Types of Business and Non-business Organizations in Nigeria
As a lawyer, this is one of the areas where I get asked a lot of questions. Below are simple thoughts on different types of business and non-business organizations in Nigeria. Consult with a lawyer before embarking on an enterprise.
Un-registered Sole Proprietorship
A sole proprietorship is a form of business enterprise that is owned and controlled by one individual. In un-registered sole proprietorships, an individual carries on business under his name or no name at all. Common examples include your neighbourhood kiosk, the recharge card seller, the small phone shop, your tailor, etc.
Business Name- for use by Sole Proprietors, Firms/Partnerships
Business Name refers to the “name or style under which any business is carried on whether in partnership or otherwise”. All business names are required by Nigerian law to be registered where the name is one other than the name(s) of the owner(s) of the business or it consists of an addition to the owner’s name.
A sole proprietor carrying on business under a name other than his/her natural name is required by law to register the name with the Corporate Affairs Commission (CAC) at least 28 days after commencement of business under that name. Examples of business names that must be registered include, “Emeka & Sons”, “Halima Trading Enterprises”, “Ayokunle Business Ventures”, etc.
Firm is the general name for business partnerships and refers to a situation where “two or more individuals or one or more individual and one or more corporations, or two or more corporations have entered into partnership with one another with a view to carrying on business for profit.”
A simple way of looking at it is that a firm/partnership is just like a sole proprietorship except that there is more than one person or entity involved. However, as partnerships are regulated by relevant state laws and common law you should consult with a lawyer before embarking on a partnership or to determine whether your business relationship will be regarded as a partnership.
Two types of partnerships exist in Nigeria today. They are ordinary/general partnerships and limited liability partnerships which are predominant in Lagos. Popular examples include PwC, Akintola Williams Deloitte, KPMG, Afe Babalola & Co., etc.
Unlike the above two forms of business associations, companies have separate legal identities from their members/owners and are usually bigger and well structured. Companies can be classified based on the liability of their members. As such, there are:
Company Limited by Shares: Here the liability of the owners/members is limited to the amount unpaid by them on the shares they each hold. Companies limited by shares could be either private (ltd) or public (PLC). Examples include Guinness Nigeria PLC, Nigerian Breweries PLC,
A private company limited by shares (Ltd) has a membership of between two (2) to fifty (50) persons and restricts the transfer of shares by its members. A public company limited by shares has no such restrictions.
Unlimited Company (Unltd): Here the liability of the members of the company is unlimited. Although the company has a separate legal identity from that of its members, its members are still liable for the debts and liabilities incurred by the Company where the company is unable to offset them. Popular examples in Nigeria include, Mobil Producing Unlimited and Texaco Overseas Petroleum Company Unlimited. This kind of company is usually adopted by partnerships exceeding the maximum legal number of membership of partnerships (20).
Company Limited by Guarantee (Ltd/Gte): This kind of company has no share capital, rather the liability of its members are limited to the amount the members respectively guarantee to contribute in the event of its being wound up. Although it is allowed to do business, the income, profit and property of the company are not allowed to be distributed to the members but are to be applied solely towards the promotion of the objects of the company. It is the kind of company one forms where the object is not profit-making but the promotion of things like commerce, art, sports, education (schools), religion, etc.
These are strictly non-business and not for profit organizations that are formed by any community of persons bound together by custom, religion, kinship sociology or nationality or by a body or association of persons established for any religious, educational, literary, scientific, social, or charitable purpose. This is the type of corporate structure commonly employed by churches and NGOs.
Co-operative societies in Nigeria are basically associations of persons who voluntarily cooperate through member contributions for their mutual social and economic benefit. They are established for the purpose of “providing services on a non-profit basis to their members or shareholders who own and control it”. Co-operative societies are formed and regulated pursuant to the relevant state laws in which the co-operative society operates. Registration of the co-operative society accords it legal personality distinct from its members.