Why Should I Register My Business in Nigeria?
Daily on a worldwide scale, several businesses spring up, people keep churning out multibillion dollar ideas and seek ways to convert these ideas to profit making ventures by starting up businesses. The story is not different in Nigeria as several people leave their salary-paying jobs to start up their own businesses, probably because their salaries do not come as frequently as they should or they feel they will do better on their own. One major challenge however is the fact that several of these businesses are not legally registered, in fact statistics show that about 70% of businesses in Africa are not registered entities.
The aim of this article is to enlighten the reader about business registration and the benefits of registering a business. After reading this article, the reader should understand the following:
- The meaning of business registration.
- Types of business structures that can be registered in Nigeria.
- The advantages of each type of business structure.
- Steps to take in business registration.
- Advantages of business registration.
Join me on this ride as it promises to be both interesting and enlightening at the same time.
BUSINESS REGISTRATION EXPLAINED
Some years back, I met a promising young man who had great ability in graphic design and shirt making and branding. He had great ideas and he was very hardworking, he was skillful at his trade also. He was so good that he was already becoming a household name in his locality when it comes to graphics and shirt making and branding. Everyone who needed shirts for an occasion would request for his products, every business that needed publicity in his locality knew he was the guy to call on. With all his hard work there was still a challenge, a loophole, he had not registered his business so he had no legal identity.
He never felt it was a big deal till he needed to bid for a multimillion naira contract and in the forms he had to fill, his business name and company registration number were required. He was at the edge of a major breakthrough in his career but a simple slipup on his part due to negligence cost him so much that he would have spent too little to fix from the onset. He lost that contract just because he lacked legal identity. He had to learn the hard way the importance of business registration.
Business registration is defined as the process of getting a unique business registered (with its unique name and ownership) with a nations’ company registry (in Nigeria, the Corporate Affairs Commission) and listed on the country’s register of companies. It is a means of giving a unique business its own legal identification and bringing knowledge of its existence to the country in which it is domicile. There are several great advantages of carrying out this process and we will be looking at them later in this article.
TYPES OF BUSINESS STRUCTURES THAT CAN BE REGISTERED IN NIGERIA
Before undertaking the process of business registration, it is imperative that proper understanding is gained as to the types of business structures that exist. This will assist in guiding the business owner in choosing properly what format best suites his/her business and thus move on to do the needful. The terms used might differ from country to country, but the general rules are virtually the same everywhere. Below are the different types of business structures recognized:
- Sole proprietorship – Yomi is a photographer who covers several events. He bought his equipment without anybody investing into his business and thus enjoys his profit by himself. Yomi is an example of a sole proprietor and the kind of business he runs is called sole proprietorship. Sole proprietorship is a business system which is owned and run by a single individual in which he bears all the risks (debts, losses, legal issues, etc.) and enjoys all the profit alone. The operator of this kind of business structure is known as a sole proprietor and he may choose to register just a business name as a legal means of identification for his company.
The major advantage of this kind of structure is that the sole proprietor enjoys the benefits and profits alone. Another advantage here is that it is easy to make decisions as there is no long chain of command, all he needs to do is think about what he wants to achieve and implement his decision. It is also cheap and easy to register and run and requires small capital.
A major disadvantage of sole proprietorship is unlimited liability, meaning that every loss that comes to the business is borne by the sole proprietor. In line with the example above, should Yomi have collected money for a photoshoot and have printed the pictures but lost them on transit to the delivery point, he will have to do it over again and bear the loss personally. Another disadvantage of sole proprietorship is lack of continuity, usually when the business owner dies, the business dies with him/her.
This kind of business structure is best advised for micro businesses such as petty trading, photography, barbers, artisans, etc. that can be run by single individuals.
- Partnerships – A partnership can be described as a business relationship between two or more people (usually not more than twenty) who carry out business together with aim of pooling resources and getting profit. An example of this is when Yomi feels he should diversify from just taking pictures to shooting videos and he calls on a videographer, Sule so they can both run a business for profit making. Once both of them agree and start business, it is known as a partnership.
The advantages of this is that both partners share the risks, it is easier to raise capital than a one-man business (sole proprietorship), and there is continuity in the business.
Some disadvantages include unlimited liability, disagreements and unease in making decisions.
The members of a partnership are individually called partners and collectively called a firm. Examples of businesses that run this structure are law firms, accounting firms, consulting firms, etc.
