Guidelines for Choosing a Business Structure-1

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The Companies and Allied Matters Act of 1990, of the Federal Republic of Nigeria, empowers the Corporate Affairs Commission (CAC) to register and incorporate companies in Nigeria. However,

it is pertinent to understand the legal implications with regards the various business structures tht can be formed. A prior understanding of these may save you from future hassles.

In Nigeria, the various business structures are classified into three: Companies, Business Names and Incorporated Trustees.

Business Names consist of two simple and most common business structures namely: Sole Proprietorship and Partnership.

Sole Proprietorship is referred to as “enterprise” in the local parlance. The Business Name is the simplest and most common type of business structure that allows one person (referred to as the proprietor) to conduct his/her business in a name other than his/her real known names. This is known as dba – “doing business as.”

Though Business Names are often registered and controlled by one person, two or more persons could register and form a Partnership under the Business Name structure. Certain factors favour the choice of these two business structures over others. On one part, Sole Proprietorship and Partnership are easy to set-up. They do not require long protocol or documentation when registering them at the Corporate Affairs Commission. The registration fees are also much lower compared to other business structures. They are easy to operate due to its small size, and are not mandated by law to publish their books of account for public scrutiny. Sole proprietorship and partnership structures are a good start for any prospective ‘one-man’ business owner, and for individuals who may wish to pool resources together to start a small business.

On the other hand, the “unlimited liability” clause for this business structure may make Sole Proprietorship or Partnership not enticing in its real sense. Once established, taxes are filed through the owner's personal taxes; however, there are serious tax limitations in certain situations. In the case of risk, dissolution, debt and unforeseen negative circumstances, the business owner or partners are fully liable up to the extent of their personal investments. Furthermore, Sole Proprietorship and Partnership structures are often unattractive to investors and financial institutions, especially if the financial outlook of the company isn’t promising.

Having weighed some of the pros and cons, a Business Name may be used to engage in all forms of specified and approved business dealings, except for some level of investment, professionalism and technical expertise; or regulated by government agencies, trade or professional associations. You need to discuss with an accredited specialist on this issue.

Conclusively, a business name may be re-registered and incorporated to form a private limited company or any other type of company as may be deemed necessary.

In subsequent write-ups, i will focus on "Companies" which comprise:
1. Private Limited Company
2. Public Limited Company
3. Unlimited Company; and 
4. Company Limited by Guarantee.

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Ayokunle Bankole

He is a self-starter, Nigerian serial entrepreneur, a company formation specialist of about a decade, and a small business advisor. He is currently on the board of Directors of some few startups: Delivery Merchant Ltd, Furnishing Effects Retail & Installation Ltd, Citizens & Expats Agency Ltd, and Global Infosolutions Nigeria Ltd.

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