TYPES OF BUSINESS ORGANISATIONS THAT CAN BE REGISTERED
TYPES OF BUSINESS ORGANISATIONS THAT CAN BE REGISTERED
Nigeria is essentially a free enterprise country, subject only to such regulations as are necessary for national interest. As such, any person can participate in the Nigerian Economy. This participation may be through sole proprietorship, partnerships, and unincorporated joint ventures, limited and unlimited liability companies.
The different types of business organisations that can be registered, their features and suitability are as follows:
PART A- COMPANIES
FACTORS CONSIDERED IN CHOOSING THE TYPE OF COMPANY TO ESTABLISH
INCORPORATED COMPANIES
Incorporated companies are also referred to as body corporate or registered companies. They have legal personality, that is, they can sue and be sued because they are legal entities distinct and separate from the persons of which they consist upon registration.
FEATURES
Any of the above companies may be a private company or a public company – Section 21(2) of CAMA.
PRIVATE LIMITED COMPANY
FEATURES
A PUBLIC COMPANY
A public company is defined as any other company other than a private company and which is stated in its memorandum as a public company – Section 24 of CAMA.
The difference between a private company and public company are:
A company where the liability of its members is limited by the memorandum, to the amount if any as to the unpaid shares respectively held by them – section 21(1)(a) of CAMA. It is the largest type of companies, which is normally employed for business purposes. The shares create very valuable security and the limitation of liability enables the shareholder to determine the limit of his liability and indebtedness. The shares, as the unit of holding, represent the involvement and commitment of the interest of the holders. Apart from special circumstances when the liability may be extended, for example, where a company carries on business with less than the minimum number of members or the authorised minimum share capital.
Section 93 CAMA: If a company carries on business without having at least two members and does so for more than 6 months, every director or officer of the company during the time that it so carries on business with only one or no member shall be liable jointly and severally with the company for the debts of the company contracted during that period.
Section 99(1) CAMA: Where, after the commencement of this Act, a memorandum delivered to the Commission under section 35 of this Act states that the association to be registered is to be registered with shares, the amount of the share capital stated in the memorandum to be registered shall not be less than the authorised minimum share capital and not less than 25 per cent of that capital shall be taken by the subscribers of the memorandum.
Section 99(2): No company having a share capital shall, after the commencement of this Act, be registered with an authorised share capital less than the authorised minimum share capital.
Section 99(3): Where, at the commencement of this Act, the authorised share capital of an existing company is less than the authorised minimum share capital, the company shall, not later than 30 days after the appointed day, increase the share capital to an amount not less than the authorised minimum share capital of which not less than 25 per cent shall be issued.
Section 99(4): Subject to subsection (3) of this section and to section 103 of this Act, where a company is registered with shares, its issued capital shall not at any time be less than 25 per cent of the authorised share capital.
Section 99(5): Where a company to which subsections (3) and (4) of this section apply fails to comply with the applicable subsection, it shall be liable to a fine of N2,500, and every officer who is in default shall be liable to a fine of N50 for every day during which the default continues.
NB: a person who has paid his shares in full cannot be held liable for any part of the liability of the company. On the other hand, where a shareholder has sums outstanding on his shareholding, he can be called upon to pay by a duly authorised call and this is so whether or not the company is being wound-up.
FEATURES
A company without a share capital (most times, it is not for profit organisation). This is a company whose liability of its respective members are limited by the memorandum to such amount that members have undertaken to contribute to the assets of the company in the event of liquidation – section 21(1)(b) of CAMA. Such companies are incorporated for purposes of promoting commerce, art, science, religion, etc. and the income and assets are applied for the promotion of the objects and not available for distributing to members as profits – section 26(1) of CAMA. A company limited by guarantee shall not be registered with a share capital – section 26(2). Section 26(6) of CAMA: All officers and members who are cognisant of the fact that it is so carrying on business shall be jointly and severally liable for the payment and discharge of all the debts and liabilities of the company incurred in carrying on such business, and the company and every such officer and member shall be liable to a fine not exceeding N100 for every day during which it carries on such business.
The total liability of the members of a company limited by guarantee to contribute to the assets of the company in the event of its being wound up should not at any time be less than N10,000 – section 26(7) of CAMA. This is intended to give some assurance to third parties dealing with the company.
Finally, section 26(5) of CAMA provides that the memorandum of such a company shall not be registered without the authority of the Attorney-General of the Federation.
FEATURES
SUITABILITY
This company has no limit on the liability of its members
This is a company not having any limit as regards the liability of its members. This company is not common, being limited in its usefulness. It is like a partnership because every member is liable in full for the debts of the company while a member and does not have any limit on liability. This unlimited liability makes it unattractive for business purposes. It is used mainly by professionals who assume personal liability for their obligations.
It must be registered with a share capital, and where an existing unlimited company has no share capital, it must, not later than the appointed day, alter its memorandum and articles so that it becomes an unlimited company having a share capital not below the minimum share capital permitted under section 99 - Section 25. Section 567 of CAMA defines the appointed day as a period of one year from the commencement of the Act.
