Effective Contract Management

Contract management, sometimes referred to as contract administration, refers to the processes and procedures that companies may implement in order to manage the negotiation, execution, performance, modification and termination of contracts with various parties including customers, vendors, distributors, contractors and employees. While businesspeople often dismiss contract preparation as “lawyer’s work” that has little or nothing to do with the important aspects of the working relationship between the contractual parties, contracting is actually one of the crucial activities in determining the success of any business arrangement.

We assume that one of your roles as in-house counsel will be assisting your internal clients with contract preparations and it is absolutely essential that you work closely with your clients to establish well in advance your mutual expectations regarding the role that you will be expected to play in the negotiation, drafting, finalization and monitoring of a particular contract. In most cases, you should expect to be responsible for drafting the contract and all related documents as well as spotting and resolving specific legal issues. Managers inside your company will typically be responsible for identifying and resolving all of the business and risk management issues associated with the contract and the underlying relationship between the parties. However, in-house counsel do sometimes become heavily involved in negotiation of business issues and to have a great deal of input into the strategy goals and objectives of a particular contractual arrangement.

For each proposed contractual arrangement you should get in the habit of going through a checklist of the actions that you might be expect to take in order to assist the company. You’ll eventually develop your own checklist that you can refer to as time goes by; however, when you are first starting out we recommend that you consider each of the following “Top 10 Steps for Effective Contract Management”:

  1. Make sure that you begin with a thorough investigation of both the business and legal background for the contract and the proposed transaction and business relationship in which the contract is to be used. Appropriate representatives of the company should be interviewed to determine how the relationship has evolved and what, if any, commitments may have already been made by the parties. This is also the time to give special consideration to the actual and potential impact on the company’s existing obligations and business relationships.
  2. Working with the appropriate representatives of the company, you should identify the steps that need to be taken in order to comply with the requirements of any contract review and signature authority policies and procedures that have been established by the company. For example, does the contract need to be reviewed and approved by senior management and/or the board of directors and, if so, what needs to be done in order to expedite review and consideration.
  3. Once you have a good understanding the scope of the proposed business relationship you should identify the contracts and related documents required to document the relationship and complete any immediate transaction and then proceed with collecting and reviewing examples of the necessary contracts to expedite the drafting process and isolate specific questions that the company will need to answer in order for the contract to be complete and accurate.
  4. If warranted by the complexity of the proposed transaction, you should prepare a time and responsibility schedule for drafting, review, discussion, revision and completion of all required items and activities. For example, a time and responsibility schedule is often useful for a financing transaction that must pass through several stages over an extended period of time including preparation of a business plan, presentations to potential capital providers, preparation of financing documents and satisfaction of closing conditions.
  5. Taking into account discussions with company representatives regarding your role, you should participate in the negotiation of the essential terms of each contract and, if appropriate and useful, prepare a term sheet or letter of understanding to be sure that the parties are in agreement regarding the essential terms before time and effort is spent on contract preparation. If you are not to be directly involved in negotiations you should, at a minimum, provide company representatives with a list of questions that will need to be answered in order for the contracts to be completed so that the representatives can discuss them with their counterparts from the opposite party.
  6. Once background information has been collected and preliminary agreement has been reached on the essential terms, you should prepare the initial draft of each of the required contracts and related documents or, in cases where the opposite party is responsible for drafting, review the initial draft of such items prepared by the opposite party; discuss and negotiate necessary changes in the initial drafts and make sure that revised drafts are circulated for review and finalization. The timing of the drafting and revision process is crucial since delays can push the relationship off track and jeopardize realization of the business opportunities anticipated by both parties.
  7. Once the documentation is finalized you should prepare for the closing of the transaction, including pre-closing meetings and preparation of closing checklists and memoranda. If certificates and/or consents from outside parties are required in order for the contracts to be finalized and become effective they must be planned for well in advance and may themselves require time-consuming negotiations.
  8. Once all conditions to consummation of the proposed business relationship have been satisfied or waived, you should oversee completion of the closing of the transaction at which time all contracts and related documents are executed and exchanged and any required performance at the closing (e.g., cash payments) is completed.
  9. Once the closing is completed you should make sure that all of the closing documents are organized and that copies are delivered to all interested parties. This is also the time for you to make sure that the files relating to the transaction that have been opened during the process described above are organized so that they can be easily accessed in the future should questions arise.
  10. Working with company representatives, you should establish a plan for ongoing review of the performance of each of the parties under the terms of the contract, at least in those cases where the contract is long-term and calls for continuous performance over an extended period of time. As part of the plan you should calendar any dates identified in the contracts that may require follow up action, such as performance milestones and option elections.

