The Difference Between Registering A Business Name And A Limited Company In Nigeria
One of the most common questions new business owners in Nigeria ask is what structure is best suited for their businesses? A very high percentage of them just want their businesses registered without knowing the legal implications of each structure. While many others register a business name thinking what they have got is a company.
Rather than waste valuable time trying to figure out what structure your business should take, this article will give you a general overview of the difference between a business name and a company in Nigeria.
Business Name Registration
To a lay man, a business name could simply mean a name which a business trades under for commercial purposes. This is correct, but not comprehensive enough. In registrations, the business name is the category where sole proprietorship and basic partnerships fall into. It is suitable for not just single-owner businesses and partnerships, but also for businesses that are not already looking forward to raising capital through the issuance of shares.
A business name is simpler and easier to set up, unlike a company registration.
A company can be defined as a legal entity made up of an association of people for the purpose of carrying on a business service(s).
One peculiar feature of a company is that it enjoys a separate legal existence from its owners. This means that it has the power to own assets in its name, borrow and lend money, enter into contracts, and can also sue and be sued in its own name.
Major Questions To Consider Before Choosing A Business Structure
1). Do You Want To Run A One-Man Business Or Not?
If you intend to run a one-man business where everything revolves around you the owner like making sole decisions and personally bearing all the risks, the best option to go for is a business name.
Registering a company would not be appropriate here because a company can only be formed by at least two individuals.
2). Do You Have More Than Twenty Partners?
If you are interested in running a partnership with more than twenty people, the option to go for is a company.
A business name can only be operated by a sole proprietor or not more than twenty partners, except in special cases of solicitors and chartered accountants
3). Do You Want Your Business To Have A Separate Legal Personality From You?
As earlier stated, a company enjoys a distinct legal personality from the founders, unlike a business name. This can be likened to the birth of a new born baby.
When a baby is born, it is separated from its mother and becomes a unique being. The same applies to a company. Once it is formed, it enjoys a separate distinct personality from its founders.
But this is not so in a business name. A business name doesn’t confer a separate legal entity to the business. Its life is tied to the owner/owners of the business. It cannot sue or be sued in its name.
For a proper understanding of this principle, take, for instance, Mr. Lawson is a footwear manufacturer who decides to trade in the name and style of “Lawson’s Footwear Enterprise”, which is a business name. If Mr. Lawson’s footwear enterprise incurs debts, his creditors will come for him, his business, and his personal assets like houses, cars, and more to recover their money. But if he registered it as “Lawson’s Footwear Limited”—which is a company limited by shares—and tomorrow his business runs into financial difficulties, its creditors cannot come for Mr Lawson’s properties, because Mr Lawson is a different entity from his company.
4). Do You Want An Existing Company To Own Shares In A Business That You Intend To Start?
Since a business name lacks a legal personality, you cannot use the structure to own shares in an existing company. And since a business name does not also issue shares, an existing company cannot own shares in it.
If you already have an existing company and you want the company to own shares in the new business you are about to register, the best option for you is to register it as a company.
5). Do You Have More Than 50 Members?
The maximum requirement for a private company is 50 members. Where the number of individuals who intend to own shares of a proposed company is above 50, the only available option for you is a public company.
To Sum It Up
It’s important to clearly note that the above-mentioned points are not exhaustive, and like I will always advise, always consult a legal practitioner for proper professional guidance.
About The Writer
This is a blog post submitted by Amara Okafor. She is a lawyer, a writer, and a member of the Startup Tips Daily Media Team.
You can contact her through Startup Tips Daily Media for any further questions or enquiries concerning your business name registration and company incorporation.
Note: This article has been edited for style and substance.
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