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LEGAL FRAMEWORK

ANALYSIS

NIGERIA NATIONAL

REPORT

“This report has been produced with the assistance of the European Union. The contents of this

report are the sole responsibility of The Alliance Africa and can in no way be taken to reflect the

views of the European Union.”

APRIL, 2019

ABBREVIATIONS

AGM Annual General Meeting

Cap Chapter

LFA Legal Framework Analysis

ICA International Cooperative Alliance

NCSA Nigerian Cooperative Societies Act Cap N98 2004

TABLE OF CONTENTS

ABBREVIATIONS ............................................................................................................................... i

1. INTRODUCTION ........................................................................................................................ 1

1.1. Objectives of the Legal Framework Analysis ........................................................................ 1

1.2. About the Author ................................................................................................................... 1

1.3. Methodology ........................................................................................................................ 1

2. NATIONAL COOPERATIVE LAW ............................................................................................ 3

2.1. General Context .................................................................................................................... 3

2.2. Specific Elements of the Co-operative Law .......................................................................... 4

2.2.1. Definition and Objectives of Co-operatives ................................................................... 4

2.2.2. Establishment, Co-operative Membership and Governance .......................................... 5

2.2.3. Cooperative Financial Structure and Taxation ............................................................... 6

2.2.4. Other Specific Features ................................................................................................. 6

3. DEGREE OF “COOPERATIVE FRIENDLINESS” OF THE NATIONAL LEGISLATION ..... 7

5. CONCLUSIONS ........................................................................................................................... 8

1. INTRODUCTION

1.1. Objectives of the Legal Framework Analysis

The Legal Framework Analysis (LFA) is undertaken under the auspices of the Framework

Partnership Agreement “Cooperatives in Development – People Centred Businesses in Action”

between the International Cooperative Alliance (ICA) and the European Commission to which

the Alliance Africa is a co-signatory.

Cooperatives benefit from regulations acknowledging their specificities and ensuring a level

playing field with other types of business organizations. The absence of a specific legal

framework for cooperatives or a weak legal framework may damage cooperatives, while in

contrast a supportive regulation may allow their development. This is the reason why knowledge

and evaluation of cooperative legislation is a necessary tool for ICA offices and members to

support their advocacy and recommendations on the creation or improvement of legal

frameworks, to document the implementation of cooperative legislation and policies, and to

monitor their evolution. Against this background, the objectives of the LFA are: (i) to acquire

general knowledge of the national legislation on cooperatives, including but not limited to the

legislation in force in the 107countries represented by ICA members, as well as ofsupranational

cooperative legislation if existent; (ii) to evaluate the national jurisdictions covered by the LFA

according to their enabling environment for cooperatives, in order to compare national

cooperative laws with pre-determined indicators, based on a scale of “cooperative friendliness”

of the national legislation; and (iii) to provide recommendations for eventual renewal of the

legal frameworks in place.

1.2. About the Author

The study was carried out by ODUNAYO KOLADE (of Messrs. Odunayo S. Kolade &

Company) with input from OLUFEMI SAMUEL of the Cooperative Federation of Nigeria.

1.3. Methodology

This report contains the review of the legal framework on the practice of co-operative societies

in Nigeria with recommendations for the growth and development of the sector. Special focus is

on the Nigerian Co-operative Societies Act Cap N98 2004 (NCSA/Federal Act), which is the

supreme legislation on co-operative societies in Nigeria, and the Co- operative Societies Law Cap

C14 2015 of Lagos State (Lagos State Act). In line with the Legal Framework Analysis

objectives, this report aims to discuss the said laws with a view to

identifying the provisions hampering the growth and development of the co-operative sector;

establishing the degree of co-operative friendliness of the legal framework; and making

recommendations for the improvement of the national legal framework.

