Understanding The Different Legal Business Structures

We explained the different business structures available in Nigeria. This was streamed live from ReDahlia Workspaces’ WaryPen. ReDahlia Workspaces located at 43b Emina crescent off Toyin Street, Ikeja, Lagos, is a co-working facility that is tailored to entrepreneurs.

We take the stress of the overhead from our clients while they concentrate on being productive. In addition, we offer support services such as helping business owners structure and register their businesses with CAC. Our process is seamless, fast, and affordable to the everyday business owner.

See Also: Retail business ideas to start now with low investment and make money.

We are also the owners of this platform; Entrepreneurs.ng, a stop centre for entrepreneurs. Are you doing something that is disrupting your industry and you want to tell your story to reach a wider audience? Then shoot us a mail at contact@redahlia.com.

Another creation of ours is The Business Clinic; a full blown business school where we teach and mentor business owners on how to do business right. You can always call us on 08188122223 to book a session with one of our consultants.

We have been helping businesses get registered for more than a year and have seen first hand some of the mistakes and ignorance that are prevalent with business owners in terms of choosing the right business structures. Many business owners have registered in the wrong category and have ended up spending more money. They wished they had the right advice from onset. These challenges propelled us to explain these business structures in a way that the layman will understand it.

See Also: Factors to consider before choosing a legal structure for your business.

Different Legal Business Structures

Before you start a business, please speak to a lawyer or talk to us at ReDahlia if you are not rightly informed. We will explain the different business structures and their features.

Business Name

A Business Name which most refers to as an enterprise or venture is for a sole proprietor or two people who are trying to form a partnership. It is simple to register and they can register themselves online on the CAC platform.

Note that the N10,000 registration fee is not the only cost you incur when registering your business. There’s name availability cost, cost of printing, scanning, and copying and fee for to and fro CAC. What we do is take the stress away from you at ReDahlia while offering you our professional advice. To do that for you, we charge a token of N20,000 because a workman is worthy of his labour.

See Also: Benefits of registering your business with the Corporate Affairs Commission (CAC).

Advantages Of Registering A Business Name

Business name registration is not complex, you don’t have to set up board of directors for decision making. You make your decisions on the go and you exercise full control over what happens in your business.

Your tax liability is also minimal as you only pay personal income tax and not taxed with the 30% company income tax of the limited liability company.

Disadvantages Of Registering A Business Name

There are disadvantages as well. The business owner is not separate from the business, therefore the business owner bears the liability of the business. What this means is that, if your business owes anybody, it’s assumed you also owe the person and you can get sued to pay for the debt your business owes.

You have limited access to debt and equity financing. It is not easy to take out bank loans or get investors to invest in your business. This is because banks worry that the liability is not distributed and their guaranty of getting their money back is limited. Investors also want equity for their investment and the business name registration structure does not involve share capital division so the return on their investment is not guaranteed either.

See Also: Legal requirements for entrepreneurs starting a business.

Limited Liability Company

A Limited Liability Company can either be a Private Limited Liability Company or a Public Limited Liability Company. Public limited in the sense that the membership is unlimited. The core feature of a Limited Liability Company is the share capital divisions and directors who make decisions.

Advantages Of Limited Liability Company

The advantage is that the business is a separate entity that can be sued. Whatever you owe is limited to the amount of shares you own in the business. You have better access to loans and investors because of the business structure.

Disadvantages Of Limited Liability Company

The disadvantage is that it is complex and requires a lot of paper work. You also pay more tax with a limited liability company; asides the personal income tax, you also pay the 30% company income tax. You also file annual returns yearly.

FYI, there are industry specific share capital amount that has been imposed by the government. This means that not every business can be registered under 1million share capital.

See Also: Top legal documents every entrepreneur should know.

Incorporated Trustees/Company Limited by Guarantee

These two falls under what we call Non-Governmental Organization. They are more expensive to register. Because it’s considered as a social enterprise they have access to funds especially from international bodies who are interested in corporate social responsibility in Nigeria. They are exempted from company income tax. There is no profit sharing; whatever revenue that is generated is plunged back into the organisation. Registering a company limited by guarantee requires the authority of the Attorney General of the federation.

Trademark

Trademark is simply protecting your name, brand, logo, etc against theft from competitors, friends, colleagues, etc. When your brand is trademarked, you can sue anyone who uses it without your permission.

There are about 45 different classes of Trademark so, you find the one suited for your kind of business and trademark it under that class. Except of course you have Coca-Cola kinda money then you can trademark in all the classes.

We try to distinguish the different business structures in terms of the following features:

Flexibility: Depending on what you define as flexibility, the business name or the limited liability company can work for you.

Complexity: The Limited Liability Company is more complex than the business name as it requires a lot of paperwork and structure.

Liability: The business name is more liable unlike the limited liability company as the business owner is not separate from the business.

Tax Payment: The Limited Liability pays more tax (personal income tax and company income tax) than the business name structure.

Control: If you are seeking control, then the business name structure is your best bet.

Capital investment: Limited Liability Company is the right choice as you have better access to loans and investors.

Grants and international funding: The NGO is the best bet to collect international money and ‘awoof’ money.

There you have it, if you still have any concerns, we are a call or email away.

Let’s create visibility for your brand and put your business on the world map. Contact us today to make your brand the preferred choice for our audience of entrepreneurs and business leaders.