Writtten By Onya Isioma Victoria
For: Starlion Legal
Introduction
There are various forms of businesses in Nigeria, these businesses include sole proprietorships, partnerships, and incorporated companies, this writer aims to analyze the differences between the registration of a business names, otherwise known as enterprise, and the registration of companies, while, highlighting their advantages and disadvantages to prospective businesses.
The registration of a business name can be in form of a sole proprietorship or a partnership.
A business name cannot be applied in a situation of a company, this is because of the size and kind of business that is run.
Below are some of the differences between a business name and a company that a business would need to take note of before deciding the form of business to venture into.
- Separate Legal Entity.
As provided in the locus clasicus case of Salomon v Salomon[1] it was established that a company is a separate legal entity that can sue and be sued in its own name, this is reenforced by Section 42 CAMA 2020[2], while on the other hand, a business name has no legal personality, distinct from its owners, as it can sue and be sued only in the name of the owners.
- Memberships
In the membership of a company, it is required to have directors and shareholders. However, in the registration of a business name only a sole proprietor of a partner is required in such a form of business.
- Liabilities
In a company limited by shares, a shareholder within such a company is only liable for the amount he contributes to the organization. However, in a business name which is either a partnership or a sole proprietorship the owner or owners are responsible and liable for any liability that arises during the course of the business Uredi v Dada[3].
In essence a sole proprietor has unlimited liability within the business and is solely responsible personally or severally in a case where it is a partnership. This form of liability could arise in a case of indebtedness.
- Registered Documents
Upon the registration of a company at CAC (Corporate Affairs Commission), a certificate of incorporation with an embedded tax identification number (TIN) and other documents such as Memorandum and Articles of Association, Status report, while upon the registration of a business name, the sole proprietor or partners are only entitled to a certificate of registration and a status report.
- Dissolution/Perpetual succession
Upon the death of a sole proprietor, the business is automatically dissolved except in a situation where there are other partners in such a business to carry on the business. However, in a situation of a registered company, the death of a shareholder does not end such business. It goes on in perpetuity.
- Decision Making
Under a business name, the decisions are made by the owner of the business unlike in the registration of a company, the board is responsible for any decision that is made. No one individual within the company can solely make a decision without the consent of members of the Board of Directors.
- Profit making
The profit made by a sole proprietor solely belongs to him, and he is also responsible for the liabilities arising out of the business. However, under a registered company, liability of shareholders is only limited to the amount they contribute to the company. This means that their personal assets are protected.
- Registration
The cost of registration of a business name costs less than the registration of a company, it costs more because, stamp duty fees are required to be paid ad valorem on the share capital of the company. Whereas, on the other hand, filing fee for a business name is at a flat rate, and not determined by share capital.
All the requirements for company registration can be submitted to an accredited agent or directly to CAC online.
Circumstances/ Situations where registration with CAC is optional
Generally, as stated earlier, there 3 corporate entities that can be registered under CAC which are Companies, Business Names (trade and trading names), and Incorporated Trustees (associations, societies, religious institutions, and not-for-profit organizations). However, by law, by virtue of section 814 of CAMA 2020 there are some businesses that need not be registered[4]. By virtue of the statutory provision above, the registration of a business name is not mandatory. However, unlike the registration of business names, it is mandatory to register companies (including foreign companies), unless the President of Nigeria issues an exemption.
References
- The Companies and Allied Matters Act (CAMA) 2020 of Nigeria.
- Uredi v Dada (1988) 1 NWLR (Pt. 69) 237)
- Eloquenttouchmedia, Major differences between a business name and a limited liability company, 17th May, 2016, https://www.blog.eloquenttouchmedia.com/the-major-differences-between-business-name-and-limited-liability-company-ltd-in-nigeria/
- By Corporate & Commercial Law Firm Team at Resolution Law Firm, the differences between a business name and a company limited by shares, Resolution Law Firm, August 12th, 2021. https://www.resolutionlawng.com/the-differences-between-a-business-name-and-a-company-limited-by-shares/
- Anastasia Edward, how to register a Business name in Nigeria, The Law Kernel, February 22nd, 2022. https://lawkernel.ng/how-to-register-a-business-name-in-nigeria/
[1] Salomon v. Salomon & Co Ltd [1897] AC 22
[2] S 42 CAMA 2020
[3] Uredi v Dada (1988) 1 NWLR (Pt. 69) 237)
[4] S 814 CAMA 2020.
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