The objective of the Federal Act is to regulate the activities of co-operative societies and their

operating practices from registration to liquidation. The Act is however froth with provisions that

clearly undermine the co-operative principles and thus fail to provide the required enabling

environment for the growth and development of the co-operative movement it regulates. The

Director of Cooperatives (Director), who is a civil servant drawn from the civil service, is the

fulcrum of co-operative activities in Nigeria. He can register or refuse registration of a society,

impose model bye-laws under the guise of amendment to suit the law, direct investments of

funds of societies, grant exemptions from statutory requirements, resolve disputes as he sees fit,

dissolve a society and appoint a liquidator to wind up its affairs. His powers are absolute and

appeals against his decisions lie only to the Minister or Commissioner responsible for

cooperatives, as the case may be, whose decision on any issue is final.

The main distinguishing characteristics of co-operatives from for-profit shareholder organisations

are as follows:

Corporation

Co-operative

A legal entity formed by a group of people

who contribute share capital and is

established for the purpose of generating

maximum profit.

A legal entity owned by a group of people who

come together voluntarily to meet their common

social and economic needs.

The liability of shareholders may be limited

or unlimited to their shareholding.

Liability is limited to members’ share

contributions.

Shares are transferrable.

Shares are not transferable.

Regulated by the Companies and Allied

Matters Act which is an Act of the National

Assembly.

Registered by the Department of Co-operatives

either at the Federal or State level and regulated

by the Department of Co-operatives.

Operated as a business to the general public.

There is a restriction on doing business with the

general public.

Profits are distributed by way of dividend

according to shareholding.

The surplus earned by a co-operative is given to

members on the basis of both share capital and

patronage

Subject to pay the following taxes; Income

Tax, Value Added Tax, Capital Gains Tax and

Stamp Duties tax.

Exempted from certain taxes payable under laws

such as Stamp Duties Act and Companies

Income Tax Act. Also exempted from fees

relating to registration of instruments.

The major legal obstacle to the development of co-operatives in Nigeria is overregulation.

Notwithstanding specific legislation empowering co-operatives to make their own laws guiding

their operations, there is still unfettered involvement by the regulatory authority both at the

Federal and State levels in the operations of co-operatives. The legal provisions hampering the

development of co-operatives are numerous and vary between the Federal Act and Lagos State

Act. The Director’s unilateral power to amend bye-laws before registering a society, direct audit

and investment of society’s funds, settle disputes and control liquidation has largely stifled the

Movement. There is no legislative provision for the delegation of any of the Director’s functions

to apex co-operative organizations to accommodate deferred opinions.

2. NATIONAL COOPERATIVE LAW

2.1. General Context

The legal sources for the rules and regulations for the formation, operation and dissolution of

co-operative societies in Nigeria are:

(i) The Constitution of the Federal Republic of Nigeria 1999 (as amended).

(ii) The Nigerian Co-operative Societies Act CAPN98 2004. (Formerly Decree No.

90 of 1993).

(iii) States Co-operative Societies Law and Regulations made pursuant to State laws.

(iv) Bye-laws of individual co-operative societies.

The history of co-operatives in Nigeria stems from Mr. C.F. Strickland’s Commission which

conducted a study on the possibility of introducing co-operatives into Nigeria. His report of 1934

culminated in the enactment of the Cooperative Societies’ Ordinance of 1935 which law was

adapted by the three regions (North, South and West) in Nigeria at the time and subsequently by

the States as they were created.

The State cooperative laws are substantially a replica of the 1935 Ordinance but with

modifications to suit their environment. A review of the 1935 Ordinance by the Federal

Government culminated in the promulgation of the Nigerian Cooperative Societies’ Decree No.

90 of 1993 which was re-enacted as the Nigerian Cooperative Societies’ Act N98 of 2004 and

adopted by all the States. It is safe to say that reference to one of them is as good as reference to

all.

Though the Constitution of the Federal Republic of Nigeria in item 32 of the Exclusive Legislative

list appeared to vest power to make cooperative laws on the State Houses of Assembly, the

Federal Act in its preamble makes the State laws subject to it. It states thus; “An act to provide

for the registration and operation of co-operative societies throughout the Federation and for

related matters”. Furthermore, section 1(2) on registration of co-operative societies gives State

Governors the power to appoint State Directors of Cooperatives and their Assistants and confer

on such appointees all or any of the powers of the Director under the Federal Act.

