Protecting Minority Investors in Nigeria: What Foreign Entrants Need to Know

Nigeria is one of Africa’s largest economy, and one of its most attractive destinations for capital. From fintech to energy to consumer markets, foreign investors continue to look for ways to participate in its growth story. But whether as a result of investment strategy or local content constraints, many investors have little or no choice than to take a minority stake in a Nigerian company. The question investors often ask is simple: “what happens if insiders turn against us?”

The encouraging answer is that Nigerian law provides meaningful protection for minority shareholders. The key lies in knowing which safeguards actually work and using them deliberately from the start.

The Legal Backbone: Shareholder Remedies

Nigeria’s company law, as set out in the Companies and Allied Matters Act (CAMA), gives investors several powerful remedies:

·       Unfair Prejudice Petitions – If the company is run in an illegal, oppressive, or unfairly prejudicial way, minorities can petition the court for relief. Judges have broad powers, from injunctions to forcing a buy-out at fair value.

·       Derivative Actions – If wrongdoers control the company, a shareholder can ask the court for permission to sue in the company’s name.

·       Class Rights Protection – Where a special class of shares (say, preference shares) is varied without consent, minorities holding a significant stake in that class can challenge it.

·       Squeeze-out and Sell-out Rights – In takeover scenarios, a bidder who acquires 90% of shares can force out the remainder. Conversely, minority shareholders can insist on selling their stake to the bidder on equal terms.

·       Meeting Rights – Shareholders with 10% of the capital can requisition a general meeting, giving minorities a way to force issues onto the agenda.

Private vs Public Companies: The Dilution Question

One of the most sensitive issues for minority shareholders is dilution. Nigerian law draws a sharp line here:

·       In private companies, shareholders enjoy statutory pre-emptive rights. If new shares are issued, they must first be offered to existing holders in proportion to their holdings.

·       In public companies, there is no statutory pre-emption. Instead, capital raising is regulated through securities law and stock exchange rules. This means investors must negotiate contractual anti-dilution protections when investing in public companies.

Capital Markets Safeguards

For listed companies, the Securities and Exchange Commission (SEC) plays a critical role. Key protections include:

·       Mandatory Tender Offers (MTOs) – An investor who crosses the 30% threshold of ownership must make an offer to buy out the rest of the shareholders on equal terms.

·       Takeover Oversight – The SEC must approve takeovers, mergers, and schemes of arrangement, ensuring a level playing field.

·       Corporate Governance Code – Listed companies must comply with Nigeria’s Corporate Governance Code, which enforces independent directors, audit committees, and disclosure obligations.

Enforcement: Where Cases Are Heard

In Nigeria, company law disputes are not scattered across state courts. The Federal High Court has exclusive jurisdiction over company law matters, including shareholder protection suits. This centralization means investors can expect consistency and judges with experience in corporate disputes. The Federal High Court divisions in Lagos, Abuja, and Port Harcourt in particular have built strong reputations for handling commercial cases.

For securities and takeover-related disputes, investors can also approach the Investments and Securities Tribunal (IST). Under recent changes to applicable IST rules, disputes must first be presented to the Securities and Exchange Commission. Only when such dispute is not resolved can investors approach the IST.

Practical Takeaways for Foreign Investors

If you are considering a minority investment in Nigeria, here are the essentials:

1.       Do your homework – Use the new beneficial ownership register to uncover who really controls the company.

2.       Negotiate protections – In public companies, insist on contractual anti-dilution rights. In private companies, reinforce statutory protections with clear shareholder agreements.

3.       Secure governance levers – Push for board representation, information rights, and oversight on related-party transactions.

4.       Understand your remedies – Remember that shareholder protection suits must go to the Federal High Court, while takeover issues may also go to the IST.

5.       Plan your exit – Be aware of squeeze-out, sell-out, and mandatory bid rules, and design your contracts with those outcomes in mind.

Conclusion: A Market with Teeth

Nigeria’s legal framework gives minority investors genuine tools to protect their capital. The remedies are real: courts can order buy-outs, SEC rules trigger mandatory bids, and shareholder rights give minorities a seat at the table.

For foreign entrants, the message is clear: Nigeria is not only a market of scale and opportunity—it is also a jurisdiction where minority shareholders can, with careful structuring, defend their position. With the right advice and upfront planning, minority investors can engage with confidence in Africa’s most dynamic economy.