Differences between a Business Name and a Limited Liability Company

For anyone desirous to set up a business in Nigeria, it is important to know the right legal structure for the business of your choice, hence the objects of the business, the capital and the prospects of the business in terms of it being a small, medium or large-scale business, play a significant role in choosing whether to register as a business name or as a limited liability company. Below listed are the differences between a business name and limited liability company in Nigeria to aid your choice:

NAME: The words “Limited” or “Ltd” are to be used after the name to be reserved for the company registration, while a business name does not have such requirement.

SHARE CAPITAL REQUIREMENT: The minimum share capital for a limited liability company is 100,000, and costs more to register as the filing fee depends on the share capital while a business name does not have a share capital requirement and cost less to register.

CORPORATE SOVEREIGNTY: A company limited by shares is a separate legal entity that is distinct from its shareholders. When a company is incorporated in Nigeria, the company automatically becomes a legal person in law with the ability to sue and be sued in its name, The company becomes separated from its owners or promoters likewise the company bears the liabilities not its members. A business name does not enjoy this privilege, there is no difference between the owner and the business name, it can only be sued or sue in the name of the owner of the business name.

REGISTRATION PROCESS: A limited liability company can be registered as a private company limited by shares, private company limited by guarantee, private company unlimited by shares. While the business name can be registered as a sole proprietorship or as partnership. A limited liability company is required to have a director and shareholder while a business name is only required to have a sole proprietor or partner(s).

PROFIT SHARING: The profits are shared amongst the shareholders of a limited liability company in forms of dividends based on the amount of shares subscribed by each shareholder. The sole proprietor takes full responsibility for all the profits or losses in the case of a sole proprietorship or by partners in the case of partnership.

INCORPORATION DOCUMENTS: For a limited liability company, the documents given by Corporate Affairs Commission (CAC) after incorporation, is the certificate of incorporation, memorandum and articles of association, company status report, while for the business name it is certificate of registration and status report.

MEMBERSHIP REQUIREMENT: A private limited liability company can have a maximum of 50(Fifty) shareholders while a business name can only have a maximum of 20 partners except for law and accounting firms.

DECISION-MAKING REQUIREMENT: A limited liability company is to hold annual general meetings to take decisions in form of resolutions that will be binding on the company, while a business name is not required to hold general meetings before reaching its decisions.

TAX PAYMENT: A limited liability company is a taxable person under the law, and must pay its taxes to the Federal Inland Revenue Service (FIRS) such as CIT, WHT, VAT. While a business name does not pay taxes to the FIRS, rather the proprietor is required to pay their personal income tax to the State tax board such as the Lagos Internal Revenue Service, it pays VAT to the FIRS in a situation it provides services that charge VAT.

FUND RAISING/LOANS: For a limited liability company, it can raise funds by issuing more of its shares to other members, it can also use its shares as a collateral for loan in form of debentures. For a business name, it is more difficult to raise capital, as the proprietor has to prove his credit-worthiness and use his personal properties as collateral for loan.

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