- Private Limited Liability Company – Let me start here by explaining briefly the word liability as related to business. Liability is defined as a company’s debt or obligations that arise in the course of business transactions. The liability can either be unlimited or limited; unlimited meaning that the owner bears the brunt of the liability since he is not a separate entity from his business (the first two structures mentioned above; sole proprietorship and partnership). Limited liability on the other hand means the business is a separate entity from the owner, thus it bears its risks, debts and obligations without affecting the owner’s personal life.
Private limited liability companies are the most common structure in use today. It is the perfect structure for the modern day entrepreneur, though it is more expensive to register but it gives far more privileges than the sole proprietorship and partnership structures. One of the major advantages is that the business is treated as a separate entity so in the case of bankruptcy, the owner’s personal assets are not affected. It also allows for transfer of business from one party to another with ease. It allows for future expansion and it is suitable for any kind of business ranging from agriculture to information technology to procurement and installation, etc. The company names usually end with “ltd”, “limited” or “Inc”.
- Public Limited Liability Company – This is practically a replica of the private limited liability company, but the only difference is that the company is owned by the public and not private entities. When I say owned by the public, I mean the shares of this kind of business are open for sale to members of the public on the stock exchange of the country in which it is domicile. It is suitable for businesses that have been run for a couple of years and have grown quite large as it is the most expensive kind of business to register and run. Most public limited liability companies started as private limited liability companies.
The name of this kind of companies end with “plc”. The rules surrounding this business structure are quite stringent.
HOW TO REGISTER YOUR BUSINESS
Since you have understood the kinds of business structures existent, the next step is to register your business. The choice on the format of registration depends on the nature of the business. Each format has its peculiarities (requirements, privileges and obligations) under the law of the country. The following are answers to frequently asked questions regarding business registration:
- Where do I register my business? In every country, there is a body that is saddled with the responsibility to register every business, they can also be known as the country’s company registry. In Nigeria, the body is known as the Corporate Affairs Commission with its headquarters in Abuja, there is one branch in every state of the federation. Over the years the activities of the commission have become increasingly streamlined and more automated. You can visit their corporate website, http://new.cac.gov.ng/home/ for details about their operations.
- Do I require the services of a professional? This is dependent on the laws of the country in which the business is domicile. In Nigeria however, the CAC requires that you employ the services of accredited lawyers, chartered accountants and chartered secretaries to register your business.
- What are the requirements I must satisfy to register my business? This also varies from country to country. Here in Nigeria, you should be above 18 years of age and you must be of sound mind. You must also possess a valid means of identification and a valid business address.
- How much does it cost to register? Different business structures require different amounts of payment. The list of the cost implication for businesses registered in Nigeria can be found on the CAC website, http://new.cac.gov.ng/home/summary-of-fees-and-forms. You must also consider that since you require the services of a registered professional, there will be additional charges from the person you choose to work with.
- How long does the registration process take? The time frame for registration varies in different countries. In Nigeria, the process takes a period of 3-6 weeks, depending on the business structure involved.
WHAT ARE THE BENEFITS OF BUSINESS REGISTRATION?
- You get issued a certificate of incorporation, meaning you have a unique identity. This protects your products and services by giving them a brand name. This also helps to build your brand and give you a positive reputation.
- It gives you credibility in the sight of your customers as well as other business associates. It shows signs of responsibility and trustworthiness as your prospective clients know that they are dealing with a trustworthy organization.
- Access to bank loans and services. For the business to have and run a business account with a bank, the bank will require the certificate of incorporation as well as the business name and registration number. It will also enable the business to enjoy loan facilities from banks should the need arise.
- The registration of your business gives the opportunity to attract investors. Nobody wants to invest in a venture that lacks reputation and continuity, registration gives you this leverage.
- It protects the business owner from personal and legal liability, especially if the business is registered as a limited liability company.
- It allows for continuity of the company.
- Registration affords the business the ability to legally employ staff. You can even request for NYSC members to works at your company when registered.
- It gives the business owner the opportunity to travel easily to other countries for business transactions as business visas can become easily accessible.
Note: if you can not go through the hassle of registering your business on your own, you can contact our Lawyer who will do all the running around and register youro business with the Corporate Affairs Commission Nigeria. Contact Barrister Somto on +23468687289 or +234181688032.
I believe that this write up has been truly helpful in educating you on the need to register your business in Nigeria. It might be costly to undertake but I tell you, it is worth every kobo spent. Do it now and thank me later.