It is usually useful where the members are able to estimate the kind of liability or loss they are likely to incur in advance e.g. company working on a patent and its development in terms of products, oil prospecting companies, etc.
FEATURES
Nigeria is essentially a free enterprise country, subject only to such regulations as are necessary for national interest. As such, any person can participate in the Nigerian Economy. This participation may be through sole proprietorship, partnerships, and unincorporated joint ventures, limited and unlimited liability companies.
The different types of business organisations that can be registered, their features and suitability are as follows:
- Sole trader;
- Partnership; and
- Companies/Corporations
- Company Limited by Guarantee e.g. Nigerian Stock Exchange
- Incorporated Trustees
- Nature of the business
- The capital available may affect the choice of business
- The number of members.
- Extent of liability of members.
- Commercial expediency.
- The extent and sphere of operation.
- Position of the law/statutory requirements.
- The cost of registration and expenses
- Speed of processing and completion of registration.
- Post registration compliance and regulatory supervision e.g. where persons intending to set up a business venture do not wish to be publishing their accounts and filing reports to CAC, they may be advised not to set up a public company.
- The desire of the client himself. The business venture which the client has in mind is to be considered, then fine tuned to meet up with the provisions of the law.
PART A- COMPANIES
FACTORS CONSIDERED IN CHOOSING THE TYPE OF COMPANY TO ESTABLISH
- The number of the membership. For Ltd. it is 50 while in a PLC it is unlimited.
- The size and nature of the proposed business
- The cost/ capital intensity of the business. For Ltd it must have a minimum authorised share capital of N10, 000 while that of a PLC is N500,000.00
- Proposed date of incorporation
- Restrictions on the issue and transfer of shares. In Ltd that right is restricted but this is not so with a S. 22(2) of CAMA.
- The formalities to be complied with depending on the type of company incorporated like holding of statutory meetings, filling full or abridged statement of finance etc. NOTE-A company’s asset is different from the share capital of the company. Shares give a member participating right to the affairs of the company and a right to dividend.
INCORPORATED COMPANIES
Incorporated companies are also referred to as body corporate or registered companies. They have legal personality, that is, they can sue and be sued because they are legal entities distinct and separate from the persons of which they consist upon registration.
FEATURES
- The liability of members may be limited or unlimited
- It has a legal personality.
- It is good for making profit.
- It is capable of acquiring, disposing or holding of all types of property.
- Company limited by shares
- Company Limited by Guarantee/ltd/GTE.
- Unlimited Liability Company/ULTD
Any of the above companies may be a private company or a public company – Section 21(2) of CAMA.
PRIVATE LIMITED COMPANY
- A private company is one, which is stated in its memorandum to be a private company –
FEATURES
- Section 22(2) of CAMA. It must by its articles restrict the transfer of its shares –
- Section 22(3) of CAMA and its total membership MINIMUM is 2 and must not exceed fifty (50), not including persons who are bona fide in the employment of the company –
- Its minimum share capital is N10,000: s27(2)(a) CAMA
- Section 22(5) of CAMA. It is prohibited from inviting the members of the public subscribe for any shares or debentures of the company; or to deposit money for fixed periods or payable on call, whether or not bearing interest, unless authorised by any law.
- Where two or more members hold share jointly, they shall be regarded as one member: 22(4). A private company is exempted from statutory meetings.
- A private company can commence business upon incorporation without a certificate from the CAC registrar
A PUBLIC COMPANY
A public company is defined as any other company other than a private company and which is stated in its memorandum as a public company – Section 24 of CAMA.
The difference between a private company and public company are:
- Membership of a private company is limited to fifty while public is unlimited.
- Minimum share capital of a private company is N10,000 while a public company minimum is N500,000 – section 27(2)(a) of CAMA.
- A private company can commence business upon incorporation whilst a public company will have to wait until it has been issued with a certificate by the Registrar.
- Private companies are permitted to allot its shares without external control unless there is alien participation while a public company cannot do so without the prior approval of SEC.
- The name of a private company must include “Ltd” while a public limited company is “Plc”.
- A private company cannot invite the public to subscribe for its shares or debentures or to deposit money with it unless authorised by law, but a public company can.
- A private company must by its articles restrict the transfer of its shares while a public company is not so restricted
- Every public company must hold statutory meeting & file a statutory report under section 211 of CAMA within 6 months of its incorporation but a private company is not so required.
- Under section 256 of CAMA, a person above the age of 70 years may, by a resolution via special notice, be appointed a director of a public company provided that the fact of his being 70 or above shall be disclosed to members at the general meeting. Such procedure is not required in a private company.
- All resolutions of a public company must be passed at a general meeting otherwise they won’t be effective but a written resolution signed by all the members entitled to attend & vote is as valid & effective as if passed in a general meeting in a private company.
- Company Secretary of public company is qualified and has the requisite experience required while it is not so for private company.
