There are many differences between a private and public limited liability company in Nigeria. Companies, either private or public, are the most widely used business organization in Nigeria.
The Corporate Affairs Commission established by virtue of the Companies and Allied Matters Act 2020 (CAMA or the Act) oversees the incorporation of a company in Nigeria.
The CAMA has now provided that one person can now form or incorporate a private limited liability company in Nigeria.
There are certain advantages that companies enjoy over other types of business organizations. Advantages in this sense are different from the features of the company when compared to other business organizations. Some of them are highlighted below.
- Perpetual succession: a company once incorporated, enjoys perpetual succession. where the shareholders die, other persons will take over the shares.
- Limited liability: when it is a company that is either limited by shares or guarantee, the liabilities of its members are limited.
- Investors for a company: investors invest in a company more than in any sole proprietorship and partnership.
- Efficient Management: in a company, the management can be different from the actual owners.
By virtue of section 21(1) of CAMA, an incorporated company may be a company with the following;
- having the liability of its members limited by the memorandum of association to the amount, if any, unpaid on the shares respectively held by them (referred to as company limited by shares) or;
- having the liability of its members limited by the memorandum of association to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up (in this Act referred to as a company limited by Guarantee) or;
- not having any limit on the liability of its members (in this Act referred to as an unlimited company).
A company of any of these types listed above may either be a private company or a public company.
The features of a Private Limited Liability Company
- By the provision of CAMA, any two or more persons may form and incorporate a company by complying with the requirement of the Act, now with the re-enactment of the Act, one person can now form and incorporate a Private Company in Nigeria.
- A Private Company restricts the transfer of its shares to the public. The law provides that the Private Company shall not without the consent of all its members, sell assets having a value of more than 50% of the total value of the Company’s assets. It must, by its articles of association, restrict the transferability of its shares.
- The total number of members of a private company shall not exceed fifty (50), not including members who are bonafide in the employment of the company.
- Where two or more persons hold one or more shares in a private company jointly, they shall be treated as a single member. Thus, joint holders of shares are deemed to be counted as a single member.
- A private company is not, unless authorized by law allowed to invite the public to subscribe for any share or debenture of the Company or deposit money for a fixed period or payable at call, whether or not it is bearing interest.
- In the repealed 2004 Act, the minimum share capital to incorporate a Private Company was N10, 000 (Ten Thousand Naira), now under the new Act, the minimum share capital to incorporate a Private Company has been increased from N10,000 to N100,000 (One Hundred Thousand Naira).
- The name of a Private Company limited by shares must end with the word “Limited” or “LTD”.
- A private company does not need to keep certain statutory books like the Index of members.
- A private company has no restriction in the appointment of an over-aged director of (70yrs and above).
- The appointment of a Company Secretary is now optional for a Private Company in Nigeria.
- A private company just starting needs not to appoint auditors.
A Private Company limited by shares is most suitable and recommended where a small or medium-sized business needs to acquire an incorporated status with the Corporate Affairs Commission or where family members and/or friends intend to carry on business with an incorporated status with no interference from outsiders or where the capital available to start up the business is relatively small, that is, less than N500, 000 (Five Hundred Thousand Naira).
Public Limited Company
A Public Company is any company other than a Private Company, and which is expressed in its Memorandum of Association to be a Public Company. The liabilities of its members must be restricted by the memo to the amount, if any, left on paid on the shares respectively held by them.
Features of a Public Company
- A Public Unlimited Company must be registered with a share capital, not below the minimum issued share capital of N2, 000,000 (Two Million Naira).
- It can raise money from the public by offering its shares or debentures to the public and inviting them to subscribe. This makes it easier to raise funds through the capital market when it is listed on the stock exchange.
- By section 18 of CAMA, to incorporate a Public Company, it must have a minimum of 2 members, but unlike the private company, there is no limit to its maximum number of members.
- A Public Company is required by the Act to have at least three independent Directors. An independent director is one who or whose relative either separately or together with him during the two years preceding the time in question was not an employee of the company, did not receive payment from the company of more than N20,000,000 (Twenty Million Naira) or own more than 30% shares or other ownership interest directly or indirectly in equity made or received from the company.
- It is mandatory for a Public Company to appoint a Company Secretary. The person who can be appointed the company secretary of a public company must either be a legal practitioner, chartered accountants, chartered secretaries, or a firm of any of them or must have held the office of company secretary of a public company for at least three (3) of the five (5) years immediately preceding his appointment in a public company.
- Section 235 of the Act provides that every Public Company must hold its statutory meeting within a period of six months from the date of its incorporation.
- A Public Company must publish additional notices of its Annual General Meeting in the newspapers and such notice must be given to all those who are entitled to receive it.
- The name of a public company limited by share must end with “Public Limited Company (PLC).
Differences between a Private Company and Public Limited Liability Company
The differences between both company structures can be derived when juxtaposed together.
- The memorandum of a Private Company state that it should be private while for a Public Company, its memorandum states it to be Public Company.
- There is a restriction in the transfer of shares in a Private Company limited by shares; no such restrictions exist in a Public limited liability company.
- The number of members in a private company must not exceed 50; there is no such limit for a Public Limited Liability Company.
- A private company unless authorized by law cannot invite the public to subscribe to its shares while a Public Company listed on the floor of the Nigerian Stock Exchange, is subject to compliance with the provisions of the Investment and Securities Act and can offer its shares to the general public.
- The newly authorized share capital for a Private Company limited by shares is N100, 000 (One Hundred Thousand Naira), while that of a public company is N2, 000,000 (Two Million Naira).
- A Public Company is required by law to hold a compulsory statutory meeting within six months of its incorporation while a Private Company is not required to hold such a meeting.
- The appointment of a Company Secretary is mandatory for a Public Company and the qualification of the Company Secretary is specified. No such requirement is for a private company.
- The name of a Private Company limited by shares ends with Limited or LTD while a Public Company ends with Public Limited Company or PLC.
The key points of differences between a Private and Public Limited Liability Company have been highlighted above. These differences should act as a guide in deciding which type of business organization to form or incorporate in Nigeria. However, it is noteworthy to state most companies often begin as a Private Company in Nigeria; it is only after years of successful or profitable operations as Private Companies that some interested companies change their incorporation status to Public Companies, so as to open rooms for public investors or shareholders.
By Corporate & Commercial Law Team at Resolution Law Team