Registering your business is a very important step you need to take before commencing business operations as part of the statutory compliance. As we may already know, gaining the trust of prospective customers, clients and even investors is the goal of every business owner. Amongst other stuffs, registering your business with the companies’ regulatory body earns you a level of trust and gives you a level of recognition in the public domain generally and particularly with your clients, customers and prospective investors.
In Nigeria, the body vested with the registration of business organizations is the Corporate Affairs Commission. As a business owner who is running or intends to commence business operations in Nigeria, you need to register your business with the Corporate Affairs Commission (CAC) as:
1. A Business Name
2. Company (Limited Liability Company)
Basic Differences of Registering your Business under Business Names or as a Company:
Most times we find ourselves using ‘business names’ and companies under the CAC interchangeably and it is wrong. The similarity is that business names and companies are both business organizations; while the major difference is that a company’s name is selected upon incorporation and creates a separate legal entity, distinct from its owners. Whereas a business name is selected when carrying on a business under a name other than the true owners name, no legal entity is created and there is no limitation on liability.
Registering a business name basically allows people know and recognize that you are carrying out a particular business with a particular name and you are the proprietor. However, when you register a company, it is like creating a new entity on its own and just like business names, people can also recognize a company by what the company does. When you register a company in Nigeria you become a Director and a Shareholder and not a Proprietor. Also note that registering a business name is relatively cheaper than incorporating a company in Nigeria.
Speaking of liability as a major distinction between registered business names and incorporated companies, an illustration will be very helpful. For instance, if Mr. X starts a business and registers it as a business name, in the case of loss he suffers personal damage and would be held personally liable to pay the debts or losses of his business. However, if Mr. X in starting his business, incorporates or registers his business as a company, if there are losses, he cannot be held personally liable and if there are debts to be paid, such would be paid from the company’s funds and assets and not from Mr. X’s personal assets, reason being that the incorporation of a company is like birthing a new artificial person. Except where the Directors and Shareholders indemnifies the company, even in this regards liability may be limited to the shareholding
Also, it is always easier for businesses incorporated as companies to get funding from venture capitalist and even commercial loans than registered business names. Companies also have a more formal corporate governance structure and also give room for sustainability of business operations. However, to get funds from venture capitalists, angel investors or commercial loans it is important to either register a business name or incorporate a company.
There are times you may want to transfer ownership of your business in Nigeria, this is very easy for companies, and in fact you can add Directors and Shareholders that would work to promote the objects of the company. However, transferring ownership of a business name is more difficult as the business name is not a separate entity from the business owner. In deciding on what to do, you may need to also consider that registering and running a registered business name is less formal and less complex than incorporating a company.
Some Benefits of Registering your Business
1. Getting loans easily
2. You can easily access alternative funding
3. Your business becomes recognized by the laws in Nigeria
2. You can easily open and operate a business/corporate bank account to separate your personal funds from your business funds
3. You can access government grants and contracts
4. Registering your business is a good step of protecting your trademark
5. Registering your business helps you build credibility
6. Registering your business fosters business continuity
