Many Individuals who want to register their businesses in Nigeria have one major question which is the differences/ advantages and disadvantages between registering a business name over a limited liability company and vice versa

LIMITED COMPANY - A Limited Company is legally a separate Business entity. Generally referred to as a legal being where the directors and the shareholders have limited liability in the business. When such a company is created, it has an Authorized share holding which defines the limit of the shareholder liability. This is the most viable options if the capital is being invested into the business by anyone who does not wish to be involved in running it.

BUSINESS NAME - A sole proprietorship or partnership is generally a Business Name (BN) Registered, owned and headed by one individual only/ two or more individuals. The person(s) and his business are “one” legally. One has to maintain a careful record if he is self-employed. Such a person is legally liable for all the losses and profits in the business. If the business falters, is personally liable as he and the business are one and the same item.. On the bright side, he has complete control over his business and does not have to share his profits with any body except the partners in a partnership.

A Business name is a registration of a trade name for purposes of business whereas a Company is the incorporation of a separate legal entity to conduct business.

DIFFERENCE BETWEEN THE TWO

Registration: A BN is generally simpler to register and costs less and can have one person as a proprietor or two or more as partners, whereas a Limited company has a minimum of two shareholders, but can appoint directors and managers to operate the company.

In BN’s the proprietor is personally liable for act and omission of the registration. Companies are generally separate entities from the shareholders and hence separately liable.

Control. In a partnership, the proprietor /s have full control of the affairs of the BN, in a Company, control is via board decisions or as per share holdings held by the shareholders.

Theoretically at least, a business name whether sole proprietorship or a partnership is less stable than a private company. Upon the death or exit of the proprietor the BN ceases to exist, whereas a company can live forever in perpetuity outliving the directors.

HOW TO UPGRADE FROM BUSINESS NAME TO A PRIVATE LIMITED COMPANY

You’ve got at least 3 options when upgrading from a business name (enterprise) to a private limited company. They are as follows:

Option 1: Create a private limited company using an entirely different name.
For example if your current business name is Widget Products, you could use Pleezak Items Limited.

Option 2: Create a private limited company using a similar name.
You will need to be creative here. Play around with synonyms and phrases. For example, if your existing business name is: Widget Products, you might use Widget Materials and Concepts Limited for your company’s name. A similar name also allows some measure of continuity in the brand’s identity. This way your existing consumers won’t be too alarmed about the change.

Option 3: Close down the business name (enterprise) and use the same name to register a private limited company.
This is probably the neatest way to proceed. However there are several difficulties you could potentially meet along the way. For those of you in a hurry, keep in mind that this is definitely the slowest way to go about Upgrading business name – private limited company. Let’s look at why that might be the case.

Cessation of Business Name

So, let’s say you decide to close down (wind up) the business name: Widget Products. You will need to put in an application for the Cessation of Business of Name for Widget Products. In this form, you will need to write your reason for discontinuing the Business Name. An appropriate answer would be: “I’d like to upgrade the Business Name to a Private Limited Company“. You will also attach your original Business Name Certificate to the application.

This step usually takes 2 weeks.

Annual Returns
However, before you can cease your business name, you must ensure that your Annual Returns are up to date.  The first Annual Returns must be filed, no later than 18 months from the date of registration. Late filing of Annual Returns is 2500 naira for each year. So please make sure you’ve sorted this out!

This step usually takes about 2 weeks.

So let’s assume that your Annual Returns are up to date. What next?

What if your annual returns are not up to date?
If your annual returns are not up to date, then you must update them and pay any penalties before you can make any changes to company records.

New Name Availability Search
Then, you can file for cessation. Once approved, you can use that cessation notice/letter to conduct a new name availability search with CAC. Make sure to attach the cessation notice to your name availability search so that they know that you are the one who wants to reserve the name. If you don’t attach the notice, they will likely deny your name reservation application.

The step usually takes about 3 business days.

Company Registration Documents
Once you finally reserve your name as a private limited company, you can begin the private limited company set of forms, starting with the new CAC Form 1.1.

Ltd registration usually takes 5-6 weeks.

Conclusion
The choice is yours. You should weigh the pros and cons of each method. But when you’re ready to register your company, we’d love to help!

Which option are you considering: A, B, or C? Let us know in the comments.