It is trite that the Constitution is the supreme law of any land and Nigeria is no exception. Section

4(5) of the Constitution of the Federal Republic of Nigeria states that, “[i]f any law enacted by

the House of Assembly of a State is inconsistent with any law validly made by the National

Assembly, the law made by the National Assembly shall prevail, and that other law shall to the

extent of the inconsistency be void”. The Federal Act for all intents and purposes supersedes the

State co-operative laws.

For the purpose of this report, special focus is on the Federal Act and the Lagos State Act. The

Lagos State Act behooves consideration because it is the most recently updated State co-

operative law in Nigeria with a few innovations that can safely be said to contain the best co-

operative practices amongst the State laws. In addition, the Lagos State Co-operative Movement

is a pacesetter in the practice of co-operatives in Nigeria with more functional and visible

societies.

2.2. Specific Elements of the Co-operative Law

2.2.1. Definition and Objectives of Co-operatives

The Federal Act in its interpretation section defines a co-operative as “a voluntary association of

individuals, united by common bond, who have come together to pursue their economic goals for

their own benefits”. According to the Act, the main objective of co-operatives is to promote the

socio-economic interests of its members in accordance with the co-operative principles. To ensure

the actualization of the three contemporary co-operative principles of User-Owned, User-

controlled and User-benefits, the Federal Act under Sections 30, 31 and 32 places a restriction

on transacting business with non-members whether through the grant of loans, borrowing or

carrying on any business. The Lagos State Act by sections 14, 15 and

17 makes similar provisions to ensure member promotion. While member promotion is

paramount, co-operatives may also have objectives that allow non-members and the

community at large to benefit from their activities so as to fulfil the seventh co-operative principle

of concern for community. Such objective may be in tandem with a society’s social objective

towards its members, for instance, health awareness programs and donations to care homes.

Furthermore, section 33 (c) of the Federal Act permits a co-operative to invest its funds in any

other manner approved by the members of the society save for co-operative thrift and credit

societies whose investments cannot go beyond savings and loans.

2.2.2. Establishment, Co-operative Membership and Governance

Section 3 of the Federal Act prescribes the minimum number of members to establish a co-

operative. At least: ten persons for primary societies; six for industrial societies; five for

secondary societies; and five for Federal Apex society. The admission of new members into a

society is regulated by the bye-laws of each society. The requirements for admission are by and

large similar with very little variation. The new member must: (a) be introduced to the society by

a member of the co-operative; (b) submit an application letter of intent to join the co-operative;

photographs for record purposes at the co-operative secretariat; (f) complete a nominee form

indicating beneficiaries; (g) be eighteen years of age; and (h) subscribe to the prescribed minimum

shares in the co-operative. However, the age requirement under Section 22 (1) (a) of the Federal

Act is sixteen years.

In Sections 25 and 34 of the Federal Act and Lagos State Act respectively, each member has one

vote in the conduct of the affairs of the society, regardless of the capital invested. However,

where there is equality of votes, the presiding Chairperson shall have a casting vote.

The general internal structure of administration of co-operatives consists of an elected

Management Committee (Board) which is responsible for the day-to-day running of the co-

operative. The Management Committee is supported by other committees depending on the

business of the co-operative. The ultimate authority under the law in all the affairs of the co-

operative is the General Meeting of members who can meet from time to time to review and direct

the work of the society. The General Meeting is the main avenue for taking decisions and

conducting elections.

2.2.3. Cooperative Financial Structure and Taxation

A society may determine a minimum share to be held by any member and contribution may be

linked to the volume of transactions, provided no member shall own more than 1/5 (20%) of the

share capital of the society as required by section 27 of the Federal Act. A similar provision on

restriction is contained in section 32 of the Lagos State Act.

Every co-operative society must prepare an annual income and expenditure account and the net

surplus for the year is appropriated in the following manner:

(i) Reserve Fund: Not less than 25%.

(ii) Education fund: 2.5%.

(iii) Members’ dividends: 50%.

(iv) Honoraria: 5%.

(v) Meeting expenses (AGM) and General reserve: 17.5%.

