It is not surprising that prospective business owners are not familiar with the formalities of deciding what type of business to run. Majority of business owners just want to register a business and get it running without knowing the legal implications of each structure. It is therefore imperative that we discuss the differences between a business name and company registration in Nigeria. Registering a business goes beyond choosing the cheaper and more convenient option, but choosing what is best for you in the long and short run.
Registering a Business Name
A business name is also known as an enterprise. It is the name which a Business trades under for commercial purposes, it can be registered or not. It can remain unregistered if the owner(s) use their first name(s), surname(s) and the initials of first name(s) or under full name(s). A business name is suitable for small business ventures, businesses that are not already looking forward to raising capital through the issuance of shares or go large scale. It can be used to form a sole proprietorship or a partnership
Registering a limited liability Company
A company is made-up of individual(s) who have come together for a common purpose which usually is to do business and make a profit. Upon registration, it becomes a corporate structure with separate personality status. A limited liability company can either be a private or public company. These two types of companies can further be divided into limited by shares, limited by guarantee or unlimited depending on the structure of the company. For the purpose of carrying out business, a company limited by shares is the the most appropriate structure.
Factors Affecting the choice of business organizations
- Nature of the business
- Availability of Capital
- The number of members.
- Extent of liability of members.
- Commercial expediency.
- The extent and sphere of operation.
- Position of the law/statutory requirements.
- The cost of registration and expenses
- Speed of processing and completion of registration.
- Post registration compliance and regulatory supervision.
Differences between business name and company registration
- A Business name is easy to register. It has less formal and documentation requirements unlike a company.
- The law does not make any distinction between the owner(s) of a business name and the business itself. While a limited company is a separate entity. The owners are different from the company. They have limited liability.
- A sole proprietor under business name raises his capital solely while the financing for starting a company can be raised by issuing shares to investors in the company.
- A sole proprietor or partners under business name have unlimited liabilities while the liability of shareholders is limited to the amount paid by them during the purchase of shares.
- Decisions are taken by the sole proprietor individually and partners jointly or pursuant to the partnership agreement while decisions in a company are made in meetings by the Board and bound by resolutions.
- The business of a sole proprietorship or partnership might come to an end on the death or bankruptcy of the owner or partners while a company has perpetual existence and doesn’t necessarily get affected by the death of a shareholder or director.
- Business meetings of Business Name have less formal requirement to continue running whereas a company is required by law to hold annual general meetings, file annual returns and so on.
- Transfer of ownership is quite difficult under business name as there is no difference between the business owner(s) and the business. While in a company, ownership is easily transferable and the company has continuous existence.
- It is quite difficult to raise capital while running a business name unlike a company where shares can be used as collateral for loans when raising capital.
Convert Business Name to Company
Entrepreneurs or business owners who register as a Business Name would usually want to do a conversion when the business starts growing. Mostly when they would like to raise funds, take loans, acquire assets or do business with multinationals. This can be a lengthy process as the consent of the Registrar General, Corporate Affairs Commission has to be sought. Also queries can be issued which will further lengthen the time frame. Most entrepreneurs miss out on bid opportunities because the conversion process takes time. Additionally, upon approval, a fresh company would have to registered with the previous name. This would require payment of additional funds.
In our experience, most small business owners would usually want to register a business name instead of a company. The predominant reason being that it is cost effective to register a business name as opposed to a company. Although, the differences between a business name and company registration has been listed, it is advisable that entrepreneurs register as a limited liability company from the very beginning. At Sidebrief, we understand these intricacies. We are committed to making it easier, faster and more affordable to do business in Nigeria. With our competitive prices, cost will not be a determining factor in deciding what legal structure to use when starting but rather the most appropriate structure.
Sidebrief is a RegTech startup that makes business registration and compliance easy for founders, entrepreneurs, and business owners across Africa by removing lengthy paperwork, complexity, and hidden fees. We provide the tools for founders to start and scale businesses across borders from a single interface. To take advantage of exclusive discounts and pricing, simply sign up to get started. For further information, email firstname.lastname@example.org