. By way of example, a joint venture that intends to carry out midstream oil and gas business will be subject to approval by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). However, a joint venture in Nigeria may generally be required to comply with and disclose to the following relevant regulatory authorities:

• the CAC;
• the NIPC for foreign investments;
• the Securities and Exchange Commission;
• relevant tax authorities;
• industry-specific regulators such as the Central Bank of Nigeria, the NCC, the NUPRC, and the NERC.

The point at which compliance with a regulatory requirement will be required depends on the law governing such industry. While some laws/regulations require compliance at inception, some state timeline within which certain things are to be done, etc.

The following step should be followed to set up a joint venture in Nigeria:

• define the objectives and expectations of the business and identify the joint venture partners;
• define the business strategy to be undertaken;
• select the partners after due diligence in checking their credentials, capabilities and operations;
• negotiate all terms and conditions (non-disclosure agreement, memorandum of understanding, and joint venture agreement);
• review and finalise the agreement;
• set up a joint venture company and register the company with the CAC (if setting up an IJV) and any other relevant regulatory body under the applicable laws, where applicable;
• obtain all necessary permits and licences;
• set up financial and operational systems;
• continuous evaluation and monitoring of the joint venture’s performance; and
• filing relevant returns as at when due.

The relevant documents for a joint venture arrangement will depend on the type of joint venture vehicle. By way of example, an unincorporated joint venture will be documented through a joint venture agreement. For IJVs, it is common for the joint venture partners to document their agreement through a shareholders’ agreement. In the case of consortium, parties typically adopt a consortium agreement.

The following are among the salient terms that would be contained in a corporate joint venture:

• identification and purpose of the parties alongside the objective and scope of the joint venture – it may not be possible to anticipate all the objectives during negotiation, hence an omnibus provision would be useful;
• specifics of capital contributions and venture financing to be made by each party – this clause includes the value assigned to each contribution, for monetary equivalence and the schedule for these contributions;
• ownership and equity distributions among the parties – this must be concluded in the agreement, to decide on how the profits and losses would be distributed;
• composition of the management team for decision-making – whereby an equal number of representatives may be appointed by each party for the purpose of vote casting;
• a termination clause – this provides the conditions and circumstances under which the joint venture agreement would be terminated by both or either party;
• confidentiality regarding protection of IP developed or used by the joint venture and non-disclosures of confidential information shared between parties in the course of their engagements;
• tax responsibilities of each party and requirements for maintaining insurance coverage for the joint venture’s assets and activities; and
• governing law, jurisdiction, and dispute resolution clause.

In compliance with the relevant laws such as CAMA, a joint venture entity is required to define the management and ownership structure, specified obligations and legal capacity of each party in its agreement document. For the decision-making process, a management/board committee is typically set up for major decisions to be decided upon collaboratively and in line with the agreed terms in the joint venture agreement/shareholders’ agreement. If the joint venture is an incorporated company, the default position under CAMA is that most power (including the power to borrow) lies with the board of directors. However, the joint venture partner may decide to vary some of these provisions of CAMA by adding specific provisions in the shareholders’ agreement to evidence these deviations.

The funding of a joint venture is largely dependent on the type of joint venture model adopted by the joint venture partners. In the case of IJVs, the joint venture is typically funded through a combination of equity and debt to optimise their capital structure. The ratio depends on risk tolerance, capital needs and the financial strategy of the company.

Equity contributions (for IJVs) could include direct investments or proportional equity stakes. Debt financing could include loans from joint venture partners, financing from banks or other financial institutions that require collateral and involve specific repayment terms, or reliance on future cash flows from projects.

For unincorporated joint ventures, the business is typically funded through capital contribution by the joint venture partners. The capital contribution may not necessary be in form of cash. It is very common for a joint venture partner to contribute to the capital of the joint venture through other means such as land or labour.

A joint venture agreement does not typically obligate participants to provide funding for the future, except where the agreement provides otherwise. The agreement would outline the initial capital contributions from the parties. If additional capital is required in the future, an IJV can source for debt capital either from the bank or capital markets or issue stocks to new or existing shareholders. For unincorporated joint ventures, it is common for the joint venture partners to agree for each party to inject more capital into the business. It is also possible for an unincorporated joint venture to admit new members into the joint venture and, by implication, raise capital through the contribution of the new member.

In order not to dilute their shareholding (in the case of IJVs) or the ownership and decision-making structure, the joint venture partners may decide to contribute more funding in the joint venture in proportion to their holding in the joint venture. This is to ensure there is no change in control.

Deadlocks in joint venture arrangements are typically resolved through internal dispute resolution procedures by the management team of the joint venture. If the management team is unable to resolve dispute, a committee (ad hoc or permanent) is composed of the directors of the joint venture partners to resolve the deadlock.

