Quick FAQs
Starting a Business, things you should know.
1. I want to set up a business, how can I go about it?
1.1. You can either register a company or register an enterprise otherwise known as a “business name”.
2. What is the difference between the two?
2.1. A registered company becomes a separate legal entity from you and has virtually the same legal rights as you would have under law, while an enterprise essentially is you but trading [doing business] under a name and style of your choice, which is why it is called a business name.
2.2. The registered enterprise has no separate legal rights different from that of the proprietor/owner.
3. When you say “legal rights” what exactly do you mean?
3.1. Legal rights essentially refer to the right to undertake any legitimate business of your choice, sue and be sued in your name, to own property, buy, sell or dispose of same etc.
4. Is there any advantage of one over the other?
4.1. Technically speaking, No! They can both be used for business; However in practice companies are more associated with business ventures engaged in the production of goods and/or services while enterprises are more associated with trading business, except were used by professional set-ups such as lawyers, accountants etc.4.2. Generally also, credit institutions prefer to deal with companies when compared to enterprises. As a general rule, it normally costs less to register an enterprise.
5. How much will it cost me to register a Company or an5.1. Cost of registering a company will depend on how much share capital you wish to register with, this is because the Government will levy you 1.5% of what ever your share capital is as Stamp duty, you will also pay a filing fee to the Corporate Affairs Commission [CAC] at the rate of N10, 000 per Million.
5.2. This means for a 2 Million Naira Share capital company for example you will pay 1.5% of that amount to the Government and N20, 000 to CAC.
5.3. Please note that there are other related expenses you may have to consider and of course where you use the services of a professional in registering the company you will have to contend with its charges as well. 5.4.
5.5. However in practice there are some other related costs and also the fees of the professional handling the registration should also be budgeted for.
6. What is the procedure? & how long will it take to set-up a business i.e. company or enterprise?
6.1. For both registrations the first step is to secure approval from CAC to use the name you wish to register the company with. This process is known as the “reservation and availability of name” or ‘Availability’ for short.6.2. Once the name is approved it is reserved for the applicant for 60 days after which you must commence the registration process during the 60 day reservation period. Where you do not do so before the expiration of the 60 days, you will have to apply for a revalidation of the earlier application for another 60 day term.
6.3. Upon approval of your proposed name, the professional handling your registration should forward to you for execution two sets of documents, the first being the Incorporation forms while the second is the document containing the Memorandum and Articles of Association [MEMART] of the company.6.4. Once you have signed both documents properly the MEMART is taking for stamping after which the two documents are sent to the CAC for filing.
6.5. Normally the process should not exceed 15working days at most but administrative lapses at the CAC often arise which may extend it beyond that time.6.6. The CAC also has a special facility known as “Fast-track registration” this essentially allows you register your company in one day once the application is filed. An extra fee is levied by the CAC for this service in the sum of N50, 000[Fifty-thousand Naira].
6.7. Please note that Nigerian law does not support individual ownership of companies, i.e. before a company can be registered in
6.8.
6.9. An individual may solely own an enterprise.
7. But I am the only one for now, do you mean I cannot not register my company?
7.1. If by yourself, yes. In practice however you may appoint any person you are familiar with and allow him/her own a percentage of the company’s shares [even as low as 1%] just to make up the requirement of the law. Such a person may also be nominated to the Board as a Director.
8. What is the difference between a Director & Shareholder?
8.1. Directors are responsible for the management of the Company and basically execute the business objectives and strategy of the company. Shareholders are owners of the company to whom the Directors of the company must be accountable to.8.2. Depending on what percentage of the company’s shares they own in the company they also partake in profit sharing.
8.3. In reality however, [especially in
9. What is a share? & how do I determine how much I will own in the company?
9.1. With regards to companies, a share is a unit of ownership of a company, simply put the more units you own the more of the company you own. Being the owner or part owner of a company, you are at liberty to determine in your own best interests how much of the company you wish to own, that is how much of the Company’s share capital you wish to subscribe to.
9.2. Where however you are entering into a business relationship with other persons, considerations may have to be made for what each person is bringing into the business, it is advised that proper legal advice be sought where this is the case.
10. Is my company’s share capital the same as our working capital?
10.1. No. The requirement of share capital is for companies with limited liability, the law requires that a Limited liability company be registered with a share capital.10.2. The minimum for a private company is N10, 000 while for public companies i.e. PLC’s is N500, 000. This is simply a requirement of the Law where you decide to register a public or private company.
