When starting a business, one of the major considerations on the minds of
the owners/ promoters is whether or not registration is needed at that material
time. This of course may be borne of the desire to justify every expense to be
incurred by a newly formed startup i.e. every penny has to provide a return on
the investment. Registration of a startup may seem unnecessary at the beginning
stage of a business to the owner but this should not be the case. This article
will look into registration of startups in Nigeria with focus on the major
reasons for registration and drawing a conclusion on whether registration is a
necessity or not.
the owners/ promoters is whether or not registration is needed at that material
time. This of course may be borne of the desire to justify every expense to be
incurred by a newly formed startup i.e. every penny has to provide a return on
the investment. Registration of a startup may seem unnecessary at the beginning
stage of a business to the owner but this should not be the case. This article
will look into registration of startups in Nigeria with focus on the major
reasons for registration and drawing a conclusion on whether registration is a
necessity or not.
Business structures
The legal structure chosen for a business has major implications. In
choosing a structure for a business, factors such as the potential risks and
liabilities of the business, the objects of the business, the costs involved in
establishing and maintaining the business structure and tax implications should
be taken into consideration. The promoters/owners of a business must decide on
the legal structure that best meets their needs, as this will determine the
type of registration procedures that will be followed.
choosing a structure for a business, factors such as the potential risks and
liabilities of the business, the objects of the business, the costs involved in
establishing and maintaining the business structure and tax implications should
be taken into consideration. The promoters/owners of a business must decide on
the legal structure that best meets their needs, as this will determine the
type of registration procedures that will be followed.
There are three commons ways to structure a startup in Nigeria:
Sole trader: This consists of an individual trading on his own. He controls and
manages the business. It is the simplest business structure and easy to set up
with minimal costs. A sole trader is solely responsible for the liabilities of
the business and also solely enjoys the profits. The main disadvantage of this
structure is that there is no protection for the personal assets of the
Proprietor in the event that the business fails as his assets become available
to pay off creditors.
manages the business. It is the simplest business structure and easy to set up
with minimal costs. A sole trader is solely responsible for the liabilities of
the business and also solely enjoys the profits. The main disadvantage of this
structure is that there is no protection for the personal assets of the
Proprietor in the event that the business fails as his assets become available
to pay off creditors.
Partnership: This involves an agreement between two or more
people to go into business together. Each of the partners will be jointly and
severally liable for the debt of the partnership. It is not necessary for all
the partners to be fully involved in the management of the business but they
all share the profits or loss as the case may be.
people to go into business together. Each of the partners will be jointly and
severally liable for the debt of the partnership. It is not necessary for all
the partners to be fully involved in the management of the business but they
all share the profits or loss as the case may be.
Limited Liability
Company: This is a
legal entity separate from its shareholders, directors and employees. Liability
here is limited to the amount invested in the company as shares. Hence, the
shareholders enjoy a form of protection on their personal assets in the event
that the company goes into liquidation.
Company: This is a
legal entity separate from its shareholders, directors and employees. Liability
here is limited to the amount invested in the company as shares. Hence, the
shareholders enjoy a form of protection on their personal assets in the event
that the company goes into liquidation.
The body generally responsible for registration of businesses in Nigeria
is the Corporate Affairs Commission (CAC)[1].
is the Corporate Affairs Commission (CAC)[1].
Why register a startup?
Compliance with the
law
law
The Law makes it mandatory for every individual, firm or corporation
operating under a business name to register their business within 28 days of
commencement[2]. Also a limited
liability company can only be formed in the manner set out by the law[3]. Hence, in order to comply with
the provisions of the Law, a startup must be registered.
operating under a business name to register their business within 28 days of
commencement[2]. Also a limited
liability company can only be formed in the manner set out by the law[3]. Hence, in order to comply with
the provisions of the Law, a startup must be registered.
The law that primarily provides for registration of business
organizations in Nigeria is the Companies and Allied Matters Act (CAMA) 1990[4].
organizations in Nigeria is the Companies and Allied Matters Act (CAMA) 1990[4].
Brand reputation
and public perception
and public perception
Building a reputation with new clients and customers may seem very
difficult. Registration enhances the public perception of a startup and gives
potential clients the confidence that they are dealing with a reputable
business. Also, there are many businesses who will not engage with an
unregistered startup because of their status and reputation.
difficult. Registration enhances the public perception of a startup and gives
potential clients the confidence that they are dealing with a reputable
business. Also, there are many businesses who will not engage with an
unregistered startup because of their status and reputation.
