Every share acquisition begins with a promise: that the business a buyer is paying for is the business it appears to be. Due diligence is the process by which that promise is tested. It is not a formality to be rushed through on the way to signing — it is the mechanism that determines whether the deal is priced correctly, structured sensibly, and protected against the risks that only become visible once you look properly at the target company.
Acquiring shares in a Nigerian limited liability company is fundamentally different from buying its assets. On a share purchase, the buyer steps into the shoes of the existing shareholder(s) and takes the target company as it stands — with its history, contracts, liabilities, and regulatory record intact. There is no cherry-picking of assets and leaving problems behind. That single feature is what makes rigorous due diligence indispensable: liabilities that existed in the company before completion generally remain the company’s — and therefore the buyer’s — after completion.
What Due Diligence Is Really For
Legal due diligence on a
Nigerian share acquisition typically serves four purposes:
- Verification. It confirms that what the seller has represented about the target — its ownership, corporate standing, financial position, and contracts — is actually true, and that the seller genuinely has the right and capacity to sell the shares in question.
- Risk identification. Every target company carries some combination of legal, financial, operational, and regulatory risk. In Nigeria, this often includes exposure to overlapping regulators, informal or undocumented arrangements, and possible gaps between what is on a company’s statutory file at the Corporate Affairs Commission (CAC) and what has actually happened in practice. Diligence surfaces this before completion, when the buyer still has room to respond — through price adjustment, indemnities, conditions precedent, or walking away.
- Valuation. A purchase price is only meaningful if it reflects the company actually being bought. Undisclosed debt, a pending regulatory investigation, a defective land title, or an unresolved tax liability can each materially change what the target is worth, and diligence findings routinely feed directly back into price negotiations.
- Deal structuring and integration planning. What diligence uncovers also shapes how the transaction should be structured — including what regulatory approvals or consents must be obtained before completion — and what needs attention on day one afterward to keep the business running.
The Scope of a Thorough Investigation in a Nigerian Context
A properly run due diligence exercise on a Nigerian share purchase will typically cover:
- Corporate standing and ownership. A search at the CAC to confirm the target’s registration status, directors, registered charges, and filing history under the Companies and Allied Matters Act 2020 (CAMA), together with an inspection of the target’s statutory registers (register of members, register of directors, minute books) and its memorandum and articles of association for any restrictions on a transfer of shares or requirements for member consent.
- Regulatory approvals and merger control. Larger transactions may require prior notification to, and approval from, the Federal Competition and Consumer Protection Commission (FCCPC) under the Federal Competition and Consumer Protection Act 2018, where prescribed turnover or asset thresholds are met — implementing a notifiable merger without approval can render it void. Where the target operates in a regulated sector, additional sector-specific consents are usually needed: for example, the Central Bank of Nigeria for banks and other financial institutions, the National Insurance Commission for insurers, the Nigerian Communications Commission for telecoms operators, the Nigerian Upstream Petroleum Regulatory Commission for oil and gas assets, or the Nigerian Electricity Regulatory Commission for power sector entities (bearing in mind that the Electricity Act 2023 has also given some regulatory functions to individual states, so the position can vary by location).