UNDERSTANDING THE DIFFERENCES BETWEEN A LIMITED LIABILITY COMPANY AND A BUSINESS NAME

INTRODUCTION

Today many profit-oriented ventures are either registered as a business name or incorporated as a company, paying tax and enjoying the incidence of doing business in Nigeria.

Many lawyers whose forte is within the terrain corporate law Practice would agree that one question they continue to answer everyday from Nigerians who intend to go into business dealings in Nigeria and whom they have advised accordingly to register a business name or incorporate a company is “What is the difference between a business name and company?”

It is therefore my intention to discuss briefly but detailed, the distinction between a business name and a company.

DISTINCTION BETWEEN A BUSINESS NAME AND A COMPANY

Although they are both platforms under which one can start up a business venture, there however exist certain difference between both and these differences will be discussed below.

  1. CORPORATE SOVEREIGNTY AND PERSONALITY

The locus classicus case of Salomon v. Salomon [1]gives us an insight as to the sovereign powers of a company and how a business can acquire the status of a corporate personality. A corporate personality is an artificial legal person in the eyes of the law with the ability to enjoy it’s rights, fulfil its obligation, hold and dispose of properties.

Whenever you incorporate a company in Nigeria, your company automatically becomes a legal person in law with the ability to sue and be sued in its name; it can transact business with other legal personalities in Nigeria and offshore without any form of hassle. The company becomes totally different person from its owners or promoters as such the liabilities becomes that of the company and not the members of the company.

Unlike a company, a business name does not enjoy the incidence of a corporate personality. There is no difference between the proprietor (owner) of a business name and the business name itself. The law considers them one and the same. Liability in such instance is borne by the proprietor, he decides the when, how, where and what of the business. Finally, a business name upon registration do not acquire the status of a legal person.

  • COMMENCEMENT OF BUSINESS

By virtue of the Companies and Allied Matters Act, (CAMA) 2020,[2] a business name has a grace period of 28days after commencement of business to register such business with the Corporate Affairs Commission. Failure to do so will amount to an offence under the CAMA.

On the other hand, a limited liability company do not enjoy such concession. Before a company can commence business, such company must be duly registered with the commission and other regulatory compliance requirements must have been met.

  • PERPETUITY AND SUCCESSION

A business name can either be registered as a sole – proprietor business or a partnership; however, which ever umbrella name it is registered as, it cannot succeed after the death of the sole proprietor or partners. That is to say, the business will cease to exist after the death of the owner(s).

A limited liability company on the other hand enjoys perpetuity in succession. Even after the death of the members of the company, the successors -in-title can take over the company and continue the smooth running of affairs of the company.

  • TAX REGIME

The tax regime applicable to Limited liability companies is the Companies Income Tax (CITA) while the Personal Income Tax (PITA) applies to business names.

  • REGISTRATION/INCORPORATION FEE

There exists a great difference between the registration fee for business name and the incorporation fee for limited liability companies.

While business name enjoys a flat rate registration fee which can be found in the schedule of fees published by the Corporate Affairs Commission, the incorporation fee for limited liability companies is solely determined by the threshold of share capital such company is proposing to hold; the higher the share capital, the higher the incorporation fees not forgetting payment of stamp duties too, which is on pro rata basis.

  • FUND RAISING, CAPITAL AND CREDIT FACILITY

Limited liability companies enjoy a great variety of options in raising capital for the company. The company via a resolution of the members can decide to issue equity (shares), stocks or even debenture to other persons outside the company as a means of raising capital for the advancement of the company. The company can obtain credit facility from a bank or even other money lending institutions. That is not same for business name as the sole provider/financier of the business is the sole proprietor or partners as the case may be. They can only fund the business from their personal purse or by obtaining a loan from a bank with liability tied to them individually.

Aside the differences mentioned above, other differences between a business name and a limited liability company includes:

  1. Statutory Books
  2. Registration/incorporation documents.
  3. Regulatory compliance
  4. Foreign participation in business in Nigeria; businesses with foreign participation cannot be registered as business names, but only as Companies.

CONCLUSION

Having understood certain distinction between business names and limited liability company, I am very well assured that you now have the necessary information needed to make a decision on which you will like to undertake.

Kindly send a mail to starlionlegal@yahoo.com or call 07057663782 so our Corporate Law Associates can be of assistance to you.

Written by

Fortune Ifeanyi Ugwumba

Corporate Law Practice Team of Starlion Legal


[1] Salomon v A Salomon and Co Ltd [1897] AC 22

[2] S. 815 (1)

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