The business structure of a company refers to how a company is set up legally. It defines what the company can do, like how it can get money, who is responsible for the company's debts, and how much tax the company has to pay to the government. It's like the blueprint that outlines the rules and boundaries within which the company operates.,
The major types of business structures are sole proprietorship, partnership, corporation and limited liability company.
Sole Proprietorship
A sole proprietorship is a basic business where one person handles everything. Starting a business with this structure is cheap, with minimal fees. The business owner operates in his or her personal capacity while trading and he or she represents the business in all situations because the business has no legal identity if its own.
Unlike other structures, no need for meetings or director elections, but owners are personally liable for business debts.
Partnership
A partnership is a form of business structure that comprises two or more owners. It is the simplest form of business structure for a business with two or more owners. A partnership shares a lot of similarities with a sole proprietorship. For example, the business does not exist as a separate legal entity from its owners, and therefore, the owners and the business are treated as one person.
An advantage is that partners can divide the responsibilities of running the business among themselves, there by, reducing the burden buy how ever, partners have unlimited personal liability just like a sole proprietorship and a rift unbroken partnership can lead to the destruction of the business.
Types of Partnership are general partnerships, limited partnership and limited liability partnerships.
Limited Liability Company
This business structure provides limited liability protection to its owners (shareholders) and has its own legal identity, making it accountable for its actions. It can be registered as either a private or public limited liability company.
The company can keep going indefinitely regardless of ownership changes or shareholders passing away, unless they opt for mergers or acquisitions. This stability ensures the business continues without interruption.
Setting up an LLC can become pricier due to the costs of formation, registration, and legal assistance fees.
Public Liability Company
PLCs are the biggest structure hence, they take a lot more time and money to set up. As a public company, they must have a company secretary, conduct annual general meetings, and adhere to specific regulations to ensure transparency and compliance with legal requirements.
Having considered the above, to answer the hypothetical question, the proceeding subheading is pertinent.
Factors To Consider When Choosing A Business Structure
A. What's the best form of ownership and control for that Kind of business?
B. How liable do you want the owner(s) to be to risks?
C. Tax differs according to type of business structure.
D. Business structure attracts different kinds of investment opportunities. Limited liability companies are more likely to attract a higher quality of investors
E. The business structure should align with the vision of the business owner(s)
Now to answer the questions :
1. In my opinion, the best structure for an e-hailing service is a limited liability company structure. This is because this type of business is associated with unforseen risks and so it would be safer to make the business have a different personality from the owner ,so the risks do not meet the owner(s).
Also, so it has more access to investments.
2. The startup must comply with regulations in the Company and Allied Matters Act (CAMA) , and in their articles and memorandum of association.
3. To protect its intellectual property, like the mobile app and business model, the startup can consider trademarking the app name and logo and copyrighting the business app code
4. Some potential challenges and risks associated with operating an e-hailing tech startup in Nigeria are:
I. Initial costs for forming an LLC, including registration and legal fees, can be higher compared to other business structures.
Ii. LLCs must disclose information about shareholders, directors, and financial details publicly, which could impact privacy and competition concerns.
Iii. Unlike public limited companies, LLCs may find it challenging to raise substantial capital from the public through stock exchanges due to restrictions on public fundraising.
Iv. LLCs, as separate legal entities, have formal requirements for meetings, resolutions, and reporting that must be followed.
V. Transferring shares or exiting an LLC can be more complicated, especially if there are limitations on share transfers outlined in the company's articles of association.
5. The necessary licenses and permits required to operate an e-hailing service in Nigeria
i. Names, addresses, phone numbers and email addresses of Shareholders, stating the shareholding percentage for each shareholder.
ii. Name, address, phone number and email address of Company Secretary
iii. Name, addresses, phone numbers and email addresses of Directors (minimum of two directors. Note that to appoint a minor, i.e. a person below 18 years of age as a director, there has to be a minimum of two adult directors).
iv. Proposed Company address.
v. Proposed share capital of the company (minimum of 1million naira is advised).
vi. Means of identification for the directors, shareholders and Company Secretary i.e a copy of international passport, permanent voters card, national id card or driver’s license
vii. Objects of the Company, i.e business the Company proposes to operate
viii. Memorandum and Articles of association of the Company.
ix. Submit the original copies of the scanned documents at the nearest CAC office
