SHOULD I REGISTER MY BUSINESS AS SOLE PROPRIETORSHIP, PARTNERSHIP, INCORPORATED TRUSTEE, LIMITED OR UNLIMITED LIABILITY COMPANY?
In my previous article I discussed why you should register your business. In this article, I will be discussing the different categories of business you can register with corporate affairs commission. This will help you to know the category your business belongs for proper registration. It will help you to understand the different types and the basic features of each type of company registrable in Nigeria.
1.0 ENTERPRISE OR BUSINESS NAME: This is a type of business in which the owner of the enterprise registers the business name with the corporate affairs commission and is exposed to bear all business risk. It is most suitable for sole proprietors or small partnerships.
1.1 Sole Proprietorship: One person usually owns this type of business organization. He bears the risk and faces unlimited liabilities of the business. 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 common 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.
1.2 Partnership: This is a form of business where two or more persons contribute resourcestogether 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 bedivided 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. The different types of companies we could register include;
2.1 Private company limited by shares: This is a privately-owned business or company where the liability of the members is limited to their subscription on the memorandum of understanding. A private company limited by shares has a separate entity from those who own it. It limits the owner’s liability to their shares, which means that shareholder’s personal assets remains his personal assets even if the company has a liability or a debt it owes and the liability of the shareholder is to the extent of the shares he owns in the given company. This is the choice for people doing business with family or friends and where start-up funds are relatively small because the minimum authorized share capital is N10, 000 and not less than the authorize share capital must be taken by the subscribers.
2.2 Public limited company: This is a limited liability company that the transfer of its shares is unrestricted. And it is open to the public to buy shares or debentures or deposit money for fixed periods. It has a minimum share capital of N500, 000 and usually with the letters PLC after its name. A public limited Company must have N500, 000 authorized share capital and the subscribers must take up at least twenty-five percent (25%) of the authorized share capital. Any company that is not a private company shall be a public company and its memorandum shall state so. It is regulated by the Corporate Affairs Commission, the Nigeria Stock Exchange and other regulatory bodies. The cost of running a public limited Company is reasonably higher than that of a private limited liability Company. It is therefore better suited for large organizations.
2.3 Unlimited company: This is a company incorporated with or without a share capital, where the legal liability of the members or shareholders is not limited which means that its members or shareholders have a joint, several and non-limited obligation to clear the liability of the company. An unlimited liability company has no limit on the liability of its members.
2.4 Company limited by guarantee: This is a company which is not registered with a share capital but has members who act as guarantors. The guarantors do not receive any profits and have no claim to the company’s assets. All income generated is used to cover operating costs and to achieve the objectives of the company. The liability of its members is limited by memorandum of understanding to whatever amount they undertake to contribute to the assets of the company. A guarantor gives an undertaking to contribute a nominal amount in the event of the winding up of the Company. A Company limited by guarantee cannot be incorporated with the object of carrying on business for the purpose of making profit for distribution to its members, except by its Article of Association, but they would not be eligible for charitable status.
3.0 Non-profit/ non-governmental organization: This is a non-profit making organization that is geared towards charity, promotion of culture and activities that do not generate profit for the organization or its members. There are no shareholders nor share capital but it has the board of trustees.
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