BUSINESS ENTITIES IN NIGERIA
In order to carry out business operation in any country, it is important to know the types of business entities existing in that country and the specifics of each type. There are four types of companies that can be registered under the Nigerian Legal System Viz. Sole Trader or Sole Proprietorship, Private Limited Company (Ltd), Public Limited Company and a Guarantee Company.
SOLE PROPRIETORSHIP
This is the simplest form of an enterprise as it does not require registration, the sole trader may however choose to register the business name to exclude other businesses from trading by the same name. This type of business exposes the owner to a great personal risk because the sole trader is personally responsible for all aspects of the business and has unlimited liability to all debts and legal actions. The sole trader may also find it difficult to attract partners and investors as the sole trader does not file accounts or records with the Corporate Affairs Commission (CAC), showing a lack of business transparency, and making it impossible for potential investors to verify the background of the business via an official third party.
The owner is exclusively liable for all business activities conducted by the sole proprietorship and also accordingly, entitled to full control and all earnings associated with it.
Private Limited Company (Ltd)
A private limited company is a legal entity in its own right, separate from those who own it (the shareholders). This is the most common type of registered business in Nigeria. As a shareholder of a private limited company, the shareholders personal possessions remain separate from the business. The shareholders risk is reduced to only the money they have invested in the company and any shares the shareholder holds that has not been paid for. The shareholders personal assets are thereby protected in the event of the companys insolvency, but money invested in the company will be lost. Limited liability companies are also considered prestigious due to their legitimate nature and the way important information is recorded at the Corporate Affairs Commission. Anyone willing to do businesses with a limited liability company can verify who is connected to the company. This level of transparency is very beneficial in terms of building confidence and trust in the company.
The requirements for registering a LTD includes:
a registered office in Nigeria;
the company name must not be exactly identical to any other company name currently held in the registry of the Corporate Affairs Commission
at least twenty-five percent of the authorized shares must be allotted at incorporation
at least two people above the age of 18 must subscribe to the memorandum and articles of association.
the total number of members in a private limited company must not exceed 50, not including those who are in the employment of the company The authorized share capital shall not be less than 10,000
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Public Limited Company
A public limited company differs from the private version in that it is able to sell its shares to the public and may be quoted on the stock exchange. A public company must have at least 500,000 authorized share capital and the subscribers must take up at least twenty-five percent of the authorized share capital.
A Public Limited Company (PLC) can be either an unlisted or listed company on the stock exchange. A PLC may have as many different types of shares as it wishes, all with different conditions attached to them. The cost of running a public limited company is far higher than that of a private limited liability company and it is better suited for large organizations and corporations.
Guarantee Company (not for profit)
A guarantee company is not for profit and is the type mostly formed by charitable organizations. A guarantee company does not have share capital, and the members do not own the company, the do not receive any profits and have no claim to the companys assets. All income generated is used to cover operating costs and to achieve the objectives of the company.
Common uses of companies limited by guarantee include clubs, membership organizations, students unions, residential property management companies, sports associations, workers co-operatives, other social enterprises, non-governmental organizations (NGOs) and charities.
