Establishing a Cooperative Society For Investment Purposes in Nigeria

*Aderonke Alex-Adedipe and Olawale Atanda

Investment entities may take several forms in Nigeria. Investors may set up a Limited Liability Company (LLC), a Limited Liability Partnership (LLP), or a Cooperative Society for the purpose of investments depending on the needs of the investors or the nature of investments the entities intend to hold.

A Cooperative Society which is of particular interest, is one formed by a group of persons who share common goals relating to their social and economic advancement. Although, not as popular as LLCs or LLPs, Cooperative Societies afford certain advantages which investors may find favourable, provided their registration requirements are met.

Below, we highlight some of the benefits of setting up a cooperative society and the applicable regulatory requirements.

1. Applicable Law and Regulation

Cooperative Societies are governed by the Nigerian Cooperative Societies Act and are registered by the Director of Cooperatives in each state. In Lagos State, the Ministry of Commerce, Industry and Cooperatives oversees the registration and regulation of Cooperative Societies.

Cooperative Societies are also exempt from the provisions of the Companies and Allied Matters Act (CAMA). Consequently, obligations required of LLCs and LLPs by CAMA such as the filing of annual returns and registration of charges and debentures do not apply to Cooperative Societies. However, returns are expected to be submitted to the Director of Cooperatives at intervals as may be determined by the Director of Cooperative Societies.

2. Benefits of Cooperative Societies

Similar to an LLC, Cooperative Societies are of limited liability and have a legal personality separate from that of its members. They also have the powers to hold movable and immovable property, enter into contracts, and perform such functions or actions as stated in their constitution.

Members can hold shares in Cooperative Societies; however, no individual member can hold more than 20% of the shares of the society.

3. Investment of Funds

Cooperative Societies may invest their funds in a bank, in federal government-backed securities, or in any other manner provided for in their constitution.

4. Taxes

Cooperative Societies are exempt from payment of companies’ income tax on the profit or income generated from their activities including shares or interest held in other entities. Cooperative Societies are also exempt from the payment of stamp duties and registration fees payable in relation to the registration of instruments.

5. Registration

Cooperative Societies are required to apply to the Director of Cooperatives for registration within their operating state and the bye-laws, which will govern their affairs, should also accompany the application. Generally, the minimum number of members varies between 10–50, depending on objectives of the business.

Conclusion

Investors are constantly seeking opportunities to increase profits while reducing expenses such as operational costs and tax liabilities. Cooperative Societies provide for lower tax exposure and less regulatory oversight than LLCs and LLPs and may be a suitable investment entity provided requirements are met.

*Aderonke Alex-Adedipe is a Founding Partner at Pavestones Legal and Olawale Atanda is an Associate at the firm