10.3. Your working capital on the other hand refers to the amount of resources [financial and/or assets] which you have available to undertake your proposed business at any given time.
11. What is the difference between a Private & Public Company
11.1. The major differences between the two as follows:
11.2. A private company has the right and power to restrict the transfer of its shares in that the owners have the power to determine who can join the company as an owner or not. Shares of a public company however, can be freely traded and the company cannot in anyway restrict who buys its shares.
11.3. The total number of shareholders a private company can have shall cannot exceed fifty while a public company can have an infinite number of shareholders.
11.4. At registration, the minimum share capital a private company can be registered with is
11.5. Public companies are expected to make public their accounts at the end of each financial year while private companies are so required.
11.6. Finally, private companies normally have their names ending with the word “Limited” while public companies have their names ending with the word “Public Limited Company” or PLC for short.
11.7. Please note that it is not advisable for Small and Medium Scale enterprises to start business as public companies. However nothing stops a private company which is growing to seek re-registration as a Public company and vice versa.
12. Where will registration be done?
12.1. The CAC has various centers all over the country, however in practice most registrations save for
13. What is the difference between the Memorandum & Articles of Association?
13.1. Your memorandum [MEMO] basically sets out the business objects which the company will be engaging in and in effect precludes the company from engaging in business not stated in MEMO.
13.2. The Articles on the other hand essentially sets out how the Company is to run, sort of a constitution for the company.
14. If I register a company, will the company be able to open accounts with banks separate from my personal accounts?
14.1. Yes, all banks have corporate accounts for companies, once you fill in the requisite forms the account will be opened in your company’s name.
15. I approached a bank to open an account in my Company’s name and was asked to bring a form CO7, what is that?
15.1. A CO7 is a form showing the current directors of your company as obtained from the records at the registry of the CAC.15.2. In practice as part of the registration process, apart from the Certificate of Incorporation issued to you, the CAC also issues certified true copies of the documents filed with it.
15.3. One is the CO7 now known as form CAC7. A copy of this form is what the bank is referring to.
16. As an SME, should I not be eligible for some Tax exemptions? 16.1. Unfortunately not. Governments intervention in the SME sector is to essentially see how they[the SME’s] can get access to the requisite funding and support needed to enhance their operations; it in no way is designed to help reduce their tax burdens.
16.2. As such you will be required to pay the applicable taxes due from your business legally.
17. What are the applicable taxes in
17.1. the Following are applicable Taxes in
17.1.2. Capital Gains Tax: All gains accruing to a taxpayer from the sale, lease or other transfer of proprietary rights in a chargeable interest are subject to a capital gains tax of 10%.
17.1.3. Education Tax: an education tax of 2% of assessable profit is imposed on all companies incorporated in
17.1.4. Personal Income Tax: Every taxpayer in
17.1.5. Companies Income Tax: Tax is payable for each year of assessment of the profits of any company at a rate of 30%.
17.1.6. Petroleum Profits Tax: Nigerian law by virtue of the Petroleum Profits Tax Act requires all companies engaged in the extraction and transportation of petroleum to pay tax.
17.1.7. Withholding Tax: Certain activities and services to are subjected to withholding tax. Where during a transaction in any of the specified activities or services, a payment is due from one person to another, the person making the payment is expected to deduct tax at the applicable rate and remit same to the relevant tax authority.
18. As it is, the tax burdens on SME’s are enormous, how are we meant to survive? 18.1. Issues of taxation require that you consult professionals such as accountants or lawyers specializing in taxation to be sure of which taxes apply to you.
18.2. It is important to note also that there are certain incentives instituted by Government to aid businesses, such as tax holidays, please consult a tax professional to see the incentives that are applicable to you and how you can go about utilizing them.
19. If I were to pass on does that also mean my business is over?
19.1. No, A company has perpetual succession;19.2. Once registered a company is a separate legal entity from its owners, therefore where one of its owners becomes incapacitated or should pass on, his interests in the company will simply pass on to his survivors and/or legal personal representatives.
19.3. They will now be entitled to all the deceased persons interests in the company as well as his liabilities.19.4. An enterprise on the hand may have to windup upon the death of the owner especially if he is the sole proprietor. This is more so where there are no proper structures put in place by the proprietor before his/death to ensure proper succession.
19.5. It is advised that sole proprietors seek proper legal advice on putting structures in place for their business.
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