We cannot overemphasize the importance of determining your role in the contracting process and the level of active involvement that you may have in negotiations relating to the contract. In-house counsel’s role can vary from active negotiator to behind-the-scenes scrivener. In all situations where you are empowered to take some actions without managers being present, you should make sure that procedures are in place to promptly communicate any new development to the appropriate businesspersons within the company. Absent this type of communication, and a clear delineation of responsibility between you and other company participants, you may find that responsible managers within the company are unhappy with the way the company is being represented. Moreover, lack of coordination increases the risk of embarrassing conflicts and misunderstanding that send the wrong message to the parties on the other side of the transaction.

Even if you are not expected to play a primary role in negotiating the terms of the contract, you should make every effort to encourage managers to notify you as soon as possible that the transaction is contemplated. While businesspersons do not always do the best job of informing their lawyers in advance, even in the best of circumstances, you should always attempt to sensitize managers and other involved parties within the company to the possibility that unforeseen legal issues may emerge from a particular business decision. With that knowledge and understanding, businesspersons can be trained to always discuss business points with the caveat that a final decision will ultimately depend on review by “legal”. This Top Ten helps in-house counsel define the important considerations in the contract management process, regardless of their role.

Culled from Association of Corporate Counsel

 

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Digitalisation, automation and the global labour market

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Introduction

Modern information technology and the daily use of the Internet have strongly influenced the world of work in the 21st century. Intelligent algorithms simplify everyday tasks, and it is impossible to imagine how most steps of a procedure could be managed without them. Further, the use of artificial intelligence (AI) and robotics is accelerating. Thus, the question arises as to what the future world of work will look like and how long it will take for this to happen. Mass unemployment, mass poverty and social distortion may be a possible scenario for the new world of work.(1) Even if intelligent systems and algorithms play an increasingly central role in the new world of work, no jobs will be lost abruptly as a consequence of digitalisation. Rather, a gradual transition will take place, which has already commenced and differs from industry to industry and from company to company.(2)

Big data analyses and intelligent algorithms are also increasingly replacing or supporting humans in the service sector. In the industry sector, automation and the use of production robots will lead to considerable savings with regard to the cost of labour and can release workers from hard and dangerous, repetitive and monotonous work. While in the European automotive industry one working hour in production costs more than €40, the costs for using a robot range from €5 to €8 an hour.(3) A production robot is thus only slightly cheaper than a worker in China.(4)

Robots and intelligent algorithms cannot become ill, have children or go on strike, and are not entitled to annual leave; therefore, for many companies it is worthwhile investing in robots and intelligent software. An autonomous system does not depend on external factors and works reliably and constantly; it can also work in danger zones and overnight.(5)

Categories of AI

The following definitions are of use in this area:

  • Deep learning – machine learning based on a set of algorithms that attempt to model high-level abstractions in data.
  • Gig economy – independent contractors looking for individual tasks that companies advertise on an online platform (eg, Amazon Mechanical Turk).
  • Robotisation – production robots replacing employees because of advanced technology (they work more precisely than humans, eg, three-dimensional printers).
  • Autonomous driving – vehicles have the power for self-governance using sensors and navigation without human input. Taxi and truck drivers are no longer necessary. The same applies to stock managers and postal carriers (eg, delivery drones).
  • Dematerialisation – thanks to automatic data recording and data processing, traditional office activities are no longer necessary (eg, accounting or lawyer assistants).

Impact of digitalisation and automation on labour market

Global view
According to recent studies, about 47% of total US employment is at risk,(6) while around 70% of total employment in Thailand or India is at risk.(7) Low-wage countries such as China, India and Bangladesh are still benefiting from their surplus of low-skilled workers, and western companies have outsourced their production and some services to these countries. In most developing countries, the implementation of (partly) autonomous systems is unlikely to be worthwhile at present for economic reasons, since the labour costs are not much higher than the costs for acquisition, development and maintenance of the necessary equipment.(8) On the other hand, companies also located in low-wage countries must invest in relevant IT systems in order to improve their productivity and attractiveness and remain competitive in the long run.

Eventually, however, these companies will decide to produce in their countries of origin using production robots and only a few workers. In this case, the surplus of low-skilled workers will turn into a curse for developing countries. The question is how to integrate the large number of unskilled production workers into a structurally difficult labour market that depends on the demand of foreign countries. Another problem is that there are no comparable social security systems in place in most developing countries. Possible mass unemployment could lead to humanitarian catastrophes and a wave of migration.

