Business Name vs. Limited Liability Company: Key Points To Consider

Business Name vs. Limited Liability Company: Key Points To Consider

Choosing a legal structure for your business in Nigeria, whether it is today old or you have been running it for a few years is a decision that needs to be made with a lot of clarity and certainty. This is because the structure of your business, whether as a Business Name or a Limited Liability Company (LLC) will determine your factors such as ownership, cost, liability, legal personality, management, fundraising ability, tax and regulatory requirements, etc.

For a better understanding, we’ll use a hypothetical founder named Tosan Ahmed. Tosan Ahmed is a Lagos-based entrepreneur running a fish farm business, supplying frozen and smoked fish to customers within Lagos. He started this business one year ago and has been able to maintain the business all by himself. However, his goal is to expand his business to at least four states in Nigeria and this requires capital investment. He has decided to either go to the Bank for a loan or approach a High Network Individual (HNI) for investment. Here are a few points Tosan should consider before choosing the structure that is ideal for him.

  1. Formation: A Business Name is divided into Sole Proprietorship (also known as a one-man business, and Partnership. A Sole Proprietorship can be formed as a one-man business, while a Partnership can be formed by two (2) to twenty (20) people. A Limited Liability Company is categorized into Private or Public Limited Liability Companies. A private LLC can be incorporated by one person as a sole director or shareholder with a maximum of 50 members, while a public LLC must have a minimum of 2 members with no maximum limit.
  1. Affordability: It is more affordable and inexpensive to register a business name compared to an LLC which can be more expensive to set up.
  1. Transfer of Ownership: For a Business Name, the death or separation of the owner from the business immediately terminates the business because the owner is not separate from the business. However, for an LLC, the directors and shareholders are separate from the business and the death of any member of the business does not terminate the business as shares can be transferred to others.
  1. Financial Liability: Where the owner (s) of the business owes a debt, the owners are personally liable for the debts in the case of a Business Name, unlike an LLC where the debts of the company are owed by the company and not personally by the shareholders of the company.
  1. Legal Personality: In the case of a legal action, for a Business Name, the owner can sue and be sued directly, but for an LLC, the company can sue and be sued.
  1. Documents: After registration of a Business Name, the owner received a Business Name Registration Number (for example – BN1234567), a Certificate of Registration and a Status Report but for a Limited Liability Company, the owner (s) will receive a Company Registration Number (for example – RC1234567), Tax Identification Number, Memorandum and Articles of Association and a Status Report from the Corporate Affairs Commission (CAC), which is the body responsible for formation and management of companies in Nigeria.
  1. Raising Capital: It is more difficult to raise capital with a business name but it is relatively easier to raise capital with an LLC because the shares of the company can be used as equity in exchange for investment.
  1. Tax Requirments: For a business name, the owners are expected to file and pay Personal Income Tax individually to the state body responsible for collecting taxes, for example – the Joint Tax Board (JTB); while for an LLC, the company is a taxable person and all taxes such as Companies Income Tax is to be filed and paid to the Federal Internal Revenue Service (FIRS)

These are some key points you or Tosan Ahmed, our hypothetical entrepreneur consider when choosing between a business name or a limited liability company.

When you are ready to begin, we can help you by setting up your company or business name without stress or complex paperwork. To get started with the incorporation process, go to www.corporatebestie.com/pricing to select a package that is right for your business.

Need further support? We are always available to help. You can contact us via email or send us message to our support team on WhatsApp 

Requirements for Registering a Finance Company in Nigeria

Requirements for Registering a Finance Company in Nigeria

In Nigeria and across the world. access to finance has been quoted to be one of the most significant hindrances to MSME Development. In curbing this challenge, entrepreneurs and organizations are constantly coming up with new ways to ensure that this challenge is surmounted. In order to efficiently achieve their objectives, such organizations must comply with the laid down rules and regulations of the extant laws. 

The Central Bank of Nigeria (CBN) provides regulatory oversight on financial institutions and finance services in Nigeria and provides laws, guidelines and policies to facilitate such organizations. The CBN regulates finance companies through its Revised Guidelines for Finance Companies in Nigeria (the “Guidelines”) issued in 2014.

Meaning of a Finance Company

A Finance Company unless otherwise stated, means a company licensed to carry on Finance Company business. Finance Company Business means the business of providing financial services to individual consumers and to industrial, commercial, or agricultural enterprises. 

Permissible Activities of Finance Companies

Operators of a Finance Company shall be permitted to perform, amongst others, the following activities: 

  1. Consumer Loans
  2. Funds Management
  3. Asset Finance
  4. Project Finance
  5. Local and International Trade Finance
  6. Debt Factoring
  7. Debt Securitization
  8. Debt Administration
  9. Financial Consultancy
  10. Loan Syndication
  11. Warehouse Receipt Finance
  12. Covered Bonds
  13. Issuing of vouchers, coupons, cards and token stamps, 

Requirements for the Grant of A Finance License 

The requirements for the grant of a finance license are in two (2) phases:

Phase 1:

In order to operate a finance company in Nigeria, the company must obtain a finance company license from the Central Bank of Nigeria through an application in writing to the Governor of CBN. Such application shall be accompanied by:

  1. a non-refundable application fee of N100,000 (One Hundred Thousand Naira) payable to the CBN;
  2. a deposit of the minimum capital of N100,000,000 (One Hundred Million Naira) with the CBN;
  3. evidence of payment of the minimum capital of N100,000,000 (One Hundred Million Naira by the proposed shareholders;
  4. a detailed business plan/feasibility study;
  5. a copy of the draft memorandum and articles of association of the finance company;
  6. a copy of the letter of intent to subscribe to the company signed by each subscriber;
  7. a copy of the list of proposed shareholders in tabular form showing their businesses, residential addresses and the names and addresses of their bankers;
  8. a signed and dated curriculum vitae of the proposed directors of the finance company;
  9. a copy of the draft manual of operations such as the enterprise management framework, credit policy etc.

Phase 2:

Upon incorporation at the CAC and prior to commencement of business, the finance company is required to submit the following documents to the CBN.

  1. A certified true copy of the certificate of incorporation and other incorporation documents of the finance company.
  2. A copy of the shareholders’ register in which the equity interest of each shareholder is properly reflected (together with the original for sighting) and a copy of the share certificate issued to each shareholder.
  3. A copy of the opening statement of affairs audited by an approved firm of accountants practicing in Nigeria.
  4. A copy of the letters of offer and acceptance of employment by each management staff and a written confirmation that the management team approved by the CBN has been put in place.
  5. A letter of undertaking to comply with all the rules and regulations guiding the operations of finance companies.
  6. Evidence of registration with the Finance Company’s association umbrella body.
  7. Evidence of payment of licensing fee of N250,000 (Two Hundred and Fifty Thousand Naira).

Upon receipt of the above, the CBN will conduct a physical inspection on the premises of the finance company and where it is satisfied that all requirements have been fulfilled, a finance company license may be issued.

More requirements are contained in the Revised Guidelines For Finance Companies in Nigeria (2014)

To commence the process, you can chat with our Business Advisor on WhatsApp – 08118953295 or click on this link: https://wa.me/message/J5M4P7EXSXQGI1 

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