If the deadlock remains unresolved after referral to the board of the joint venture partners, an expert in the relevant field may be appointed to review the facts and decide on the deadlock. If the expert’s decision is not adopted as resolution to the deadlock either, then parties will fall back on the dispute resolution clause in the joint venture agreement, which would specify that disputes will be resolved through arbitration. If not stipulated, disputes would be resolved through litigation.

Other documents that could be required in a joint venture agreement are:

• a shareholders’ agreement, which states how the joint venture company will be governed;
• assignment agreements for the transfer of intellectual property rights, assets, etc, which grants the joint venture licence for the use thereof; and
• a financial agreement which covers funding arrangement for the joint venture.

Under CAMA, every corporate entity including an IJV is required to have a minimum of two directors – except in the case of a small company, which may have one director. CAMA does not provide expressly for how the board may be structured between participating parties in an IJ;, however, during the incorporation of the IJV, the IJV partners must state and submit the particulars of the first directors. The composition is usually based on the agreement reached by the IJV partners. This may change from time to time but, in any case, is in line with what is in the shareholders’ agreement.

For unincorporated joint ventures, the joint venture agreement will have a provision for the composition of the management team of the joint venture. This may change from time to time but, in any case, is in line with what is in the JV agreement

Weighted Voting Rights

Under CAMA, weighted votes are expressly prohibited (see Section 140 of CAMA). The basic rule is “one share, one vote” and no company by its articles of association is authorised to issue shares that carry more than one vote.

However, there are some exceptions for preference shareholders. Thus, the article of association of an IJV  can allow for weighted shares:

• where a dividend on the preference share remains unpaid after the due date of the divided;
• in appointment or removal of an auditor by a preference shareholder;
• where the company seeks to vary the rights attached to the preference shares; and
• in the process of winding up the company, a preference shareholder may exercise a weighted voting right if the articles of association permit such.

The principal duties of a director may be classified into fiduciary duties and duties of care and skills. A director shares a fiduciary relationship with the company, which means that directors must maintain good faith in their dealings with and on behalf of the company. The fiduciary duties of a director include:

• the duty to always act in what the director believes to be in the best interest of the company, in good faith, to preserve the company’s assets, further its business, and promote the purposes of the company;
• the duty to take into consideration the interests of the company’s employees, as well as the interests of its members;
• the duty to ensure that the director’s interest does not conflict with any of the director’s duties to the company;
• the duty not to make unnecessary secret profit in the course of their duties as a director;
• the duty to not delegate the power in a way that may amount to an abdication of duty if a director is allowed to delegate powers under any provision of CAMA; and
• the duty to not misuse corporate information.

In addition, directors have a duty to discharge their duties with a high degree of diligence and skills in a manner that a reasonably prudent director would do.

It is important to note that a director owes fiduciary duties to the company and not necessarily to the joint venture participant. Therefore, where there is a conflict of interest between the joint venture partners and the IJV, the director must act in the interest of the IJV.

Delegation of Duties

CAMA allows the board of directors to exercise their powers through committees, provided that the articles of association of the company does not prohibit the creation of committees. This means that the board of directors have the right to delegate their duties to committees, except where the articles of association provide otherwise. Also, the members of the committees would be constituted by members of the board.

In addition to CAMA, the corporate governance codes and best practices provide that directors may delegate some of their duties and powers to committees in order to achieve effectiveness.

The delegation must be done within the confines of the articles of association of the company

Given that directors are agents appointed to manage the affairs of the company, a director must not allow personal interest to affect their independent judgement. When a director has an interest that impairs or can reasonably impair their decision-making on behalf of the company, they are said to have a conflict of interest.

CAMA requires that the personal interest of a director must not conflict with any of their duties as a director. It further prohibits the making of secret profits or obtaining unnecessary benefits and, where there is conflict of interest, the director is required to disclose such conflict.

The corporate governance codes further require the board to formulate a conflict-of-interest policy. Under this policy, where a director has disclosed conflict of interest, such director must not participate in the deliberation in which it has conflicting interest.

The key IP issues that should be considered when setting up a joint venture corporate entity and contractual collaborations are as follows.

• Name and branding of the joint venture – the first key IP issue to be considered in setting up an IJV is the name of the company. Under CAMA, names that are identical or closely resemble names of an existing company and are capable of deceiving the public into believing that the companies are the same are prohibited. However, an exception to this is where an existing company is in the process of dissolution and consents to use of the name in the manner required by the CAC. Also, a related company may give consent for another related entity to be incorporated with a name similar to its own name.
• Other forms of IP – the joint venture parties may need to grant a licence to the joint venture entity to use IP for its operation. How this IP will be treated is usually set out in the joint venture agreement and the shareholders’ agreement.
• Trade secret – trade secrets have become a major part of IP, especially in trade and commercial competition. Trade secrets come in endless arrays of types, which include R&D information, software algorithms, inventions, designs, and formula.