Due to the lack of financial investments in many developing countries, digitalisation will initially be strongly focused on developed countries and Southeast Asia. For example, more than 80% of the robots sold each year are used in Japan, South Korea, the United States and Germany.(9)

New job structures
According to a survey by the Pew Research Centre, 65% of Americans expect that a robot or an intelligent algorithm will be doing their job within 50 years.(10) Individual jobs will disappear partly or completely, and new types of job will come into being, especially in the service sector. That the service sector will be affected can particularly be seen in the insurance and financial branches, where intelligent algorithms are replacing human employees by automatically carrying out traditional back-office tasks, answering client questions via chatbots and presenting financial planning or insurance policies.(11)

A typical example of a new type of job created in recent years is crowdworking. Freelancers represent the typical worker of ‘Industry 4.0’ because they work at any time and in any place. Thanks to the Internet, international borders and time differences also no longer play a role. Owing to the digitalisation and internationalisation of the online platforms on which crowdworkers offer their services, the choice of applicable law is usually uncertain. More precisely, the challenges are how to define ‘crowdworking’, how to establish working conditions for compensation and how to determine which tax regime, social security and welfare rules apply.(12)

It is certain that both blue and white collar sectors will be affected to the same extent. In the medium-wage sector, routine jobs will be eliminated. Up to one-third of the jobs that require a bachelor’s degree may be replaced by a machine or intelligent software in the coming years. At the same time, it is expected that new jobs will be created in the service sector, ranging from data analysts to software programmers.

Labour relations
The role of humans within the world of work is changing. Employee organisations have realised that new challenges are in store for employees from all professional and social classes because of robotics and the computerisation of the workplace. Trade unions will pay particular attention that no ‘lost generation’ is left behind and that there are no mass dismissals caused by the introduction of AI. Unions will advocate further training, advanced training and retraining of employees.(13)

Trade unions will remain the main player when it comes to fighting for employees’ rights and they will expand their constituency by also representing the increasing number of freelancers. Finally, legislators will have to introduce new forms of employee representation structures to avoid their slow decline caused by a decrease in trade union memberships and fewer employees in a company, due to which the required thresholds for works councils can no longer be reached.

Outsourcing employment and creating new internal structures
Companies will focus on their core competencies and will outsource other activities in a cost-effective manner.(14) It is a global trend that ‘Work 4.0’ will take place outside traditional employment structures, with a rise in self-employment.(15) Even in European countries, the so-called platform economy is becoming more and more common. And larger companies use external workers instead of hiring new employees. Some highly qualified young employees enjoy their independence and will focus their work on the development of creative solutions for a changing client base. The demand for social security is no longer as high, but freedom with regard to working time, the place of work and the choice of clients is more important to so-called ‘Generation Y’.

Professional connections between companies, clients, competitors and external providers involve some risks with regard to business secrets, especially if companies create open innovation models or use ‘prosumers’ (who consume and produce media) to develop their products. Particularly in big companies, hierarchy levels will be eliminated and smaller organisational units will be necessary. An automatic supply chain connection between the company’s systems and the systems of its external providers will be the basis for success in the digital world.

Distinction between employee and independent contractor
Classic employment can be detrimental to the business owing to the high wage costs in European countries.(16) An employee is primarily characterised by the fact that he or she is subject to the authority of the employer to issue instructions regarding the job assignment. The borders between the employee’s professional life and private life become blurred. If the place of work, in addition to working time, becomes more flexible, and if employees are granted more powers to work independently, it becomes harder to distinguish between an employee and an external freelance worker or a worker provided by a third-party company.(17)

Liability and safety risks
The introduction of intelligent algorithms and more independent production robots will create new risks for employees and employers. At the moment, a spatial separation between robotic and human workers characterises production facilities. In the future world of work, human workers will have to collaborate with robots and intelligent algorithms. Work will be characterised by the use of connected technical wearables (eg, data glasses or fitness trackers). In the production sector, risk analyses will be carried out in advance.

In addition, software faults can come into consideration as potential safety hazards relating to autonomous systems and assistant robots. Recently, the European Parliament voted for a resolution concerning the introduction of legal standards for robots and intelligent algorithms (eg, electronic person) and compulsory insurance to compensate for damages caused by the systems.(18)

Self-employed contractors are not released from liability. If an independent contractor destroys the principal’s property while working for the principal, he or she must pay full damages, whereas the employee’s liability is limited in most cases.

Working time
In the future, employees and employers will agree on the flexible management of working hours. The breakdown of the boundaries for working hours also makes it possible to implement working life time models that are beneficial to the ‘work-life balance’. In most European countries, the maximum working hours or rest periods are exceeded in everyday practice. National and European lawmakers should create frameworks offering more flexibility and less strict regulations to avoid this legal uncertainty (eg, daily rest periods).

Some (older) alternative working-time models will become common, especially for the younger generation. Examples are home office, job sharing, on-call work, zero-hour contracts, employee-sharing, sabbaticals or reduced working time models for older employees. However, there are individual legal risks concerning the contractual design of every alternative working time model. In most cases, negotiations with employee representatives will be necessary.

