Our tips on Ways of Doing Business in Nigeria introduces you to a number of options available to carry on business in Nigeria. Click here to read about it. It also provides you knowledge on how you can operate other legal entities for purposes other than to make profit. Details about this later aspect are provided in our Incorporation Tips IV. If you want to read about it, you can click here.
Here, we strictly want to talk about “Company”. A company can be defined as a business and legal entity separate and distinct from the persons who form it, with perceptual succession and the ability to sue and be sued in its registered name.
Indeed, dealing in business as a Company has some advantages over Business Name or Limited Partnership. Some of the benefits are as follows:
- Doing business as a Company makes shareholders enjoy full “Corporate Personality” meaning that the Company is separate and distinct from the owners/members who are called shareholders. A registered company is regarded in law as an artificial person with ability to engage in all activities that a natural person can perform.
- A company can carry on unlimited list of businesses whether related or not just as a natural person may do. Thus, a company may have objects that span through many fields of endeavour, e.g. agriculture, commerce, education, engineering, etc;
- A company has the advantage of perpetual succession. A company can be in existence years after years. A Business Name or a Limited Partnership often dies with the owner(s).
You might have heard or come across words and/or acronyms like “LIMITED”, UNLIMITED”, “LTD”, “ULTD”, “PLC” and LTD/GTE” without knowing what they really stand for. Let’s clear the air here.
If the membership of a company to be registered with shares is not more than fifty persons, it is called “Private Company Limited by Shares” and the name of the Company must end with “LIMITED” or “LTD”, but where a company is intended to have unlimited number of members, it must be registered as “Public Company Limited by Shares” and the name ends with “PLC”.
What this phrase “limited by share” means is that the liabilities of the members who are also called shareholders of the company are limited only to the number of shares to which they individually subscribed in the share capital of the company. Thus, in the invent that the company runs into debts, the shareholders are only liable to the value of the number of shares they hold but yet to be paid for. A company is a separate legal entity and responsible/liable solely for whatever it does. When a company does something, whether right or wrong, only the company and not the shareholders are responsible for it. This is what corporate personality implies. See the case of Abacha & Ors vs A.G. Federation & Ors (2013) LPELR-21479 (CA). Although there are some exceptions to this general rule. Where the directors of a company use the company to perpetrate fraud or crime, for example, this legal image may not avail the directors of their liabilities under the law.
There are basically three categories of companies, viz:
1. Companies whose shareholders’ liability is limited by shares;
2. Companies whose shareholders’ liability is unlimited; and
3. Companies whose members’ liability is limited by guarantee.
The last two categories are not common and since they are for special purposes, we shall start with them.
1. Company Whose Members’ Liability is Limited by Guarantee
A Company whose members’ liabilities are limited by guarantee is a company without share capital but whose members only guarantee to contribute a certain amount to the assets of the company in the event of it being wound up.
This type of company is not established for the purpose of doing business or making profit. The objects are specifically for the promotion of certain causes e.g. sports, culture, research, art, science, education, charity, religion, etc. Sometimes, registration of a company limited by guarantee may be the dictate of law. For example, section 39 (2) of Copyright Act Cap C28 LFN, 2004 requires that any company seeking the approval of the Nigerian Copyright Commission to operate as a Collecting Society must be incorporated as a Company Limited by Guarantee. Also, with effect from April 2021, any company or entity intended to be established for the purpose of running University Education in Nigeria must be registered as Company Limited by Guarantee.
Any income generated by the operations of a company limited by guarantee must be applied to the promotion of its objects. This company may register as a private company (LTD) or public company (PLC), the name will therefore end with “LTD/GTE” or “PLC/GTE”.
To register a company whose members’ liabilities are limited by guarantee requires special procedure and you may need to seek a specialist’s service to do this.
2. Company Whose Shareholders’ Liability is Unlimited
The nature of members’ liabilities to this type of company is not different from that of the proprietor(s) of a Business Name in that members of Unlimited Company are liable to the debt of the company without limitation. Its members do not enjoy the benefit of corporate veil or full corporate personality to cover them from the company’s liabilities. This type of company is, of course, not common in Nigeria. The name of this type of company ends with “UNLIMITED” or “ULTD”. The mode of registration requires special procedures, too.
3. Companies Whose Shareholders’ Liability is Limited By Shares
This is the category of companies you see here and everywhere in Nigeria whose name ends with “LIMITED” or “LTD” in the case of a private company, or “PLC” in the case of a public company.
Apart from the difference made earlier on between a Private Company and a Public Company, a public company can have its shares or debentures listed on the floor of the Nigerian Stock Exchange and invite the public for subscription. It is therefore easier for a public company to raise money through Initial Public Offering (IPO) or Public Offer. A Private Company cannot generally do these.
To register a Company whose shareholders’ liability is limited by shares requires a bit simple procedure especially with the latest development of the policy of ease of doing business in Nigerian and the aid of electronic registration system.
Generally, a company is not allowed to commence business in Nigeria unless it is registered. Thus, before you begin to use any name and operate in the manner of a company, it is important and advisable that you take steps and register the company. Otherwise, any smart individual may pass off your business brand and good-will without legal protection. Again, if any other individual registers the name of your unregistered company and begins to carry on the business of your company, such an individual would enjoy better protection of the law than you. Even equity acknowledges and protects the diligent and persons who come first in time.
To register a company, you will need to provide two proposed names for the purpose of running an availability check and reservation of name. The result of this first stage is made available within 48 hours of working days. There are however some names that are regarded as un-registrable names. Some names are also tagged as “restricted names”. These are names you cannot use unless you obtain the approval of the Registrar General of the Commission. Restricted names are those that contain any of the following words: Names containing words like Federal, National, Regional or State Government or suggest the patronage of Federal or State Government, Ministry or Department; Municipal or Chartered or suggest a connection with any municipality or other local authority; Co-operative or Building Society; Group or Holding; Any word suggesting temporary business arrangement, e.g. consortium or conglomerate.
When a name is approved, the next stage is to ascertain the value of your authorized share capital, shares allotment ratio; the address of the company; a list of all the objects of the company to be couched in a comprehensive and unambiguous manner. The general requirements for registration of a company include the following:
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- -Evidence of approval of name.
- -Duly completed online incorporation forms.
- -Duly stamped Memorandum and Articles of Association.
- -Evidence of consent letter where applicable.
- -Residence permit in case of resident foreigners.
- -Photocopy of duly verified Particulars of Directors, Statement of Share Capital and Return of Allotment of Shares together with Memorandum and Articles of Association for certification as true copies.
- -Duly signed and sealed resolution of the company authoring the subscription where a company subscribes to the Memorandum and Articles of Association for certification as true copies
- -Duly signed and sealed resolution of the company authorizing the subscription where a company subscribes to the Memorandum and Articles of Association.
- -Photocopy of the information page of international passport, national identity card, or driver’s license, email address, telephone number of each director, or subscriber.
- -An affidavit explaining circumstance where there is a difference in the name on stamp duty receipt and name on incorporation documents.
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Registration can be completed and, the certificate of incorporation and other incorporation documents are made available for collection within a week.
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