What type of business entity should I register?

Nigerian law recognizes two forms of corporate entities: not-for-profit and profit-oriented organizations. Not-for-profit organizations are set up to promote a cause without making profit. Under Nigerian law, not-for-profit organizations are Companies Limited by Guarantee (Ltd/Gte) and Incorporated Trustees.

Profit-oriented organizations are set up solely for the purpose of making profit. The Companies and Allied Matters Act ("CAMA", only recognizes Companies Limited by Shares also known as, Limited Liability Companies (LLCs) and Business Names (BNs) as organizations that can make profit.



As an entrepreneur, your concern will be focused on what kind of profit-oriented organisation will suit your business needs. This will be dependent several factors, which are discussed in detail in this arcticle.

I want to register my business… what factors should I consider?

1. Limitation of Liability - If you want to separate your business assets, and more importantly, business liabilities, from your personal assets and liabilities, then, you should register an LLC (private or public) and not a BN. This is because LLCs are vested with "corporate personality", thereby making them separate and distinct from their owners with powers to act as a natural person will.

2. Partners or Shareholders? - If you intend to jointly own your business, you should decide whether you want your co-owners to be partners or shareholders. Partners are entitled to profits (usually the amount you get when you deduct cost of sales/production from revenue) while shareholders are only entitled to dividends (declared profits, shared according to the company's shareholding structure). Unless otherwise agreed, partners have equal rights, liabilities and their acts are binding on other partners. Shareholders' rights and liabilities however, are directly proportional to their shares in the company, and their acts are not binding on the company or other shareholders unless these acts are authorized or ratified.

3. Number of Owners - If you intend to run a sole proprietorship (that is, only one owner) you should register a BN- Nigerian law does not permit you to register a LLC as a sole owner. Where there will be two or more owners, you may register either a BN or a LLC (depending on whether you want them to be partners or shareholders). If there will be more than 20 owners of the business, you should register a LLC as the law prohibits you from operating a business with more than 20 owners, unless it is an accounting firm, a co-operative society or a law firm (Section 19, CAMA). Also, where the shareholders will be more than 50 persons, you must register it as a public liability company (Section 22(2), CAMA).

4. Purpose of the business - You should also consider the kind of business you intend to provide, as this may affect the kind of business entity you will register. For instance, law firms, are usually registered as business names or Limited Liability Partnerships (LLPs) since most law firms are structured as partnerships. A good number of small-scale businesses (general merchants, small scale importers and exporters, spare parts dealers etc) register as business names. However, medium- and large-scale companies prefer to register as LLCs as it allows for investor protection and formal regulation of the business.

5. Maintenance Costs - If you are looking for a business entity that requires less maintenance costs, you should opt for the BN, as you do not require large funds for registering the BN and complying with statutory requirements. For instance, the filing fee for BNs is NGN 10,000.00 (approx. $62.50), while the filing fee for LLC with a NGN 1 million is about NGN 30,000.00 (approx. $187.50). Also, you will also have to appoint Directors, Auditors and a Company Secretary if you are establishing a LLC. In most cases, you will need to pay fees to these appointees, unless you are able to work out a pro-bono arrangement with them.

6. Control of the Business - There may not be much of a difference between a BN and an LLC in this regard, but a BN owner/partner (unless you are a silent owner or partner) is usually responsible for the day-to-day running of the BN, while in LLCs, the Directors control the daily operations of the business. However, as an LLC shareholder, you may also be involved in daily operations if you appoint yourself as a Director. Better still, you may appoint yourself as the "CHAIRMAN/MD/CEO" and remain the "Oga at the Top!"

Source: http://pearlworthconsultants./2013/11/05/corporate-advisory-weekly-tip-what-type-of-business-entity-should-i-register/

thankx for the info

you're very welcome Rubytheblogger