Remuneration
The breakdown of boundaries in terms of the place of work and working hours makes it difficult for employers to check how many hours employees have actually worked. There is no factor linking the time/wage system, which makes this system unattractive for employees and employers alike since, in general, employees’ motivation is enhanced by more performance-related payments. In the future, elements of performance-linked payment – or alternatives such as stock options, annual bonuses or company pensions – will thus be used increasingly with regard to non-executive employees.

The central issue regarding performance-related remuneration structures is not the type of agreement, but how to define ‘performance-related’. A combination of an individual team target (turnover or a ‘soft’ target) and the turnover achieved by the company or group is possible.

Data privacy and big data
For big data analyses, data is anonymised and exists in an unstructured form. Thus, in most countries big data analyses do not violate applicable law. For companies, data is not only an asset worth protecting, but at the same time it is merchandise, and has been called the “oil of the future”.(19)Nevertheless, the EU General Data Protection Regulation (applicable as of May 2018) prohibits collecting personal data without a permissive rule in all European countries. US data privacy protection laws are not based on the general assumption that data is confidential, but provide for data confidentiality in individual cases (eg, with regard to health insurance and the protection of minors). In addition, at least in the European Union, the introduction of many technical aids (eg, production robots, wearables, intelligent algorithms and employees’ own devices) is not possible without the consent of employee representatives.

Comment

One certainty is that both blue and white collar sectors will be affected to the same degree.(20) A high level of unemployment in some sectors will be unavoidable, even if the major share of jobs will shift to a different area of work – mainly to the service sector, where new service models will be created. Finally, AI will result in growth and prosperity: employees will also benefit from flexible solutions concerning working time and the place of work caused by the introduction of AI.

The digitalisation (and automation) of services is a global phenomenon affecting a far-reaching and diversified field of advisory services in general, and labour and employment law in particular. Ideally, future laws should take the technological developments and the increased need for flexibility into account. AI is creating a gap between existing legislation and the new laws necessary for an emerging workplace reality.(21)

For further information on this topic please contact Gerlind Wisskirchen or Jan Schwindling at CMS Hasche Sigle by telephone (+49 40 37 63 00) or email (gerlind.wisskirchen@cms-hs.com or jan.schwindling@cms-hs.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.

Endnotes

(1) www.spiegel.de/wirtschaft/soziales/arbeitsmarkt-der-zukunft-die-jobfresser-kommen-a-1105032.html.

(2) Brzeski/Burk, “Die Roboter kommen, Folgen der Automatisierung für den deutschen Arbeitsmarkt“, 2015.

(3) www.bcgperspectives.com/content/articles/lean-manufacturing-innovation-robots-redefine-competitiveness/.

(4) “Kollege Roboter,” Fokus No 38/2015 of October 19 2015, p69.

(5) www.faz.net/aktuell/wirtschaft/fuehrung-und-digitalisierung-mein-chef-der-roboter-14165244.html.

(6) Frey/Osborne, The Future of Employment: How Susceptible Are Jobs to Computerisation,” 2013, p1.

(7) “Automat trifft Armut”, Handelsblatt News am Abend, July 15; No 135, p6.

(8) www.bcgperspectives.com/content/articles/lean-manufacturing-innovation-robots-redefine-competitiveness/.

(9) www.bcgperspectives.com/content/articles/lean-manufacturing-innovation-robots-redefine-competitiveness/.

(10) www.pewinternet.org/2016/03/10/public-predictions-for-the-future-of-workforce-automation/ p3.

(11) www3.asiainsurancereview.com/News/View-NewsLetter-Article/id/38286/Type/eDaily/South-Korea-Insurers-to-evolve-into-integrated-service-providers-integrated-service-providers.

(12) “The On-Demand Economy and the impact on employment law”, International Bar Association Employment & Industrial Relations Law, September 2016, p31.

(13) https://innovation-gute-arbeit.verdi.de/++file++540998f5ba949b358400004e/download/138.1411_digit_arbeit_RZ3_web.pdf S.25.

(14) “Understanding the Future of Work“, International Organisation of Employers Brief, July 6 2016, p7.

(15) “Automation and Independent Work in a Digital Economy”, OECD Policy Brief on the Future of Work, May 2016, p3.

(16) “The On-Demand Economy and the impact on employment law”, International Bar Association Employment & Industrial Relations Law, September 2016, p27.

(17) “The On-Demand Economy and the impact on employment law”, International Bar Association Employment & Industrial Relations Law, September 2016, p26.

(18) www.spiegel.de/netzwelt/netzpolitik/kuenstliche-intelligenz-eu-parlament-fordert-regeln-fuer-roboter-technologie-a-1134949.html.

