You may be trying to determine which entity to incorporate—a group of companies or a holding company. In the complex landscape of corporate structures in Nigeria, understanding the distinctions between these business structures is crucial for making informed decisions.
Two commonly misunderstood concepts are the “Group of Companies” and the “Holding Company.” Although they are often used interchangeably and are quite similar, these terms have distinct legal implications and requirements.
This article delves into the nuances of these concepts, analyzing their differences and providing clarity on the legal requirements of each structure in accordance with the Companies and Allied Matters Act 2020 (CAMA).
What is a Group of Companies in Nigeria
A group of companies is an entity that comprises three or more associated companies with similar shareholders. Once the group is registered, the associate companies become the shareholders of the group of companies.
The purposes of registering a group of companies include diversification, risk management, cost efficiency, and growth.
A major characteristic of a group of companies is that at all times, its share capital must be higher than the highest share capital among the subsidiary companies. For example, if the highest share capital among the subsidiaries is 5 million naira, the share capital for the group of companies must always be above 5 million naira.
The use of the word “Group” is restricted by the Corporate Affairs Commission (CAC) and can only be used when consent is sought and obtained from the Registrar General of CAC.
Requirements for the Registration of a Group of Companies
- A formal application to the Registrar General for consent to use the word “Group.”
- Evidence of a minimum of three associated companies to form the group.
- Evidence of similar names of associate companies with common shareholders and ownership.
- Resolution by the boards of the associate companies indicating consent to the group formation.
- Evidence showing that annual returns for all associate companies have been filed up to date.
- Evidence of company secretary of associate companies.
- Statement by the proposed group company that the share capital shall not be less than the highest share capital among the associate companies.
- Evidence of compliance with Section 553 of CAMA where applicable.
Once consent has been obtained, the group of companies can be registered using the same procedure for the registration of a limited liability company.
Holding Company
A holding company is an entity that holds more than 50% shares in another company or companies. The company that holds is called the “Holding Company” and the company whose shares are being held is called the “Subsidiary.”
The purpose of a holding company is to control, acquire assets, and manage the affairs of the subsidiary companies.
A major characteristic of a holding company is that it must always own more than 50% of the shares in all its subsidiaries.
The use of the word “Holding” is restricted by the Corporate Affairs Commission (CAC) and can only be used when consent is sought and obtained from the Registrar General of CAC.
Requirements for the Registration of a Holding Company
- A formal application to the Registrar General for consent to use the word “Holding.”
- Evidence of no fewer than three subsidiary companies.
- A statement by the majority of the directors of the proposed holding company that the company shall acquire more than half of the nominal value of the share capital of each of the subsidiaries within 90 days of incorporation.
- Evidence showing that annual returns for all existing subsidiary companies have been filed up to date.
- Evidence of compliance with Section 553 of CAMA where applicable.
Upon obtaining consent, the holding company can be registered using the same procedure for the registration of a limited liability company.
Differences between a Group of Companies and a Holding Company
- The associate companies of a group must have similar shareholders, whereas the subsidiaries of a holding company need not be related to the holding company.
- The subsidiaries of a group of companies must have similar names, but for a holding company, there is no such requirement.
- While the shares of a group of companies should not be less than the highest shares of its subsidiary companies, a holding company is required to acquire more than 50% of the shares of all its subsidiaries.
Conclusion
While the terms “Group of Companies” and “Holding Company” are often used interchangeably, they have distinct legal implications and requirements under CAMA.
Understanding these differences helps investors and entrepreneurs make informed decisions and ensures compliance with the provisions of the Companies and Allied Matters Act 2020.
Frequently Asked Questions
1. What is the difference between a consortium and a group of companies?
A consortium is typically a temporary alliance of independent companies that join forces to achieve a specific objective. These companies remain legally separate and collaborate under a contractual agreement, sharing resources and risks for the duration of the project. On the other hand, a group of companies refers to a permanent organizational structure where multiple businesses operate under common ownership or control, usually through a parent company and its subsidiaries.
Do You Need an Expert in Setting Up Your Group of Companies or Holding Company?
Setting up a group of companies or holding company requires expert guidance. With years of experience in business setup, corporate law, and compliance, TCorporate makes the process seamless so you can focus on managing your business.
Visit: CAC BUSINESS REGISTRATION
Email: info@tcorporatelegaladvisory.com
Tel: 08062348867, 09080119975, 09080119980
There is a WhatsApp button at the bottom right. Chat with us instantly.
Disclaimer
This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. For specific legal advice, contact us.
WRITTEN BY:
OGHENEYOMA E. IBUJE LL.B, B.L, ACIS
LEGAL ASSOCIATE
TCORPORATE LEGAL ADVISORY