FORMS OF BUSINESS ORGANIZATION IN NIGERIA
A business entity is responsible for using its economic resources to provide goods or services to customers for profit. There are different types of companies and business structures in Nigeria.
First, it is a note of worth to state that under Nigerian law, it is only the Corporate Affairs Commission, an agency of the Federal Government that engages in company registration.
Business organizations in Nigeria come in different forms of ownership and these include:
- Sole Proprietorship: One person, who bears the risk and faces unlimited liabilities of the business, usually owns this type of business organization. It is easy to set up and this form of business is usually adopted by small business entities. This is usually the cheapest and most used form of business organization. All decisions of the business are carried out by the owner who is responsible for all profits and loss of the business. This form of business should be considered where one intends to work alone and have complete control of the business.
A sole proprietorship is usually registered as a business name with the Corporate Affairs Commission. And Nigerian residents can only register it.
- Partnership: this form of business is owned by two or more persons who contribute resources together to create a business entity. The partners bear the risk and liabilities of the company equally. They also divide the profit of the business among themselves. A partnership can be divided into limited and general partnerships. In a general partnership, all profit and loss are shared equally among the partners, while in a limited partnership, only one partner has control of the operations of the business while the other person (s) contributes money to receive only part of the profits.
A partnership is also registered as a business name with the Corporate Affairs Commission.
- Companies: a company is a form of business organization that has a separate legal personality from its owners. An example of a Corporation is a joint-stock company. It provides limited liability to its investors with its legal rights to own a company. It is a legal entity that can sue, be sued, can own properties, and pay tax. A corporation may be a form of Private Limited Liability Company or Public Limited Liability Company (PLC).
Types of Companies in Nigeria
- A company limited by shares: this is a company where the liability of a member to contribute to the company’s assist in the event of liquidation or winding up is limited to the amount unpaid by its shares. A company limited by shares can be a private limited or a public limited liability company. It is a corporate structure where members of the company cannot be personally liable for company debt or liabilities. According to Nigerian law, it must be registered with the Corporate Affairs Commission (CAC), it requires that the articles of the company must be filed also with the CAC. It consists of a minimum of 2 members and a maximum of 5o members for a private company and an unlimited number of members for a public company.
A limited company by shares separates the business assets of the company from the personal assets of its owners. It states in its memorandum to be a private or public company
- Company Limited by Guarantee: this is usually called a non-profit organization. It is a form of business organization whose objectives are to promote educational, religious, sports, or charitable purposes. Its hall not be incorporated with the object of carrying on a business for the purpose of making profits for distribution for its members. Any money that earned in the organization cannot be distributed to members or trustees of the organization rather it is usually kept to pay for expenses or programs.
When registering a Company limited by Guarantee, it shall not be registered with a share capital.
- Unlimited Company: with this type of company, the liability of a member is unlimited and shall be liable to the full amount of the company’s debt. An unlimited liability company is not the best or advisable form of enterprise. There are only a few unlimited liability companies in Nigeria. A renowned unlimited Liability Company in Nigeria is the Mobil Producing Nigeria Unlimited.
Finally, it is important that out of various types of companies in Nigeria, a private limited liability company is still the most recognized and preferred form of business organization in Nigeria. Additionally, a private limited liability company is the most suitable form of business organization for foreigners seeking to do business in Nigeria.
By Corporate & Commercial Law Team Resolution Law Firm