(19) www.faz.net/aktuell/wirtschaft/netzwirtschaft/was-taugt-die-eu-datenschutz-verordnung-13972055.htm.

(20) www.pewinternet.org/2016/03/10/public-predictions-for-the-future-of-workforce-automation/ p5.

Source: International Law Office

#SME FUNDING: FGN, BoI launch N5b fund for artisanal, small scale miners

The  Ministry of Mines and Steel Development has signed a Memorandum of Understanding  (MoU) with the Bank of Industry (BoI) for the management of a N5 billion fund in support  of artisanal and small scale miners in the country.

Under the arrangement, the Ministry would contribute N2.5billion which would be matched by another N2.5 billion by BoI. A certified artisanal scale miner, under the scheme, can access between N100,000 and N10million; while a small scale miner can access between N10million and N100million.

The MoU was signed by the Minister of Mines and Steel Development, Dr Kayode Fayemi and the Managing Director/CEO of BoI, Mr Olukayode Pitan, in Abuja yesterday. The event was witnessed by the Minister of State for Mines and Steel Development, Hon Abubakar Bawa Bwari, Permanent Secretary of the Ministry, Mohammed Abass and Chair of the board of the Solid Minerals Development Fund, Alhaji Uba Saida Malami.

Speaking at the event, Fayemi said the development is aimed at addressing the issue of insufficient funding and access to capital, which is a major factor militating against artisanal and small scale miners who account for about 80 per cent of activities in the mining sector. According to him, the BoI would serve as the custodian and manager of the fund, which would be given to the artisanal and small scale miners at five per cent interest.

Fayemi said: “This agreement is a meeting of minds between the FMMSD and the BoI. We are in the first instance launching a N5billion fund. With our ministry’s pilot contribution of N2.5billion, BoI will match our contribution with another N2.5billion.

“Consequently, with this agreement, the FMMSD appoints BoI as the custodian and manager of the Nigerian Artisanal and Small-Scale Miners (ASM) Financing Support Fund, for the purpose of financing artisanal and small scale mining projects involving industrial minerals, precious stones, precious metal (gold), dimension stone and such other strategic minerals in Nigeria as shall be approved by the ministry and BoI from time to time.”

Fayemi said the fund would be available in the form of term loans or working capital to be utilised for the purchase of requisite items of plant and machinery; payment for drilling, geological and other services related to mining business as may be required, among others.

He added that proper funding would help to integrate the artisanal and small-scale miners into the formal sector, enhance their growth and development in a structured manner, and spur productivity and job creation in the mining sector.

Speaking further, Fayemi said: “The single obligor limit of loans to be granted under the Fund shall be from N100,000.00 to N10,000,000.00 for artisanal scale miners; and from N10,000,000.00 to N100,000,000.00 for small scale miners.

“The loans would be made available to certified industry participants at a single digit interest rate of five per cent per annum, which is by far about the most attractive within our jurisdiction.

“In addressing the challenge of insufficient funding and lack of access to capital, the ministry secured approval for N30billion (about $100million) from the mining sector component of the Natural Resources Development Fund from the Federal Government. We also secured the World Bank’s approval for $150 million to support the ministry’s Mineral Sector Support for Economic Diversification (MinDiver) programme.

“The Solid Minerals Development Fund (SMDF) is now spearheading the assembling of a $600million investment fund for the sector, working with entities such as the Nigerian Sovereign Investment Authority, the Nigeria Stock Exchange and others. This is a departure from the past, judging by the fact that in 2015, out of the meagre N1 billion allocated to the ministry, only N352 million was released.

“It is noteworthy that in addition to funding support from multilateral agencies, partnerships on technical cooperation have also been brokered or re-activated with several foreign governments. Existing technical partnerships have been operationalised with the governments of South Africa, China, Australia, Canada, the United Kingdom and the United States of America. Nigeria now takes the lead in regional efforts to develop mining, especially within the framework of the Africa Mining Vision.”

Mr Pitan in his response said the bank was convinced that the fund would step up a rapid development in the mining sector, just as a similar funding arrangement administered by the BoI boosted the country’s movie sector.

He said BoI is a pioneer in the area of funding mining activities where other banks are reluctant to invest. He, however  stated that the Fund is not an aid, but repayable by beneficiaries.

The Minister of State for Mines and Steel Development, Hon Abubakar Bawa Bwari, would head the Project Management Committee which includes BoI officials with expertise in Mining Finance and Project Supervision. The committee is charged with the responsibility of  appraising, recommending, disbursing, implementing and monitoring the projects as well as recovering the loans and interests from the approved projects.