Under a joint venture arrangement, joint venture partners tend to agree on how to deal with IP rights. Although in some agreements, the IP rights are made to be owned by the party that own the IP and a licence may be granted to the joint venture entity. In some instances, the IP would be transferred to the corporate entity.

Broadly speaking, licensing and assigning of IP rights are two distinct ways in which a holder of IP rights grants other people the right to use the IP. Ideally, a holder of licensed IP should be able to either assign or license its IP rights.

In the event that a holder intends to assign its IP rights, the implication is that an assignment operates as an outright sale and transfers rights from the original patent holder, whereas licensing simply permits a third party to the use of some or all the IP rights. Here, the implication is that the holder still owns IP rights – although the terms of the licence may place some limitations on the use of those rights.

Globally, sustainability reporting has evolved from what was considered a business “non-essential” into a responsible business practice today. Among the key trends currently shaping the corporate sustainability landscape are:

• consolidation among standard-setters;
• regulation focused on ESG-related disclosures; and
• maturation of ESG data and disclosures within private markets.

Conclusively, incorporating ESG standards is an advantage for joint ventures looking to expand and gain relevance and acceptance in the business industry, as it attracts productive investments and collaborations. Furthermore, compliance with ESG frameworks is gradually becoming enforceable and breach of this could have both reputational and financial consequences for the joint venture.

Recent Legal Developments

The following are among the most recent significant legal developments relating to ESG/climate change.

• The enactment of the Nigerian Climate Change Act 2021 – this law provides a framework for achieving low greenhouse gas emissions and outlines mainstream climate change actions into national plans and programme.
• The enactment of the PIA – in line with ESG standards, the PIA has specific provisions that prohibit gas flaring and has penalties for defaulting businesses. Other regulations have also been passed pursuant to the PIA, including the Midstream and Downstream Petroleum Environmental Regulation 2023 and the Midstream and Downstream Decommissioning and Abandonment Regulations 2023. These also reflect policies and regulations passed to promote ESG in the oil and gas commercial sector.
• Central Bank of Nigeria’s Sustainable Banking Principles – in 2012, the Central Bank of Nigeria issued The Nigerian Sustainable Banking Principles to banks, discount houses, and development finance institutions. The nine over-arching aspects covered by the principles include managing environmental and social risk in business decisions, managing the bank’s own environmental and social footprint, promoting women’s economic participation/empowerment, and safeguarding human rights.
• The Electricity Act 2023 – this law promotes the development and utilisation of renewable energy as an energy source in Nigeria. This is in line with the Nigerian energy transition plan in place to promote the sustainable use of the environment and combating climate change.
• Adoption of the International Standards Sustainability Board (ISSB) Standards – in 2024, the Financial Reporting Council of Nigeria (FRC) announced its decision to adopt the ISSB standards, as they represent a global baseline for a single set of high-quality sustainability reporting standards and their adoption has the effect of unlocking capital and generating much-needed FDI for Nigeria.

Implementation of ESG Measures in Nigerian Joint Ventures

It is rather crucial that joint venture entities consider ESG principles as a key component of their business operations. ESG standards and principles such as the ISSB standards should also be implemented.

Internal policy-making aimed at promoting ESG principles within joint ventures can also be adopted as a compliance measure to ensure conformity with the applicable standard. These measures are necessary to ensure that a joint venture is operating its business in a sustainable and environmentally conscious manner.

Main ESG Regulations in Nigeria

The following are among the notable laws and regulations aimed at promoting ESG initiatives in Nigeria.

• The Environment Impact Assessment Act 2004 mandates that an environmental impact assessment must be conducted for any project or activity that is likely to significantly affect the environment.
• The National Environmental Standards and Regulations Enforcement Agency (NESREA) Act 2007 establishes the NESREA, Nigeria’s lead environmental protection agency.
• CAMA imposes an environmental obligation on directors of Nigerian companies and mandates directors to consider the impact of the company’s operations on the environment in the community where the company carries out its business operations.
• The PIA mandates oil and gas operators to participate in environmental and social sustainability actions in the communities surrounding petroleum wells, installations and structures.
• The Nigerian Stock Exchange Sustainability Disclosure Guidelines 2019 covers key areas such as governance, environmental impact, labour practices, human rights, and community involvement, thereby providing a framework for listed companies to disclose their ESG performance.
• The Nigeria Code of Corporate Governance (2018) issued by the FRC includes provisions related to sustainability reporting, encouraging companies to disclose ESG information.
• The Nigerian Climate Change Act (2021) aims to address climate change and promote sustainable development in the country. The National Council on Climate Change (NCCC) is responsible for implementing the law, which could significantly impact ESG reporting in Nigeria.
• The Central Bank of Nigeria’s Sustainable Banking Principles (2012) guide Nigerian banks on integrating sustainability practices into their operations. The principles emphasise sustainability reporting and disclosure as a means to ensure transparency and accountability in the banking sector.
• The Securities and Exchange Commission’s Guidelines on Sustainability Financial Principles for the Nigerian Capital Markets requires public interest/listed entities to integrate ESG considerations into their operations and decision-making processes to avoid, minimise or offset negative impacts.

