ADVANTAGES OF LIMITED LIABILITY COMPANY OVER BUSINESS NAME IN NIGERIA
A private company limited by shares is a legally separate business entity. It has an authorized shareholding which defines the shareholding liability. This means that the directors and shareholders of the company have limited liability in the Company.
Most often times many that want to register their businesses with the Corporate Affairs Commission (CAC) are confused about the choice to register between a business name and private limited liability company.
The difference between a business name and a private limited liability company is that a business name is registered, owned, and operated by an individual(s) only. There is no separate legal entity like the private company and such an individual is legally liable for all losses accrued to the business.
Features of a private limited company
- A private limited liability company is one incorporated with the CAC as one. It is a company limited by shares, which its shares not offered to the general public.
- To incorporate a company limited by shares in Nigeria, a minimum number of 2 members is required and a maximum of 50 members.
- A private limited liability company must be composed of a minimum of 2 directors.
- The liability of each member or shareholder is limited in accordance with the share accrued to each shareholder.
- A private company enjoys perpetual succession. The company exists in the eyes of the law in the event of death and insolvency except there is a decision to wind up the company.
- A private company restricts the right of its members to transfer shares and does not send the invitation to the public for the subscription of its shares.
There are several advantages of operating a private company limited by shares from a business name in Nigeria, a few of which are illustrated below:
- A private limited company is a separate legal entity and it is a separate person in the eyes of the law.
- There are laws that govern the internal affairs and contain the objectives of a private company limited by shares, which is enshrined in the articles of association of the company. Unlike the business name which has no laws guiding its activities, all decisions are taken by the proprietor(s) of the business.
- A private company is a legal entity that can sue and be sued in its name. This means that the company is held separately for any wrongdoing. Any legal action is filed against the company and not its directors.
- A private company uses the word Limited (LTD) after the name of the company, which is mandatory for all private companies to use.
- A private company has the advantage of giving the opportunity to an investor who does not wish to be actively involved in the running of the business to invest capital into the business.
- Unlike a business name whose powers and functions are performed by an individual, a private company limited by shares has checks and balances. Hence, the control of a company is in the hands of the board of directors or by shareholders in their shareholding capacity.
- Another great advantage is that for a business name, upon the demise of the sole proprietor or proprietors, the business dies and ceases to exist. But for a private company limited by shares, the company enjoys perpetuity and can outlive the directors upon their death.
In conclusion, a private company limited by shares must be incorporated with the CAC in accordance with the Companies and Allied Matters Act LFN 2004. If any private limited company deviates from any of the above-mentioned features, it ceases to be a private limited liability company.
By Corporate & Commercial Law Team at Resolution Law Firm