Source: The Nation

 

SEC to strengthen corporate governance, enforcement

Securities and Exchange Commission (SEC), the country’s apex capital market regulator, has launched a major amendment to Nigeria’s Code of Corporate Governance for public companies. The code will empower the Commission to sanction companies that fail to comply with its directives.

The new amendment is expected to remove the persuasive provision that entitles companies to be put on notice, so they could seek redress. This will reinforce the mandatory nature of the code and the authorities of SEC to sanction companies without recourse to notice or redress.

A draft of the amendment to the code of corporate governance obtained at the weekend, currently undergoing rule-making process and exposure to stakeholders, will completely remove clause 1.3(d).

The clause states that whenever SEC determines that a company, or entity required to comply with, or observe the principles or provisions of this code is in breach, the SEC shall notify the company or entity concerned, specifying the areas of non-compliance or non-observance and the specific action, or actions needed to remedy the non- compliance, or non-observance.

According to the Commission, the provision is redundant in view of the mandatory nature of the Code. Companies are mandated to comply with its provision failing which they will be sanctioned without first requiring them to remedy the non compliance, or non observance.

The code empowers SEC to sanction individuals and companies that violate the code. Besides the stipulated fines, the code gives SEC unfettered power to apply “any other sanction” it “may deem fit in the circumstance”.

The Code of Corporate Governance for Public Companies, sets the minimum acceptable standards for quoted companies. Launched in 2003, the code was reviewed and re-launched in 2011, with several changes to reflect the current globally acceptable practices.

Some salient points in the code, include board composition, remuneration, independent director, shareholding disclosure, insider knowledge, meeting and whistle blowing.

Under the code, publicly quoted companies are required to include in their annual reports and accounts, a compliance report on codes of corporate governance. On board composition, the code requires that members of the board of directors should not be less than five, and that the board should comprise a mix of executive and non-executive directors, headed by a non-executive chairman.

According to the code, the majority of directors should be non-executive directors, at least one of whom should be independent director. The positions of chairman of the board and chief executive officer shall be separate and held by different individuals. To safeguard the independence of the board, not more than two members of the same family should sit on the board of a public company at the same time.

Also, the code requires that the remuneration of the Chief Executive Officer, as well as other executive directors should comprise a component that is long-term performance, and may include stock options and bonuses, which should however, be disclosed in the company’s annual reports.

Also, executive directors are not allowed to be involved in the determination of their remuneration. Executive directors should not receive sitting allowances or director’s fees paid to non-executive directors, it stated.

It said every public company is expected to have a minimum of one Independent Director on its board. An independent director is a non-executive director whose shareholding does not exceed 0.1 per cent of the company’s paid up capital and is not a representative of a shareholder that has the ability to control, or significantly influence management. In fact, an independent director must not have any contractual, or familiar relationship with the company.

Also, every quoted company is expected to disclose in its annual report, details of shares of the company held by all directors, including an “if-converted” basis. This disclosure should include indirect holdings. All directors are required to disclose their shareholding whether on a proprietary or fiduciary basis in the public company in which they are proposed to be appointed as directors, prior to their appointment.

The code provides that directors of public companies, their immediate families-spouse, son, daughter, mother or father; and other insiders as defined under Section 315 of ISA and Rule 110 (3) of the SEC Rules and Regulations, in possession of price sensitive information or other confidential information, shall not deal with the securities of the company where such would amount to insider trading as defined under the Investment and Securities Act 2007.

With regards to meeting, general meetings are expected to be conducted in an open manner allowing for free discussions on all issues on the agenda. Sufficient time should be allocated to shareholders to participate fully and contribute effectively at the meetings. The chairmen of all board committees and of the statutory audit committee should be present at general meetings of the company to respond to shareholders queries and questions. Notices of general meetings shall be 21 days from the date on which the notice was sent out. Companies shall also allow at least seven days for service of notice if sent out by post from the day the letter containing the same is posted. The notices should include copies of documents, including annual reports and audited financial statements and other information as will enable members prepare adequately for the meeting. The board is expected to ensure that all shareholders are treated fairly and are given equal access to information about the company;

The code also makes provision for whistle-blowing with every company required to have a whistle-blowing policy which should be known to shareholders, employees, contractors, job applicants, other stakeholders and the general public. It is the responsibility of the board to implement such a policy and to establish a whistle-blowing mechanism for reporting any illegal or substantial unethical behavior.

Source: The Nation

How to obtain a Pioneer Status in Nigeria

The Federal Government during the week announced that it had included a list of 27 industries as eligible for pioneer status, bringing the total number to 71. This is a welcome development as it means more and especially smaller industries can now benefit from tax breaks for new businesses, which had hitherto been reserved for larger corporations.