Some of the ways to terminate a joint venture arrangement in Nigeria are:

• the expiration of the tenure of the joint venture;
• the completion of the objectives for which the joint venture was formed;
• the joint venture partners may mutually agree to dissolve the joint venture at any time;
• when joint venture partners are unable to resolve deadlocks in making decision, the joint venture might be terminated or a buy-sell provision may be triggered, allowing one party to buy out the other;
• a material breach or default by one party can provide grounds for the non-breaching party to terminate the joint venture or to purchase the breaching party’s interest; and
• unforeseen contingencies such as events of force majeure can also lead to the termination of a joint venture.

The following are some of the general matters that need to be addressed upon the termination of a joint venture.

• Asset distribution – typically, the joint venture should have provisions that clearly provide how assets of the joint venture will be distributed in an event of dissolution of the joint venture.
• Liabilities and debts – the joint venture agreement or shareholders’ agreement should have provisions for how the liabilities of the joint venture will be offset. This is very important in unincorporated joint ventures because the joint venture does not have separate corporate personality from the joint venture partners. As such, the joint venture agreement would typically contain provisions for how liabilities of the joint venture will be distributed among the joint venture partners.
• Exit-of-joint-venture business support – upon the termination of the joint venture, it is necessary for the parties to consider the proper dissolution of the business of the joint venture and provide support to institutions or persons affected by such termination so as to ensure a seamless termination or discontinuation of the business of the joint venture, particularly in instances where there are third parties involved.
• Surviving clauses – in most joint venture agreements, there would be clauses that the joint venture partner will still be required to comply with even after the termination of the joint venture. These may include confidentiality clauses, data protection and data privacy clauses, and limitation of liability clauses.

Certain factors should be taken into consideration when transferring assets between the joint venture partners upon termination – among which, are the following.

• Existing contractual provisions of the joint venture – prior to a transfer of assets between joint venture participants, it is essential that the terms of the joint venture are considered to ensure that where there are already stipulated procedures laid out for such transfer, same is complied with and to ensure compliance with the legal, financial and operational requirements of the joint venture. Typically, a properly drafted joint venture agreement will have a “transfer of interests” clause.
• Regulatory procedure for the transfer – the joint venture partners must ensure that the assets are transferred in compliance with the relevant laws. Hence, it is essential that joint venture partners seek legal advice on the procedure and requirements for the transfer of those assets.
• Valuation of assets – this is to ensure that the assets are sold to the other party and bought at a fair price. Parties may, however, subsequently renegotiate the price based on other factors.
• Procuring requisite approvals – parties or the responsible party must procure the necessary permits and approvals from the relevant issuing authority (eg, the FCCPC) and, for specific sectors such as the oil and gas sector, consent from the Minister of Petroleum, etc, in order to avoid any legal complications.
• Tax – the joint venture partners must ensure that all tax liabilities of the joint venture entity (especially in the case of IJVs) are liquidated and liabilities are assigned appropriately in accordance with applicable laws and the joint venture. 

Other factors include proper documentation (of the transfer process and the registration) and stamping as may be required for the transfer documents. It is also essential to carry out a thorough risk assessment to identify potential financial, operational, legal, and reputational risks associated with the asset transfer. The joint venture partners should develop and implement strategies to mitigate the risks associated with the asset transfer so as to ensure a smooth transfer process.

Difference Between Transfer of Contributed Assets and Originating Assets

Contributed assets are assets contributed by joint venture partners either at the formation of the joint venture or during the operational lifespan of the joint venture, whereas originating assets are those assets that originate from the joint venture itself (ie, bought with the joint venture money).

Whether the assets contributed by joint venture partners will form part of the assets of the joint venture depends on what was agreed by the parties. If the assets were contributed as equity or capital contribution to the joint venture, the assets will most likely be termed as the assets of the joint venture entity. However, if the asset was given by a joint venture partner to be used by the joint venture without any intention to permanently relinquish the asset to the joint venture, the asset is likely to be deemed the asset of the contributing joint venture partner.

Thus, where the assets belong to the contributing joint venture partner, on termination of the joint venture, the partner will be entitled to take the asset from the pool of assets of the joint venture. However, if the asset is that of the joint venture, its distribution would be determined in accordance with the joint venture agreement or shareholders’ agreement.