Business Name VS Limited Liability Company: How Should I Register My Business With CAC?
Hello FINT, thank you for your answer to our number of founders' question. Now we want to take the next step to register our business. Should we register it as a business name or as a company?
Answer: After validating a business idea, the very next step should be formalizing its existence by registering it with the appropriate authority. In Nigeria, the Corporate Affairs Commission (CAC) is saddled with this responsibility. There are different vehicles under which a business idea could be structured. Section 21 of the Companies and Allied Matters Act (CAMA) lists several options. But we will focus on two major options; Business Name and Limited Liability Company. The points below will help you in answering the question.
Image by Tumisu from Pixabay
Image by Nattanan Kanchanaprat from Pixabay
Type of Business Idea
Deciding between a business name and a limited liability company depends on the business idea. Some businesses, like law firms, can only be registered as a business name. In the same way, some businesses like those into FinTech can only be registered as a company.
Image by Tumisu from Pixabay
Venture Capital
If you do not intend to secure venture capital, that is bringing in investors, you can go ahead with a business name. If otherwise, then you need to register a company so you can issue equity to investors.External Funding
Businesses hoping to secure external funding like grants, whether from the government or private should consider registering as a limited liability company. Generally, and in most cases, grants are not given to an individual, but rather to a formal entity reflecting the cause for which the grant was granted.Government Bids
If you do not intend bidding for projects with the government, whether federal, state or local, you can go ahead with a business name. If otherwise, then you need to register a company. Government agencies will not acknowledge the bids unless it is a limited liability company.Sole Proprietorship
Business names work best for a sole proprietorship. So, if you are running a one-man or one-woman business, and you simply want to structure things in order to get access to benefits like a corporate account, then a business name suffices. If you opt for a company, you must comply with the mandatory requirement of a minimum of two (2) shareholders. Although, there can be more than one proprietor for a business name registration, so it is suitable even for partnerships. However, once there are more than twenty (20) partners, then it needs to be registered as a company. Exceptions include law firms and accounting firms.Contributions and Ownership Stakes
Business partners who want their contribution to the business to be clearly spelled out in public documents and also reflect their ownership stakes are better off registering as a company. As earlier stated, although business partners could still register as a business name, there must be a legal document that clearly addresses these points.Separate Legal Entity
With a business name, there is no separate legal entity. You (and your business partners) are simply carrying on business in the name registered with CAC. This means that all risks and liabilities are borne personally by the business owner(s). With limited liability companies, whether private or public, there is a separate legal entity. That is, the company itself is an artificial person that is distinct from the shareholders/members. Thus, all risks and liabilities are borne by the company and not personally by the shareholders.Business Continuity
A business name lacks continuity because when the owner dies, the business also dies. This is not the case with companies as it is a separate legal entity existing independent of its shareholders/members. Moreover, ownership of shares can be transferred, while ownership of a business name cannot be transferred as it is not a separate legal entity.
Image by Nattanan Kanchanaprat from Pixabay