Business Registration: Differences Between A Business Name And A Limited Company

Business Registration: Differences Between A Business Name And A Limited Company

In 2019, many people will want to register their businesses. This is cool. It is actually what we have been preaching at Entrepreneur Nigeria. Many people will receive inspiration to open up businesses this year. You will need to register your business when you start and between a business name and a limited company, you will have to choose one.

But you see, they are not the same and they both require varying levels of technicality. It is commonplace to see people confused about the business structure for their ventures. When it comes to registration, you will people just interested in registering their businesses without giving much thought to the legal implications of following a particular structure.

Related: The processes involved in registering a limited liability company in Nigeria

This piece is tailored towards remedying that. We will show the differences between registering a business name and registering a limited liability company. You don’t want to register a business name and think you have got a company and you should not register a business name when you want a company.

between a business name and a limited company

A few months ago, I didn’t know the difference between a business name and a limited company. I wanted to register an NGO but had to settle for a business name. The requirements for registering these enterprises are different. We will take our time to look at the differences between a business name and a limited company in Nigeria.

What A Business Name Entails

A layman probably thinks that a business name simply refers to that name with which a business trades. This trading usually happens for commercial purposes. While this perception is not right, it is not wrong either. It is just not exhaustive. Let us elaborate more on what business name actually is.

A business name registration covers the sole proprietorship and basic partnerships. I want to believe that you understand what sole proprietorship (one-man business) is. If your business is not looking to go public any time soon, registering a business name will be the better option. By going public, we mean the issuance of shares. It makes the company a publicly traded one. You can say that it is easier to set up a business name registration.

What A Limited Company Registration Entails

To register a limited company, you will have to understand that a company is a legal entity and it is an association of people formed for the purpose of carrying out business services. One key feature of a company is that it is regarded as a separate entity. It enjoys a status that is removed from the owners. It can own assets in its name, lend and borrow money, negotiate and enter into contracts and very importantly, can be sued and sue in its name.

Let us look at the key differences between a business name and a limited company in Nigeria and maybe we will not fall victim of registering the wrong business type.

Related: Guidelines on how to register a company with the Corporate Affairs Commission in Nigeria (CAC)

Differences Between A Business Name And A Limited Company Registration

  1. The kind of business you want to run

If you want to register a business, you will understand the kind of business you want to run. A business name can be registered for people who want to run a one-man business. If you want a one-man business, where every decision and profit/loss making lies wholly on you, it shouldn’t be a problem. All you need to do is to register a business name and not a limited company.

  1. How many partners are involved

Partnerships, basic ones anyway, fall into the category of business name registration. The maximum number for basic partnership is twenty partners. Anything more than 20 will require that you go through a company registration and not just business name registration. There are special cases though when you have to factor in solicitors and chartered accountants.

  1. The status/personality of the business

between a business name and a limited company

If you want to be your business, then you should register a business name but if you want your company to have a different status and personality from yours, then the limited company is what you will go for.

Let us elaborate on this point. You see, a limited company has a personality that is distinct from that of the owners. It is like giving birth to a new child who becomes a different personality from the mother. A limited company is a different entity capable of suing and being sued. It can own properties in its name and not the name of the owners. It can give out loans and it can borrow money.

A business name doesn’t guarantee you that. You cannot sue the business but its owners. It cannot own properties and it cannot borrow and lend out money.

  1. The shares in the business

Some businesses have shares that are publicly traded and others don’t. If you register a business name, you will not have shares to sell to the public. On the contrary, a limited company can decide to sell its shares to the public if it wants.

For most people, going public is usually their exit strategy. You cannot have just a business name and have the sale of shares as your exit strategy. You will either upgrade your registration if you already have a business name, or you just register a limited company.

Conclusion

The knowledge of the differences between a business name and a limited company is necessary for your understanding of the kind of registration you want to carry out. You can reach out to people in the Corporate Affairs Commission (CAC) and they will guide you.

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