The establishment of the Corporate Affairs Commission as an autonomous body was as a result of the perceived inefficiency and ineffectiveness of the erstwhile Company Registry, a department within the Federal Ministry of Commerce and Tourism which was then responsible and administration of the repealed Companies Act of 1968.
Registration of businesses in Nigeria is the exclusive responsibility of the Corporate Affairs Commission (CAC), which has its head office in Abuja but has branches in most states of the Federation. Having your business registered definitely confers some credibility on it, given that it then acquires an identity. In many important business activities or relationships you may want to get involved in, details of your business registration will be required. You do not have to wait for such occasion before getting your business into the register of companies – you may miss an important opportunity just for that omission.
Accredited Agents For Registration
The CAC specifically requires that only accredited parties carry out the actual registration processing. It also limits such accreditation to lawyers, chartered accountants and chartered secretaries. What this means is that you will necessarily have to engage the services of one of these professionals to register you business. However, it will be important for you to understand the issues involved and the choices you need to make. For instance, you need to decide on a business name. You also need to choose a business format under which to operate. You need to know the requirements relating to membership of the company, ownership, etc to enable you make decisions you will remain happy with. The routine process of registration can then be carried out on your behalf by an accredited professional.
Which legal structure is right for your business? Three major classes of registration are available under the relevant law (the Companies and Allied Matters Act):
Registration of Business Names
Incorporation of companies
Registration of Incorporated Trustees
1. Registration of Business Name
This applies to Sole Proprietorships and Partnerships.
The sole proprietorship is the simplest form of business structure. It is the one-man business, owned by a single person and called ‘enterprise’ in local parlance. The attractions of doing business under this structure include:
Lower cost of registration. It costs a little fraction of the cost of incorporation (see table of current costs below).
Ease of registration as requirements are less cumbersome. The Lagos office of the Corporate Affairs Commission (CAC) will conclude the registration and issue a certificate, while for incorporation it must be forwarded to the Abuja Head Office.
It affords the owner full control and ownership. If the business proves successful, the returns are exclusively to you. In running the business, you have the final say, so decisions are faster.
The business is not subject to corporate tax. The owner is however required to pay his personal income tax at the appropriate personal income tax rate.
You enjoy privacy in the business: no publication of performance reports is required.
There is no requirement to engage an external auditor to audit your business accounts. Note however that it may be in your interest to do so for the success of your business.
On the flip side, consider the following cons of this structure:
There is no limited liability. You are personally liable for the debts and obligations of the business. Your personal assets, even if unconnected with the business, can be applied in meeting the obligations of the business.
The equity capital available to the business is limited to the personal resources of the owner. The scope and growth of the business could be severely hampered, even if the business idea is excellent and potentially capable of rapid expansion.
While it is possible to borrow, this business format may be less attractive to lenders, given the closed nature of its operation.
The business is virtually tied to the person of the owner, implying that the fortunes of the business could suffer if the owner is not available to oversee it. Succession is therefore more difficult than with other business structures involving more than one owner. The death of the owner of a sole proprietorship could threaten the continuity of the business.
Partnership applies to a business where two or more persons agree to jointly own and carry on the business. Ownership may not necessarily be equal but rather in accordance with their agreed individual capital contributions. They will share in the profits or losses of the business. The important thing to note is the need to clearly set out the terms and basis of this relationship to ensure its smooth operation. Given the fairly complex nature, it is best to seek the services of a lawyer or accountant to assist with the details. The benefits include:
The pooling of resources, i.e. capital, skills, contacts, etc and the consequent benefit of synergy.
The partners similarly share in the burden of a loss or liability. It therefore permits the spreading of risk.
More operational flexibility as partners can easily share responsibilities. For instance. a partner could be located in Kano to run the northern operations while another stays in Lagos to control the Southwest. Statutorily, the business is not required to publish its results.
The partnership is not liable to corporate tax. The income from the partnership is therefore not taxed twice as in the case of incorporated companies.
The disadvantages include:
If the terms of the relationship are not properly set out, internal frictions can arise which could cripple the partnership. Partnerships often seem a veritable ground for disagreements, largely because of the failure to recognize the need to structure them properly.
There is unlimited liability, except where there is limited partnership (limited partner engaged in management is still fully liable).
Related to this is the fact that a partner is bound by the actions of another partner which could, unfortunately, impose commitments.
Its more complicated in structure than a sole proprietorship
The death of a member effectively terminates the life of the partnership (though not necessarily the business)
2.Incoporation of company
There are four options to choose from under incorporation:
a. Private Limited Company (Ltd)
b. Public Limited Company (PLC)
c. Company Limited by Guarantee (Ltd/Gte)
d. Unlimited Company (Ultd)
Incorporation recognizes the business as a unique entity, separate from the owners, with statutory powers to own property and sue or be sued. There is thus the concept of limited liability, implying that the individual owner (shareholder)’s liability relating to the business is limited to the amount of his share subscription. This structure therefore shields the shareholder from personal liability for the company’s commitments.
Membership – minimum: 2 for each case; maximum: 50 for private limited company, no limit for public limited company.
Sharecapital – Minimum N10,000 for private N500,000 for public minimum subscription in each case is 25%
Mainly the limited liability for the individual shareholders (except for unlimited company). The standing of the business is enhanced before financial institutions and other parties it does business with. It consequently could have better access to credit and on even better terms. The business is distinct from the individuals; the death of a member does not dissolve the company.
Registration requirements are more complex and the cost of registration much higher than for sole proprietorship or partnership. The tax burden on individual members is higher since the company is subjected to corporate tax while the individuals still suffer tax on their share of earnings by way of dividend. For public limited companies, requirements of public disclosure and external audit are additional challenges.
3. Registration of incorporated Trustees
This registration category applies to usually to public institutions and associations, operated by a Board of Trustees.
The Choice Of Business Format
The choice of which structure to adopt will depend on the nature of the business, the ownership and an evaluation of the benefits and pitfalls of each format, as outlined above. The accredited professional you choose for the registration process should also be able to provide further advice. As a trained practitioner, he is also familiar with the registration requirements for each business format and the processing procedure.