In Nigeria, companies are being set up in different ways depending on the objective of the business and vision of the founder(s).
In this article, you will be led to understand the different forms of companies in Nigeria as well as their advantages and limitations.
Firstly, what is a company? A company is a business organization that produce or sell goods or services aimed at making a profit.
Types of companies in Nigeria 2021
- Sole Proprietorship
- Private Limited Company
- Public Limited Company
- Private Unlimited Company
- Company Limited by Guarantee
1) Sole Proprietorship
This is the simplest form of business called a one-man company. To start this kind of business does not need too many technicalities. You just need to register the business name with Corporate Affairs Commission (CAC). After that, you can start operating.
The founder is the sole owner and controller of the business.
- The Decision-making process is fast
- It is easy to establish and managed
- It serves as a stepping stone to the incorporation
- The founder enjoys all his profits
- Difficulty raising money: It is difficult to get money from a bank as a sole proprietor
- Unlimited liability to debts and legal actions
- Difficulty in attracting business or contracts as he or she does not file records with CAC. This simply means the business lacks transparency.
2) Private Limited Company
A private limited company is a business that has a legal identity that is different from its founders or shareholder. That means, the business can sue and be sued.
The good thing about this type of business is that your level of risk or liability is directly proportionated to the amount you invested. it is a very common business setup in Nigeria. Any company in Nigeria that you see that ends with” Ltd” or “Inc”, just know that it is a private limited company.
In a private limited company, the shares are not brought out to the public. The public cannot get access to the shares.
- The authorized share capital must not be less than 10,000 naira
- Minimum of two investors and maximum of 50
- The company must have a registered office in Nigeria.
- It can sue and be sued
- It has a legal identity
- The amount of liability is limited to the amount invested
- Can attract funds and contract easily
- Decision making is slow
- Disagreement between the shareholders can impede the activities of the company.
3) Public Limited Company
This company is different from the above one because it can sell its shares to members of the public and it is quoted on the Stock Exchange.
The cost of running a public limited company is very high, thereby allowing a minimum of two shareholders, with no maximum limit. Every Public Limited company ends with “PLC”, an example is Nestle plc. To register the company, the company must have a minimum share capital of N 500,000.
- Raising capital through public issue of shares
- Widened the shareholders base and sharing of risks
- Easy access to growth opportunities and contracts
- Transferability of shares
- More regulatory requirements
- Ownership and control issues
- More vulnerable to takeovers
- Complexities in business management
4) Private Unlimited Company
A private limited company is an incorporated company that can be with or without share capital. It is similar to the private limited company, but in this case, the liabilities of the shareholders are not limited. Therefore, the shareholders and the members have a joint and nonlimited duty to meet any insufficiency in the company.
Although, some preferred this to its limited liability counterparts because:
- Financial affairs are been shielded from the public, media and its competitors, thereby promoting secrecy
- This company can be trading in areas restricted for private limited liability
- There is a lower risk of insolvency.
5. Company Limited by Guarantee
It does not operate on a shareholder basis or does it have a share capital. It only has members who act as guarantors. The guarantors take an undertaking to contribute a nominal amount which is usually very small.
This kind of company is usually set up mainly for charity or community projects.
To register the above companies, you can kindly visit any CAC office close to you. For easy registration, you can visit their official website (cac.gov.ng) to begin your registration process.