INTRODUCTION

There are differences between a business name and company, which are the major forms of incorporation for a new business start-up in Nigeria.

It is important to know the legal implication of each structure of registration whether a Business name or a Private Limited Liability Company (LTD) before proceeding to the registration of such with the Corporate Affairs Commission (CAC). Furthermore, registration of a business should be based on the structure that best fits one’s business.

  • BUSINESS NAME

This is also known as an “Enterprise”.  It is registered under Part B of the Companies and Allied Matters Act (CAMA). Section 574(1) CAMA makes it mandatory for every firm, individual or corporation required to be registered under Part B, to be registered within Twenty-Eight (28) days from the date of the commencement of the business for which registration is required.

The CAC official filing fee for the registration of the business name in Nigeria is N10,000 (Ten Thousand Naira Only). However, where an accredited agent is engaged by the applicant for such registration, the agent will also charge a professional fee for the services to be rendered. The total cost for a business name registration by agents is usually around N30,000 for a Sole Proprietorship. The cost may be higher for partnership, depending on the number of partners.

A business name can be registered as a Sole Proprietorship or as Partnership.

Advantages of registering a Business name

  • The business can be formed by one person or more
  • It is easier to register
  • Less capital is required to run the business
  • The business owner only pays personal income tax in his/her state of residence.
  • It is suitable for micro-small, small businesses and professional businesses
  • Profits or losses are borne by the sole proprietor in the case of a sole proprietorship or by partners in the case of a partnership
  • PRIVATE LIMITED LIABILITY COMPANY

A private limited liability company is a legal entity independent of its owners. The limited liability and simple operation of a private limited company make it the most common registered business in Nigeria.

It is registered under Part A of the Companies and Allied Matters Act (CAMA). Section 18 of CAMA provides that any two or more persons may form and incorporate a company by complying with the requirements of this Act in respect of registration of such company. 

While Section 22 of CAMA provides that a limited liability company is a company which states in its Memorandum of association to be a Private liability company.

In a Private Limited Liability Company, the total number of members shall not be more than 50 (fifty) persons, with the age capacity not less than 18 years. The only exception for a person less than 18 years to register a company is where there are two or more adults involved in the formation of the company.

The average cost of registering a Limited Liability Company of One Million Naira share capital with just 2 directors for owners ordinarily resident in Nigeria through an agent is N70,000. The higher the number of shares, the higher the cost. Other factors such as shareholders agreement, numbers of shareholders and location of the owners can vary the total cost of incorporation.

Advantages of a Private Limited Liability Company

  • It has a separate personality i.e. It can sue and be sued on its own
  • It can continue existing even after the death of its owners.
  • It is easier to raise funds with a limited liability company
  • The risk of the owner is limited to the number of shares subscribed to in the company

DIFFERENCES BETWEEN BUSINESS NAME AND LIMITED LIABILITY COMPANY

  • While a single person can register a business name, a minimum of two persons(shareholders) is required to register a limited liability company.
  • Business name, especially the Sole Proprietorship, is cheaper to form and the decision is easier to make but company formation is a little bit more expensive and usually, the directors must agree to make decisions at all time.
  • Since the company is a separate legal person in the face of the law, the losses of the company cannot be extended to the owner, whereas a business name has no separate legal personality- the risk will always follow the owner.
  • The business name is not subject to company income tax; whereas a limited liability company is liable to pay a company income tax.
  • A business name cannot raise funds from creditors by any means, it must always be funded by its owners, however, limited liability can raise funds by a debenture and issuing more shares of the company to other members or even creditors.
  • Foreigners seeking to do business in Nigeria cannot do so by business name since it is only a company with a minimum of N10,000,000 share capital that can bring in expatriates into Nigeria by obtaining a business permit and expatriate quota.
  • CONCLUSION

In summary, registration of a business name has its advantages likewise that of a private limited liability company.

While the business name is exempted from company income tax, its operation is limited in the sense that it cannot be used to easily raise funds from the creditors.

 

By Omolade Animashaun, an Associate at Resolution Law Firm

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