Operations of small and medium enterprises and the legal system in Nigeria


Almost all businesses, especially the SMEs, depending on the legal system to effectively function. As Atawodi and Ojeka (2012) observe, most Nigeria SMEs are expected to operate and remit taxes to the government, which adds to the revenue for the government. They, however, encourage the government to consider granting tax rebates to encourage voluntary compliance to tax obligations among Nigerian SMEs. While the legal system provides the requirement for tax payment, and their suggestion highlights the need for the government to create a working platform that can facilitate both compliance to the dictates of the legal system and the effective compliance to the laws among SMEs practitioners. This can become essential to establishing a complementary practice between the SMEs and the legal system functions.

However, the strength of the legal system has a strong effect on SMEs trust in business practices with partners. The level to which SMEs can trust partners in business relationships is; largely dependent on the strength of the legal system in providing the backing and source of redress if breaches of contractual trusts, such as threats, undue exploitation and outright business partners’ oppression occur (Ojukwu, 2016). For example, Ogundele et al. (2013) reckon that Nigeria has a critical amount of internet fraud and criminality, which affects businesses and individuals in the economy. While the Nigerian legal system has effectively guided practicing business on the need to engage in legal business practices, within the legal framework, the Nigerian SMEs operators tend to have a significantly low level of trust in the legal system. This is because of certain critical factors that are challenging their abilities to trust the legal system to support their business relationships reliably. For instance, Adeodu et al. (2015), explain that the high cost borne by these SMEs denies them of the opportunity to access specific business rights in their operational process. These include the cost of seeking redress in the court of law, creating the chances for business trust violators to go without and retribution, especially among SMEs, have limited funding and capital base. Oliyide (2012) reckons that as a result of poor funding issues confronting the SMEs in Nigeria, ranging from low access to credit facilities to exploitative business breaches. Some SMEs tend to assume low operational profiles, preferring to ignore the chance of seeking legal redress from the court (Mohd, 2005; Mwobobia, 2012).

A critical issue within the legal system that adversely affect SMEs is the perversion of justice. This tends to discourage SMEs practitioners from approaching the legal system redress in times of breaches of business trust in their operations. Olatunji and Yauri (2014) underline the adverse effect of corruption in the Nigerian which hinders individuals and business operators’ interest the entire ambience of the Nigerian public sector and the legal system (see Elijah, 2007; Amoako and Lyon, 2014). Many times, some corrupt personnel deliberately delay and paucity in the judicial process or intentionally pervert the court decisions due to incidences of corruption in the Nigerian legal system. It, therefore, seems that non-reliable systems for SMEs who tend to consider the process as wastage of time, as the fair judicial is not a tenable reality (Okpara, 2011; Dada, 2014; Amoako and Matlay, 2015).

The need for proper evaluation of the legal system seems has been un-met. This challenge tends to entail an unstoppable trend of challenges which require a critical effort to address. It would also position the legal system on a platform for effective functioning that can complement the operations of business entities, especially the SMEs in their operations and contributions to the national economy (Salihu and Gholami, 2018). This could be due to the critical issues within SMEs business environments such as stiff competition in some industrial sectors (Onugu, 2005; Ufua et al., 2020). The current research acknowledges the relevance of adequate legal backing for operational business practices that can facilitate sustainability. It is, therefore, argued that if proper attention is not given to keeping proper statistical records that can reveal erring operational practices in the legal system. There are chances that error such as corrupt judicial practices, perversion of justice and other legal services vices cannot be bated and that can drive the SMEs further away from the legal system in Nigeria. If the SMEs in Nigeria are far from the legal system, their development and contributions to the national economic growth could be hampered on the long run (see, Odia and Odia, 2013; Chimucheka and Mandipaka, 2015). It is, therefore, suggested for proper regulation and possibly restructuring of the concerned parts of the Nigerian legal system to create an affordable and accessible contact with the right advocates in the quest for justice among SMEs practitioners in Nigeria. The current research argues that if the costs of legal services are regulated, and the SMEs are well aware of this easy access to justice from the legal system it can help fortify business trust among business partners in the various sectors of the Nigerian economy.

Besides, the provisions of the legal system set the platform for effective recognition of operational boundaries among business in the Nigerian economy (Ufua, 2019). As a result of this, practicing SMEs are to be aware and cautious about the end to end effects of their decisions and actions in the process of their operational practices in the sector (Turyakira, 2018). This draws the attention of practicing SMEs to ethical frames that covers their operational process (Ogundele et al., 2013). The current research, therefore, notes that it is pertinent for all stakeholders to the Nigerian legal system to create a fair playing platform that is well anchored on the legal system that could allow free ethical business practice among SMEs. The projection of ethical practices among SMEs in Nigeria could facilitate a resilient operational climate for SMEs and related businesses which could enable them to contribute optimally to the growth of the national economy (Apulu and Ige, 2011; Ufua et al., 2020), in ways such as fair employment generations, specialisation, and due compliance to obligations such as tax remittance to the national treasury. This is arguably predicated on the strength of the legal system to strive and enhance the balance between business practice and legal obligations among SMEs that will enhance trust and dependability among partners in the business environments (Tende and Abubakar, 2017).

On the other hand, researchers have observed that quite a good number of SMEs operators still lack primary education and most likely do not tend to see the values embedded in the legal system in providing the backing for SMEs in the Nigerian economy (Akanbi, 2016). This category of SMEs operators tends to rely more on traditional deities and superstitious beliefs in establishing trust in their business practices (Amoako and Matlay, 2015). However, they are more found in rural locations where business partnership and interactions are mostly among partners who tend to share these beliefs. The current research observes that if this is allowed to continue, there could be breaches of contracts as a result of lack of awareness among the less literate SME operators. This could expose them to business risks such as fraud, marginalisation, and other incidences of undue exploitation, by partners in their operational process. It, therefore, seems pertinent to suggest the need for the government to be more supportive to the less literate Nigerian SMEs operators, especially those who cannot afford the cost of hiring professional advocates (see, Olujobi and Olujobi, 2020). By creating this awareness about the strength of the legal system in protecting business operations among SMEs in Nigeria, through fair, transparent and accelerated hearing of commercial disputes cases involving SMEs in the country.

In summary, the stake of the current research is that SMEs can become more effective both in their operations and obligations in the Nigeria economy if the legal system is restructured to provide them with the required backing. It can create a more effective operational atmosphere that projects fair practices across cadres of SMEs’ operations in the Nigerian economy. This is coupled with the needed government and other stakeholders’ support (for instance, the regulatory agencies or institutions), that can enhance their contributions to the national economy. The current research argues that this can result to a complementary function among the Nigerian legal system, the SMEs’ operation and other stakeholders’ inputs, aimed to enhance a win–win performance situation (Ufua et al., 2018). There may also be the need for the use of legalalternative dispute resolution, such as contract renegociation, to address the inherent issue of delays and offer the needed support to SME operations in Nigeria. These are summarised in Fig. 1.

Fig. 1: Proposed-model for effective SME practice in Nigeria.



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