By the provisions of section 23(1)(b) of the Companies Income Tax Act Cap C21, Laws of the

Federation of Nigeria, 2004 (last updated 2007), and section 19(1) paragraph 22 of the third

schedule of the Personal Income Tax Amendment Act 2011, co-operatives are required to pay

tax on profits realized from businesses outside co-operative activities. Save for these provisions,

co-operatives enjoy exemptions from virtually all other tax laws in Nigeria. In sections 20 and 21

of the Federal Act, co-operatives are exempted from stamp duties tax and registration fees on all

instruments executed by or on behalf of a registered society and relating to the business of the

society. Similar exemptions are also contained in sections 28 and 29 of the Lagos State Act.

2.2.4. Other Specific Features

The Federal Act provides for cooperation among co-operatives. Section 14 endorses compulsory

cooperation among co-operatives in particular trades. In promoting the sixth co- operative

principle, section 30 of the Federal Act provides that a co-operative society may grant a loan to

another registered society with the consent of a majority of its members.

3. DEGREE OF “COOPERATIVE FRIENDLINESS” OF THE

NATIONAL LEGISLATION

The degree of “cooperative friendliness” of the national legislation is very limited so much that

there are very few legislative provisions promoting growth and development of co- operatives.

Notable “co-operative friendly” provisions in the Federal Act are sections 11, 12, 33 and 36. They

are especially commendable as they give the co-operative the autonomy to make its own laws

(bye-laws), control the investment of its funds and exercise its discretion in the choice of an

auditor to audit its accounts without any interference whatsoever from the Director.

Exemption from certain taxes by both the State and Federal law is another good practice. The

exemptions are geared towards the conservation of co-operative funds to encourage co- operative

activities.

4. RECOMMENDATIONS FOR THE IMPROVEMENT OF THE

NATIONAL LEGAL FRAMEWORK

The main recommendations for the improvement of the legal framework in place are summarized

below:

(i)

The co-operative principles should be adhered to and enshrined in both the Federal and

State co-operative laws. This can be achieved by the decentralization of the powers of

the Director of Co-operatives and delegation to State and Federal Apex organisations.

(ii)

The law should allow flexibility in the provisions of the bye-laws of co-operative

societies rather than the imposition of template bye-laws by the Ministry responsible for

co-operative societies.

(iii)

There should be less interference of the regulatory body in the management and affairs

of co-operatives.

(iv)

There is a need for collaboration between the Ministry responsible for co-operatives and

the state apex bodies on such functions as promotion, registration, audit and formulation

of policies.

(v)

Co-operatives should be placed under the appropriate ministry to improve co- ordination

and formulation of the right policies. In some States, co-operatives are under the

Ministry of women affairs, Federal Ministry of Agriculture and Rural Development, in

some other States, ministry of poverty alleviation and co-operatives or ministry of

commerce, industry and rural development.

(vi)

There is a need to establish a financial aid scheme at single digit interest rate by the

government to promote co-operative business.

(vii)

Cooperative members should be protected against financial loss caused by unscrupulous

management committee members to boost public confidence.

(viii)

There is a need to adopt and pass into law the draft bill of 2008 proposed at the National

Assembly for the establishment of a National Co-operatives Societies Development

Agency. This bill is tailored after the Malaysia Co-operative Societies Commissions Act

2007. It is an improvement on the model law and its implementation will promote the

development and growth of the co-operative movement in Nigeria.

5. CONCLUSIONS

We have identified the limitations of the co-operative legislation in Nigeria and made

recommendations on its amendments to promote full cooperation in accordance with the

cooperative principles. In achieving the desired change, the legislation whether at the Federal or

State level should not be overly prescriptive as it is presently, but create an atmosphere conducive

to cooperative autonomy and development. The legal framework should curb excessive

involvement by the Director of Co-operatives in virtually every sphere of cooperative endeavor

and give freedom to the societies to define the parameters for their management and business

activities. The role of the Director should mostly be supervisory and delegation of some of its

duties to apex cooperative organisations whether at the State or Federal level be given

consideration to instill confidence in the system and give the much desired sense of participation

by the cooperatives in the conduct of their affairs.