A company where the liability of its members is limited by the memorandum, to the amount if any as to the unpaid shares respectively held by them – section 21(1)(a) of CAMA. It is the largest type of companies, which is normally employed for business purposes. The shares create very valuable security and the limitation of liability enables the shareholder to determine the limit of his liability and indebtedness. The shares, as the unit of holding, represent the involvement and commitment of the interest of the holders. Apart from special circumstances when the liability may be extended, for example, where a company carries on business with less than the minimum number of members or the authorised minimum share capital.
Section 93 CAMA: If a company carries on business without having at least two members and does so for more than 6 months, every director or officer of the company during the time that it so carries on business with only one or no member shall be liable jointly and severally with the company for the debts of the company contracted during that period.
Section 99(1) CAMA: Where, after the commencement of this Act, a memorandum delivered to the Commission under section 35 of this Act states that the association to be registered is to be registered with shares, the amount of the share capital stated in the memorandum to be registered shall not be less than the authorised minimum share capital and not less than 25 per cent of that capital shall be taken by the subscribers of the memorandum.
Section 99(2): No company having a share capital shall, after the commencement of this Act, be registered with an authorised share capital less than the authorised minimum share capital.
Section 99(3): Where, at the commencement of this Act, the authorised share capital of an existing company is less than the authorised minimum share capital, the company shall, not later than 30 days after the appointed day, increase the share capital to an amount not less than the authorised minimum share capital of which not less than 25 per cent shall be issued.
Section 99(4): Subject to subsection (3) of this section and to section 103 of this Act, where a company is registered with shares, its issued capital shall not at any time be less than 25 per cent of the authorised share capital.
Section 99(5): Where a company to which subsections (3) and (4) of this section apply fails to comply with the applicable subsection, it shall be liable to a fine of N2,500, and every officer who is in default shall be liable to a fine of N50 for every day during which the default continues.
NB: a person who has paid his shares in full cannot be held liable for any part of the liability of the company. On the other hand, where a shareholder has sums outstanding on his shareholding, he can be called upon to pay by a duly authorised call and this is so whether or not the company is being wound-up.
FEATURES
- The liability of members of a company limited by shares may have to be implemented at any time during the active life of the company as well as during the winding-up.
- It is usually incorporated for the purpose of making profits for distribution to members.
- A person who has paid his shares in full cannot be held liable for any part of the liability of the company.
- It is the largest type of companies, which is normally employed for business purposes.
A company without a share capital (most times, it is not for profit organisation). This is a company whose liability of its respective members are limited by the memorandum to such amount that members have undertaken to contribute to the assets of the company in the event of liquidation – section 21(1)(b) of CAMA. Such companies are incorporated for purposes of promoting commerce, art, science, religion, etc. and the income and assets are applied for the promotion of the objects and not available for distributing to members as profits – section 26(1) of CAMA. A company limited by guarantee shall not be registered with a share capital – section 26(2). Section 26(6) of CAMA: All officers and members who are cognisant of the fact that it is so carrying on business shall be jointly and severally liable for the payment and discharge of all the debts and liabilities of the company incurred in carrying on such business, and the company and every such officer and member shall be liable to a fine not exceeding N100 for every day during which it carries on such business.
The total liability of the members of a company limited by guarantee to contribute to the assets of the company in the event of its being wound up should not at any time be less than N10,000 – section 26(7) of CAMA. This is intended to give some assurance to third parties dealing with the company.
Finally, section 26(5) of CAMA provides that the memorandum of such a company shall not be registered without the authority of the Attorney-General of the Federation.
FEATURES
- The liability will only have to be implemented after the commencement of winding up of the company.
- Members’ liability is limited by memorandum to such amount as they may respectively undertake to contribute to assets of the company in event of it being wound up.
- The number of people forming must be clearly stated
- The consent of the A.G must be obtain to approve the memorandum of association
- It can engage in small business but not for making profit for its members
SUITABILITY
- It is incorporated for purposes of promoting commerce, art, science, religion, etc.
- The income and assets are applied for the promotion of the objects and not available for distributing to members as profits.
This company has no limit on the liability of its members
This is a company not having any limit as regards the liability of its members. This company is not common, being limited in its usefulness. It is like a partnership because every member is liable in full for the debts of the company while a member and does not have any limit on liability. This unlimited liability makes it unattractive for business purposes. It is used mainly by professionals who assume personal liability for their obligations.
It must be registered with a share capital, and where an existing unlimited company has no share capital, it must, not later than the appointed day, alter its memorandum and articles so that it becomes an unlimited company having a share capital not below the minimum share capital permitted under section 99 - Section 25. Section 567 of CAMA defines the appointed day as a period of one year from the commencement of the Act.
It is usually useful where the members are able to estimate the kind of liability or loss they are likely to incur in advance e.g. company working on a patent and its development in terms of products, oil prospecting companies, etc.
FEATURES
- It does not have membership liability on its members i.e. unlimited liability.
- Every member is liable in full for the debts of the company.
- There must be ultd at the back of its name
- The memorandum of association must provide for its being unlimited
- One can not convert a private company to public unlimited
- It is unattractive for business purposes.
- It is used mainly by professionals who assume personal liability for their obligations, that is, where the members are able to estimate the kind of liability or loss they are likely to incur in advance.
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