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.
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.
Affordability: It is more affordable and inexpensive to register a business name compared to an LLC which can be more expensive to set up.
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.
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.
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.
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.
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.
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.
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We are excited to announce our 2022 Black Friday Super Deal starting from Monday 21st to Friday 25th November, 2022. This will enable Nigerian entrepreneurs to access more business opportunities, while also saving some money for other business activities.
“The Nigerian economy is ultimately driven by millions of hardworking, entrepreneurial, and resilient individuals who are currently creating jobs, shared prosperity, solving diverse problems with their businesses. Entrepreneurs and Micro, Small and Medium Enterprises (MSMEs) account for 96% of all business activities in the economy, with an estimation of over 42 million MSMEs, creating 47% of jobs and contributing 50% to the Gross Domestic Product (GDP). However, many of these “Business Heros” still lack the opportunities to grow profitable and sustainable businesses due to non-formalization. This is why we are excited about the opportunity to support more entrepreneurs to launch, formalize and grow their businesses through our Black Friday Deals”. – Bestie Atti, CEO of CorporateBestie says.
Entrepreneurs can earn up to N12,000 cash back when they use any of our New Entity Registration Services.
This Super Deal applies to Sole Proprietorship, Limited Liability Company, Partnership and Incorporated Trustees only.
Registration/Incorporation Documents, Tax Identification Number (TIN), Business Bank Account and access to other business success tools and resources are all inclusive.
According to the Global Entrepreneurship Monitor Report (Nigeria: 2012), Nigeria leads the world in the proportion of the population who believe they have the skills to run a business; almost 90% of Nigerian adults think they have the ability to become entrepreneurs. While it is one thing to start a business, having a legally registered business is proof that one is ready for business…(pun intended).
In most economies, Registration of businesses is often regulated by government agencies. In Nigeria, the body responsible for this is the Corporate Affairs Commission (CAC), and perform the following functions amongst others: (i) formation, incorporation, management, striking off and winding up of companies, (ii) business names, management and removal of names from the register, and (iii) the formation, incorporation, management and dissolution of incorporated trustees, as stipulated under the Companies and Allied Matters Act 2020.
With a population of over 41.5m MSMEs in Nigeria, the Corporate Affairs Commission (CAC) has revealed that only 3.1 million SMEs are currently registered in the country, which we find quite poor. We have highlighted 7 reasons why you should register or incorporate if you are thinking of starting or formalizing your Nigerian business.
1. Separate legal entity
Where a business is registered/incorporated as a limited liability company, the law considers your incorporated business to be a separate legal entity. It has the same rights and privileges as a human being, including the ability to possess property, receive credit facility (it is prohibited for an unregistered business in Nigeria to buy or sell land), do business under its common seal, incur liabilities, and sue or be held personally liable. As a result, you can take reasonable business risks while still protecting your personal assets from financial and legal risks. Your incorporated company is a legal entity on its own right and your liabilities are proportional to the number of shares you own in the company. Your personal assets cannot be seized to pay off your business’s debts, and you cannot be held liable for the debt unless you personally guaranteed the it.
2. Protection of Company Name and Brand
The first step to protecting your business name or brand is by registering the name with the Corporate Affairs Commission and additionally with the Trademarks, Patents and Designs Registry, of the Federal Ministry of Industry, Trade and Investment. Your business name or even a similar name will be protected and cannot be used by anyone else in Nigeria.
3. Access to Credit & Grants
A registered business is more likely to attract investors than an unregistered business with no official structure. If your company is registered, you can approach a commercial bank or other financial institutions to raise funds as seed capital, sustain your business operations or to expand your operations across the globe. You can also apply for private or government related grants such as the Tony Elumelu Foundation Entrepreneurship Programme to help support your business.
4. Reputation and Prestige
Business reputation and prestige is a critical part of business branding and perception. Formalizing your company can improve its reputation and indicate that it has a long-term commitment and responsible management. It instills trust by third parties such as buyers, clients, and contractors as many companies will only hire or work with registered businesses rather than individuals. You may also find that some government MDAs and companies will only do business with incorporated entities if you are a contractor/supplier. Incorporating a company can also open up new horizons and opportunities that would otherwise be unavailable.
5. Perpetual Succession
An incorporated business has its own legal personality, allowing it to continue perpetually. Contracts are made with the “company,” not with you or the other directors, shareholders, or employees. This indicates that the corporation has an unlimited life span; it will continue to exist even if the owners or directors die or leave the company, or if the company’s ownership changes. A company’s existence will come to an end only if it is formally wound up by a court order. This, among other things, helps your company to outlive you and even generations.
6. Corporate Bank account for your company
Operating a business bank account is advantageous since it allows you to separate personal and business activities. To open a corporate bank account in Nigeria, you must show proof that your company is registered with the Corporate Affairs Commission. Furthermore, giving your customers a corporate bank name rather than your own name for payment is more professional and reliable.
7. You can Hire Employees Legally
With a registered company, you will be able to legally hire employees which will also build the confidence of potential employees in your company. Job recruiting firms and other online platforms make it easy to hire and recruit quality and skilled personnel. You will also be able to officially request for members of the National Youth Service Corps to work at your company.
