Most people venture into business without carrying out proper due diligence required, they eventually end up incurring liabilities and loss. There are some elements that should not be taken for granted when starting business in Nigeria especially with the innovation and advancement of our laws. This paper would attempt to look at some of these factors.
Starting The Process
Before you start any process, ask yourself what type of business you want to venture in (note that this is different from line or area of business). You can venture into a Sole proprietorship, Partnership or Limited Company.
This is a type business that involves only one person. In this type of business, the proprietor is the same as the business, i.e. the business is the proprietor, proprietor is the business.
If you desire to venture into this type of business, the registration required would be Business Name registration.
This is a type of business that involves two or more persons. In this type of business, the partners are the same as the business (not separate entity). Liabilities and profits are shared equally or on the basis of the terms in the written agreement.
Again, should you desire to venture into this type of business, the registration required would be Business Name registration.
Legal Defects Of Having A Business Name
It has no legal personality, i.e. you can’t sue or be sued with the business name. It can only sue or be sued with the name of the proprietor or partners.
You can’t acquire real Properties with the name.
You can’t enter into contract with the name.
You can’t sign a tenancy agreement with the name.
The business may come to an end at the death of the proprietor or partners, should there be no one to take over the business. Given the business is attached to the proprietors.
The liability of the business is solely incurred by the proprietor.
This is a type of business that involves two or more persons venturing together and limited respectively by shares. It must be incorporated.
Now, to start your incorporation process, you should know if you are to incorporate a private or public limited company.
Private Limited Company (Commonly called Limited Company or LTD)
They can be formed by two or more persons (with maximum number of 50). This is more like a family business, that doesn’t expand to the public. It cannot invite the public to buy shares.
Public Limited Company (PLC)
They can be formed by not less than 7 persons with indefinite maximum numbers.
Unlike the LTD, it can invite the public to come buy shares, and they are listed in stock exchange.
Taking A Name
Note that it’s prohibited to take a similar name to an already existing Company or business name.
Also prohibited are names similar to existing registered trademarks in Nigeria.
Therefore, ensure that your lawyer carry out a proper search to ensure that your proposed name has not already been taken or is not prohibited. This is very important.
There was this company, after a very long time of its incorporation, another company realized that the said company’s name is similar to its trade mark, he instructed its lawyers to do the needful, to have the irregularity regularized. The company’s name was struck out from the CAC register. There was no consideration of the fact that the company has carried on business with the name for a period of time.
The mistake people frequently make is that, they carry out search on only CAC registry and don’t go do same in Trademarks registry, so insist that your lawyer do the needful during search.
Obtaining certificates would depend on the area of business you want to venture into.
There are some businesses that require professional certificates before you would be allowed to venture into it. It is also expedient for incorporation purposes.
If you are in any line of business that requires professional certificates, certificate of proficiency, permits, license, etc., CAC would require for it at the point of incorporation, failure to provide same would prompt your registration/incorporation to be stalled.
The essence of CAC registration cannot be over emphasized. Simply put, your business lacks flesh and blood without registration. I’d give you an instance.
A man called his lawyer one day and reported that he entered into a contract with a company to make some supplies, after perfecting his part of the deal, the company defaulted in paying him, and have been giving him all sort of stories. His lawyer requested for the contract documents and correspondence, which he sent immediately.
Going through the contract documents, it was realized that the man entered the contract with his supposed company’s name. He was further asked, “is your company incorporated?”, he said: “No, it has not been incorporated”.
Now, the implication of all that is that it would be seemingly impossible to have such contract enforced in Court of law. Simply put, the company is unknown to law.
After incorporating your business, another important process you should commence should be on getting a bank account for your business.
A financial instructor would tell you that it is a bad practice to use your personal account for your business. Aside that, it also has legal implications.
A story was told some years ago, of how a carpenter was contracted to carry out some work for a particular company worth millions. After the contract was sealed, he was requested to provide an account number for advance payment. The man sent his personal bank account. This action terminated the contract, and the man lost the millions.
It was so unfortunate, because his company was registered but without a corporate account.
I know of so many persons and corporate bodies who are like this company, it’s a principle and also part of corporate compliance.
Lastly, there are some other registrations you would have to carry out, to give your company full flesh, they are as follows.
You need to visit and register with the Federal Inland Revenue Services (FIRS) and State Inland Revenue Services (for State).
The FIRS are those you forward all the value added taxes (VAT) to, while the State Inland Revenue Services collect the ‘Pay As You Earn’ (PAYE) taxes.
The reality is that, Government would come after you if you are not a tax compliant. If you are not tax compliant, you would be liable.
Also, and more importantly, with the introduction of the new Finance Act, banks will now request for Tax Identification Number (TIN), for any bank transaction with your corporate account.
A business established to carry on the business of production, manufacturing and distribution of food, imported foods, drugs, export of semi-processed food and cosmetics is required to get registered with the National Agency for Food and Drug Administration and Control (NAFDAC) immediately after CAC registration and before commencement of business.
Penalty awaits whoever flouts this requirement, such company may end up fetched up.
Every industrial product is required to be certificated by the Standard Organization of Nigeria (SON). Also, every item imported into Nigeria for commercial purposes requires SON Product Registration.
Failure to do this would attract prosecution and or seizure of goods.
Trademarks and Service marks are what distinguishes your brands, goods and or services from others. They are the visual and aural distinctive identity of your brands, goods and or services. You can register your brands, business logos, trade names, etc.
In Nigeria, it is impossible to protect an unregistered trademarks or service marks. Therefore, the registration of same is very sacrosanct for the sanity of your business.
Be very careful and carry a due diligence to be sure that the trademark or service mark you are using or proposed to use has not been registered. This is to avoid being sued for trademark infringement.
There are other registrations that may also be relevant, like the Patents and Industrial Designs. Depending however on the area of business you venture into.
In conclusion, it is expedient for everyone who desires to venture into business in Nigeria to be mindful of the legal requirements, and do a thorough due diligence before setting out.
Elabor Joe Agbebaku