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.
The success of any organization depends on its established structures, and one of such structures is business formalization. A formalized or registered business guarantees protection for your business or company name from being used by other entrepreneurs, access to credit facilities, investor trust, customer loyalty, and access to local and international opportunities.
If you are in business for profit or you are running a profit-making organization, there are 3 key business structures you can consider adopting to help protect your business.
1. Sole Proprietorship
A sole proprietorship, otherwise known as a one-man/woman business is designed as its name implies. It is managed usually by an individual who bears all the profits, risks, and liabilities of that company. He/She is responsible for all business decisions. This registration type only protects the name of the business but does not guarantee the legal personality of the business. The business owner cannot sue or be sued in the name of the business, hence any legal matters will be directed to the business owner personally. Also, the death of the business owner will automatically bring the business to an end.
The advantages of this type of registration are that it is more affordable and easier to set up. The business owner can also upgrade the business structure to a limited liability structure when he/she is ready to do so at any time.
2. Partnership
A partnership structure has similar features to a sole proprietorship and is both categorized as Business Names. In other words, the partnership registration only secures the name of the partnership and does not confer any other legal personality on the business like the case of a sole proprietorship. It is also very easy and affordable to set up. A partnership structure can have between 2-20 partners in the partnership business. However, the risks and liabilities of a sole proprietorship also apply to this.
3. Limited Liability Company
This type of structure is a more sustainable structure and ideal for anyone looking to build a long-term business. This form of registration confers a legal personality on the business, separate from the business owner. The owners of the business are known as shareholders, while directors run the day-to-day operations of the business.
This structure also guarantees the longevity of the business because the death of any director or shareholder does not mean the end of the business. The shares of each shareholder can be re-issued or transferred to another.
An individual can also register as the sole director or shareholder of the business, thereby guaranteeing his interest and rights in the business.
If you are still finding it difficult to decide which of these structures is best suited for your business, you can take our Quiz via this link: https://bit.ly/cbbizquiz
To get started on your company registration, go to www.corporatebestie.com or chat with one of your Business Advisors on Whatsapp
