Establishing a business is one of the most fulfilling things in the life of every entrepreneur, as this involves putting their thoughts, invention and ideas into reality. Every individual intending to start a business has the option of registering their business as a company or business name. However, a company is usually the best option because of certain advantages it has over any other type of business structure.
Unlike business names, a company is a separate legal entity distinct from the persons that formed it, it can sue and be sued in its corporate name, own properties in its corporate name, and file its corporate taxes.
The process of forming a company can be difficult and rigorous, as thorough planning is involved. This article will consider the types of companies that can be established under Nigerian law while exploring the steps or processes involved in company formation.
It is important to consider the purpose and goals of the company first before determining the type of company to be established. Under Nigerian law, there are four major types of companies, with distinct features which will be considered below.
These are primarily small and medium-sized companies. Under the new Companies and Allied Matters Act, of 2020, only a single shareholder can form a private company, which means that this type of company can have between 1-50 members.
The liability of the members of this company is limited by the amount of unpaid shares they have subscribed to. This means that in the event the company is dissolved, the members are only liable to pay any unpaid balance on the amount of shares they have bought. This type of company is usually formed as a commercial business with the sole aim of making profits. Shareholders benefit from the profits by way of dividends.
This type of company is very similar to a private company except that the company must have at least two members, and public companies can have as many members as possible. In addition to this, unlike a private company, public companies can invite members to subscribe to their shares through the primary and secondary market (for example, stock brokers). This type of company is usually formed by big businesses or medium-sized businesses intending to expand.
This type of company is similar to private and public companies, however, the liability of the members of this type of company is not limited. This means that in the event of liquidation or dissolution, the members will be personally liable to meet any outstanding financial obligations and liabilities of the company.
This type of company has no share capital and does not offer shares to its members. The liability of members of the company is only limited to the amount of money they have undertaken to contribute to the assets of the company in the event it is wound up.
The first step is to select two names for the company. The selected name should meet the following criteria:
After selecting the names, the next step is to check the availability on the CAC's website. If the name is available, CAC would then approve one name before you can proceed to register the company.
The next step is to decide on a suitable location for the company. This will be the registered business address of the company. It is important to think and consider the best location for the business given the type of business the company will engage in. For example, if you intend to open a food business, it is important to be strategically located in a very busy area.
A company's share capital is the amount of money the company intends to raise as capital from the issuance of shares. This is the major way a company obtains finance. Shares are units of interest a shareholder holds in a company. According to the law, the share capital of a private company limited by shares is not less than N100,000 (One hundred thousand naira), while that of a public company limited by shares should be a minimum of N2,000,000 (Two million naira).
The members of the company make up a company. According to the law, a small company can have only one member and director, but public companies must have a minimum of two members and two directors. A member of a company can either be an individual or a registered entity. Other than a company limited by guarantee, you need to decide on the shareholding of each of the members.
Directors are officers of the company in charge of the day-to-day running and management of the company. The company secretary ensures the smooth administration of the company. It is important to choose a person that can carry out the functions of a company secretary effectively and efficiently.
After gathering all the necessary information required to register a company, the next step is to do the online company registration. This is done by logging into the CAC website, downloading and completing the registration form 1.1 which will require the following information:
You may need to draft and file an elaborate Articles of Association for your company. The articles of association delineate the company structure, rules and procedures of the company about meetings, the decision-making process of a company and other salient provisions. Furthermore, companies limited by shares are also required to maintain a Shareholders' Agreement. This document is a contractual arrangement between the company and the shareholders of the company, outlining the rights and obligations of the shareholders and describing how the company should be managed.
After registering your company, the CAC will issue a certificate of incorporation, bearing the registration number of the company. The next thing to do is to register and obtain a tax identification number, otherwise known as TIN. This is done by writing an application letter to the Federal Inland Revenue Service (FIRS) in the State where the business is located.
Also, if the business is in a regulated sector such as banking, or communications, it is important to obtain licences and permits from the regulatory bodies in charge of those sectors. For example, if the company will operate as a bank, you must obtain a licence from the Central Bank of Nigeria (CBN).
Before forming a company, it is important to decide on the nature and structure of the business. This will determine the name and the objects of the business. For example, if you want to register a business that engages in the manufacture and sale of retail goods, it is best to register as a company. On the other hand, if you want to register a not-for-profit organization under a company, it is better to register it as a company limited by guarantee.
After choosing the name of the company, it is important to select a suitable business location, the members of the company, directors, share capital and shareholding of the members, and the company secretary, as this information will be required during registration.