Registration gives the assurance that the business is legitimate and
reputable.
reputable.
Bank Account
To open a business bank account for a startup, proof of registration is
always a necessary requirement. Banks will not open a business account for an
unregistered startup. Having a business account gives a startup more
credibility and trust from the customers, bank, other associated businesses and
the public. The account also ensures that business funds are not diverted for
personal use.
always a necessary requirement. Banks will not open a business account for an
unregistered startup. Having a business account gives a startup more
credibility and trust from the customers, bank, other associated businesses and
the public. The account also ensures that business funds are not diverted for
personal use.
Loan Facilities
Most Financial Institutions give business loans only to registered
businesses. The Institutions in order to protect their interest and to ensure
repayment of loan facilities would naturally need an assurance that a business
is legitimate and the facilities would be put into proper use. This assurance
is easily seen in a registered startup and this is why registration is a
non-negotiable requirement to qualify for such loans.
businesses. The Institutions in order to protect their interest and to ensure
repayment of loan facilities would naturally need an assurance that a business
is legitimate and the facilities would be put into proper use. This assurance
is easily seen in a registered startup and this is why registration is a
non-negotiable requirement to qualify for such loans.
Brand identity
Protection
Protection
Registration gives a unique identity to a startup and such is also
protected under the law. By the provision of law, no two businesses should have
the same name or names so identical as to confuse the public. Once a business
name is registered, such name is recorded and recognized by the government and
as such, no other business can register with that same name.
protected under the law. By the provision of law, no two businesses should have
the same name or names so identical as to confuse the public. Once a business
name is registered, such name is recorded and recognized by the government and
as such, no other business can register with that same name.
A registered business name enjoys the advantage of protection against
competitive usage within the country.
competitive usage within the country.
Liability
Protection
Protection
When a startup is registered as a limited liability company, the business
becomes a different entity for its owners. The owners can not be personally
held liable for the debt of the company. This means that no one can legally go
after the personal properties of the business owners in case the business goes
into liquidation or to enforce any claim against the Company.
becomes a different entity for its owners. The owners can not be personally
held liable for the debt of the company. This means that no one can legally go
after the personal properties of the business owners in case the business goes
into liquidation or to enforce any claim against the Company.
Registration as a limited liability company protects the personal assets
of the business owners.
of the business owners.
Continuity
A registered startup has the ability to live longer than its owners. This
means that even if the business owners become incapacitated or dead, the
business will not close down especially when a proper structure is in place.
means that even if the business owners become incapacitated or dead, the
business will not close down especially when a proper structure is in place.
A registered startup is an asset transferrable to the next generations.
How to register a Startup
Registration of a startup in Nigeria involves some processes including
filling of forms and filing of some documents. It is advisable to engage the
services of persons with experience in this field who can streamline the
process and get the business registered within a very short period of time.
filling of forms and filing of some documents. It is advisable to engage the
services of persons with experience in this field who can streamline the
process and get the business registered within a very short period of time.
Conclusion
Registration of a startup may seem to be an investment without direct
return but similar to insurance. It will definitely cost money, time and
effort. However, this is a necessary price to pay for the protection of the
business, business owners and associated businesses. It is always advisable to
register a startup in order to enjoy the benefits stated above which are indeed
necessary for the smooth running and the image of the startup. Hence, it is not
a luxury to register a startup but a necessity.
return but similar to insurance. It will definitely cost money, time and
effort. However, this is a necessary price to pay for the protection of the
business, business owners and associated businesses. It is always advisable to
register a startup in order to enjoy the benefits stated above which are indeed
necessary for the smooth running and the image of the startup. Hence, it is not
a luxury to register a startup but a necessity.
[1] Section 1,
Companies and Allied Matters Act (CAMA) 1990, CAP C20, LFN 2004
Companies and Allied Matters Act (CAMA) 1990, CAP C20, LFN 2004
[2] Section 574,
Companies and Allied Matters Act (CAMA) 1990, CAP C20, LFN 2004.
Companies and Allied Matters Act (CAMA) 1990, CAP C20, LFN 2004.
(Exceptions to this provision is contained in Section 573 CAMA)
[3] Section 35,
Companies and Allied Matters Act (CAMA) 1990, CAP C20, LFN 2004.
Companies and Allied Matters Act (CAMA) 1990, CAP C20, LFN 2004.
[4] CAP C20, LFN
2004.
2004.
Adejorin D. Abiona
Associate Attorney | Writer | Public Speaker
Ed’s Note – Article was first
published here
published here
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