The effective functioning of a legal system is crucial for business activities in any society. It regulates interactions, ensuring fairness and legality in negotiations, agreements, and promises. For small and medium enterprises (SMEs), understanding the extent to which the Nigerian legal system provides necessary legal provisions to support their operations and obligations within the Nigerian economy is critical. This paper focuses on the effectiveness of the Nigerian legal system in supporting SME operations, examining gaps in the literature concerning flaws in the legal system and its failure to ensure efficiency and provide a conducive environment for SMEs to thrive. The high rate of SME corporate failures, winding-up, and liquidations in Nigeria underscores the need for this research. The central question is: How much can SMEs rely on the legal system for support in the Nigerian economy? This study uses extant literature on the Nigerian legal system's effectiveness, relevance, current state, and future prospects to provide guidance on SME business activities in Nigeria. It explores SMEs' responsibilities in striving for a just business society that promotes fair prosperity for the state and other stakeholders. The research focuses on the level of SMEs' interest and freedom to utilize the legal system in their operations and uses a conceptual review approach, examining the antecedents and effects of the legal system on SME practices in Nigeria over the past 10 years.

The literature review examines the existing scholarship on the relationship between the legal system and SME operations in Nigeria. It covers various aspects of SMEs, including their definition, contribution to economic growth, and the challenges they face. The review highlights the high failure rate of SMEs in Nigeria (around 50% on average), often due to factors such as legal breaches. While government support for SMEs has increased since 1990, challenges persist, including poor management skills, lack of training, and inadequate legal support. The review also examines specific legal frameworks impacting SMEs, such as the Companies and Allied Matters Act (CAMA), the Investment and Securities Act, the Factories Act, the Financial Reporting Council Act, the Bank and Other Financial Institution Act (BOFIA), the Standard Organisation of Nigeria (SON) Act, and the relevant roles of the Federal High Court. The review emphasizes the problems of weak enforcement, inefficiencies, and corruption within regulatory agencies.

This study employed a conceptual review methodology, relying on extant literature regarding the Nigerian legal system and its impact on SME practices. The researchers analyzed reports, articles, and data from primary, secondary, and tertiary sources, including newspapers, internet, and website sources, covering the last ten years. The review spanned various aspects of the legal system and its relationship with SMEs, considering different perspectives and exploring the challenges and opportunities facing SMEs in Nigeria. The study focused on published literature and government reports to provide a comprehensive overview of the topic. This approach allowed for a thorough examination of the existing literature and identification of key themes and areas for further research. While the use of primary data such as surveys or interviews would have provided additional insights, the conceptual review method allowed for the exploration of a vast amount of published literature providing a broad understanding of the subject matter. The limitations of this approach are addressed in the limitations section.

The key findings highlight the significant role of the legal system in influencing SME operations and their contribution to the Nigerian economy. The research revealed a strong correlation between a robust legal framework and the success and sustainability of SMEs. Conversely, weaknesses in the legal system, such as weak enforcement, corruption, and high costs associated with legal processes, negatively impact SMEs' trust in the system and their willingness to utilize it for conflict resolution or protection of their interests. The study found that many SMEs, particularly smaller ones with limited resources, are discouraged from seeking legal redress due to high costs and the perception of inefficiencies and corruption within the judicial system. This reluctance to engage with the legal system exposes SMEs to various risks, including contract breaches, fraud, and exploitation by business partners. The study also highlighted the issue of low literacy levels among some SME operators, particularly in rural areas, leading to a lack of awareness about the importance of legal frameworks and their protective role. The findings emphasize the need for a more accessible, affordable, and efficient legal system that is capable of meeting the specific needs of SMEs in Nigeria. The analysis underscores the interplay between the legal system, SME practices, and the contribution of other stakeholders (government, regulatory agencies) in shaping the business environment. The findings suggest that improving the efficiency and effectiveness of the legal system is crucial for fostering SME growth and boosting economic development in Nigeria.

The findings of this study directly address the research question concerning the effectiveness of the Nigerian legal system in supporting SME operations. The research confirms a significant gap between the potential benefits of a well-functioning legal system for SMEs and the reality on the ground in Nigeria. The high failure rate of SMEs, the reluctance to engage with the legal system due to costs and corruption, and the low literacy levels among some operators all point to the urgent need for reform. The proposed model for restructuring the legal system and enhancing support from government and other stakeholders is a significant contribution. The model suggests a multi-faceted approach addressing not only legal frameworks but also issues such as access to credit, training, and awareness-raising campaigns. The relevance of this research lies in its contribution to understanding the complex interplay between legal systems, economic development, and the challenges faced by SMEs in developing economies. The findings provide valuable insights for policymakers and stakeholders in Nigeria and other countries with similar contexts.

This research underscores the critical importance of a functional and supportive legal system for SME success and economic development in Nigeria. The study reveals the significant challenges faced by SMEs due to weaknesses in the legal framework, including high costs, corruption, and inefficiencies in dispute resolution. The proposed model emphasizes the need for systemic restructuring, improved government support, and stakeholder collaboration to create a more conducive business environment. Future research could employ action research methods for deeper engagement with stakeholders and investigate alternative dispute resolution mechanisms. Comparative studies across different economies would also enrich the understanding of this complex relationship. The research advocates for a multifaceted approach that includes legislative reforms, improved regulatory enforcement, and increased access to legal aid and training for SMEs.

This study relies solely on extant literature and adopts a conceptual review approach. Therefore, it does not involve primary data collection, such as surveys or interviews with SMEs, which could provide additional insights into their experiences with the legal system. The research focuses on the Nigerian economy, limiting its generalizability to other contexts. The reliance on secondary data may limit the depth of analysis and the ability to capture nuanced perspectives. While the literature review covers a substantial body of research, it is possible that some relevant studies might have been overlooked.