For most companies just warming into this news the next question on their mind will be how do I get my company to be designated as a Pioneer company? As someone who has successfully obtained a Pioneer status before maybe I can help share an insight into some of the intricacies involved in obtaining a Pioneer Status.

But first, let me respond to some common questions;

What entities qualify for Pioneer Status

Any company that is registered and operates in Nigeria can benefit from Pioneer Status, provided their business type falls under the eligible industries.

Is there a condition for application?

Yes, there is.

Firstly, to obtain Pioneer Status, you must be spending money on qualified capital expenditure. This means you are investing in assets that are used for production or services. Example of assets are plant and machinery, computer equipment and software, fixed assets, land and building etc.

If your company is controlled by Nigerians, then the amount of investment you are looking to make must not be less than N50,000. If the company is controlled mostly by foreigners then the amount of investment must be more than N150k.

Is Pioneer for everyone?

It is not for everyone or all businesses. In fact, a Pioneer Status is only for businesses that are newly established and haven’t been in operations for more than a year.

What is a Production day?

A production day is the day that the Pioneer Status is deemed to have commenced business. It is assumed that on this day, you have made all the investment required to start this business. After the Production day has been established, you will have to send the NIPC, a list of all the qualifying capital expenditure that you have made prior to that day. They will then issue you a certificate of qualifying capital expenditure. See sample production day below;

Can a Pioneer Certificate be cancelled?

Yes, it can, for 4 major reasons. First is if they found out you lied about the level of investment. For example, if it is not up to N50,000 as an indigenously owned company. Secondly, is if the actual production day is more than one year later than what you stated in your original application. This means that if you told the Nigerian Investment Promotion Council, NIPC, that your production day was August 1, 2018 and the business did not get to start till January 2019, then they can cancel. The third is if you inform the government that you no longer want it and the fourth is if the Minister feels that a condition laid down was not satisfactory.

Can I get for a new division in my business?

If you have a business that is thriving already and want to introduce a new segment or vertical then you can apply for that. For example, assuming you sell DVD’s and decide to own a video production outfit, you can apply for Pioneer certificate for the production outfit.

So here are the likely steps you can take to get the certificate;

Do you qualify

To even qualify for Pioneer Status, you will have to check if your business falls within the list of industries designated as eligible for pioneer status. If you see the industry that your business falls into in that list then proceed to the next item; 

Get your books in order

Obtaining Pioneer status will require that you have your financial statements and documents to ensure that can meet up with the list of requirements. You will also need to keep a fixed asset scheduled.

Registration documents

Get your Certificate of Incorporation, C02, C07, MEMAT etc. You will need to submit it.

Project documents

You might also need to submit documents that can help buttress the project you are undertaking. For example; Equipment types and spec, Land Documents, Building drawings, Construction agreements, Bill of quantities and any other document pertaining to your projects. You will also need to include proof of ownership of the assets such as title documents, trademarks etc.

Invoices of all purchased assets

Also put together invoices of all the assets you have acquired especially for the qualified capital expenditure.

Tax Information

You will also need to submit your tax details such as your tax identification number, Tax clearance certificate if any, and any tax details you can provide

Now that you have gotten all these documents, these are the next steps.

Write an application letter

You will have to write an application letter to the NIPC seeking for Pioneer Status. Start by stating what you are applying for and then explain why. Let them know that you want the Pioneer Status because you have made significant investment (if possible state amount) and that a Pioneer Status will help you enjoy tax holidays for the project. List out all the documents (as stated above) you have attached in the application letter. End by thanking them and that you look forward to a favourable response.

Get a consultant

Getting anything from government can be a torrid task, so you do not want to waste your time and effort pursuing this exercise. There are people who ae experienced in this and understand the nuances and intricacies involved in obtaining a Production day and Pioneer Certificate. You will have to pay them for this service, but in the hope that they will deliver. Before, hiring them, let them show you a list of companies that they have helped get Pioneer Certificate and get in touch with the firms independently to confirm.

Expect a visit

Officials of the NIPC will likely visit your premises to come and inspect the investment you have claimed to have made. They will come with your application letter, including your fixed asset register. Make sure you are very well prepared for this and try to be hospitable too. Once your inspection is successful, you are 80% close to being in line for an approval. 

If approved

You will first get a certificate of Production day (see below). This contains the date your business has officially commenced business in the eyes of the NIPC and will also be the used by the tax office. If your production day is January 1st, 2019 for example, then you will not pay tax on the business that has the Pioneer Status for the period between January 1, 2019 and December 31, 2021. Pioneer Certificate is first for three years.

What is the duration of this process?

When we did it last it took us about 4 months to conclude this process. It could be shorter or longer and this will depend on the consultant you use and the efficiency of the NIPC.

Source: Nairametrics

Oral notice to terminate a written employment contract …

termination

Notice is notice whether in writing or oral provided both parties are not misled as to what is meant. It does not matter, in terminating an employee’s appointment, whether he is given notice in writing or orally or not. What is important is whether the employer has demonstrated clearly by action that the services of the employee are no longer required by the employer” – per Mohammed, JSC in Ifeta v. S.P.D.C (Nig.) Ltd (2006) 8 NWLR (Pt. 983) 585.

In the instant case, the employee was informed at a meeting that he is fired, though he was not issued a letter of termination. One of the issues for determination before the court was whether the oral notice was effective since the subject matter employment contract provided that either party could terminate only by “notice in writing”. The SC held in the affirmative.

  1. There is a great deal of flexibility that courts tend to apply in the interpretation of employment contracts (and nearly always in favour of employees) – the courts will mostly look to the intent of the parties rather than the form of the contract. Otherwise, the law is trite that when parties have reduced their agreement into a document, the Court will not look outside the document in deciding the rights and obligations of the parties.
  2. Similarly, an oral notice to quit issued by an employee would equally be effective against the employer.
  3. Oral notice to terminate is likely to present some practical difficulties as it could be open to different interpretations. This is not likely where the notice is in writing as the document would speak for itself.
  4. It is best to put into writing your notice/intention to terminate/dismiss. Where the notice is oral, it should be reduced into writing shortly after and re-issued. It is needless to get entangled into legal haggles about something as basic as your intention to get out of an employment contract.

 

Ease of Doing Business: FG Reduces Number of Days for Business Registration

Lawyer no longer required to register business with CAC

In pursuit of ease of doing business in Nigeria, the number of days required for registration of new businesses with the Corporate Affairs Commission (CAC) is now two as against 10 days hitherto required for the exercise.

This decision was part of the resolutions of the Presidential Enabling Business Environment Council (PEBEC) meeting at the end of the 60-day action plan on Ease of Doing Business in Nigeria reforms held in the Presidential Villa on Monday. The council which took off on February 21, this year was set up by President Muhammadu Buhari, and chaired by Vice President Yemi Osinbajo.

However, a meeting was presided over by Minister of Transport, Mr. Rotimi Amaechi, in view of the ongoing investigation of suspended Secretary to the Government of the Federation (SGF), Babachir Lawal and Director-General of National Intelligence Agency (NIA) being presided over by Osinbajo.

The council also set up a 24-hour timeline for company registration from the day application form is completed and all required documents made available while prospective business owners can now search on CAC portal (www.cac.gov.ng) to avoid duplication of names.
The move is also aimed at preventing the selection of prohibited names so that company registration will no longer require the services of lawyers “as it is now optional for SMEs to hire lawyers to prepare registration documents.”

According to excerpts of the council’s report made available to journalists last night by the vice-president’s media aide, Mr. Laolu Akande, integrated FIRS e-payment solution into CAC portal to enable e-stamping has been introduced while the reform empowers CAC internal lawyers to certify company incorporation forms and conduct statutory declaration of compliance for a fixed fee of just N500. The report also listed “dealing with construction permits, getting electricity, registering property, getting credit and paying taxes as some of the areas where the council has recorded progress in the past 60 days.”

Other reforms introduced by the council include “entry and exit of people,” indicator which includes simplified visa-on-arrival process; infrastructural improvements at the Abuja airport and the new Immigration Regulation 2017. The report also stated that the completed reforms were being closely monitored to ensure diligent implementation with minimal disruption while pending reforms were being escalated to ensure completion in the coming weeks.

On trading across borders, some of the completed reforms, according to the report, include palletisation of imports, advanced cargo manifests, reduction in documentation requirements and scheduling of joint physical examination by the Nigeria Customs Service. The National Action Plan contained initiatives and actions implemented by responsible Ministries, Departments and Agencies (MDAs), the National Assembly, a number of State Governments as well as some private sector stakeholders.

PEBEC emphasised that with the conclusion of implementation of the action plan, the next phase would bother on “deepening existing reforms; completing and implementing pending initiatives; engaging with the public; validating completed reforms and kicking-off medium-term reforms.”

The report added that the council would also kick-start “sub-national reforms across Nigeria’s 36 states; trading within Nigeria; kick-off of initiatives and reforms improving business processes and regulations within Nigeria; and ease of movement of goods within and across regions in Nigeria.”
Some of the members of PEBEC at meeting were Foreign Affairs Ministers Geoffrey Onyeama, Minister of State for Industry Trade & Investment, Aisha Abubakar, and her counterpart in Budget & National Planning Zainab Ahmed, the Head of Service, Mrs. Winifred Oyo-Ita, among others.

Source: This Day