Types of Business Entities in Nigeria

Nigeria is an emerging business environment with the government investing heavily in infrastructure development to accommodate a multitude of multi-national companies as well as domestic brands that are expanding throughout the nation of Nigeria. Nigeria has diverse market segments for different business opportunities which are welcomed by the consumer population that appreciates the convenience of having varieties of products and services that simplify their daily hassle. Thus, the ease of market entry has facilitated many competitive brands to establish their business in industrial regions of Nigeria and still leaving entry points for new companies to join the corporate congestion.

In terms of brand favouritism, there are no specific brands that intrigue the Nigerian public, whether be it indigenous companies or foreign conglomerates. Such behaviour hints at consumer psychology, which gives substantial comfort for the new businesses to try a shot at impressing the neutral populous of consumers in the alpha economy of the African continent. Amidst the excitement of setting up a business in Nigeria, one must always consider the type of business entities that can legally exist as per government regulations for doing business in Nigerian borders. The legal authority that is responsible for company incorporation in Nigeria is the corporate affairs commission (CAC) established via the Companies and Allied Matters Act no.1 in the year 1990.

Types of Business Entities in Nigeria

1. Sole Proprietorship

A sole proprietorship in basic terms can be called as a "one-man show" because apart from being the simplest form of doing business, it also happens to be one of the most unique company structures. A business entity addressed as a Sole Proprietorship has certain features associated with it such as –

  • The founder is the sole owner of the business making him the only individual to enjoy profits but also bare the maximum burden of the company
  • Unlimited liability in case of losses which means the owner of the company must cover losses even to the extent of his personal assets
  • Though the business has a separate legal entity, the founder is the licensed promoter of the business, making him answerable to the law in case of detection of any illegal activities
  • The founder of the company must do the initial company funding
  • The CAC does not request Sole Proprietorship firms to publish their accounts

2. Private Limited Company

This form of business entity would be the most common form of business observed in the corporate ecosystem in Nigeria. A private company is a separate legal entity established by a minimum of 2 partnering members and is allowed to function in Nigeria pertaining to the agreement of specific regulations. Such company has its own set of salient features such as –

  • Minimum 2 partners above the age of 18 required along with minimum capital investment to start a business
  • Maximum number of members must not exceed fifty
  • The allotted share capital should not be less than 10,000 Naira
  • Partners are limited only to the extent of the amount they have invested, therefore, making their personal assets secure from liability in any case of company insolvency
  • The company must possess a registered office in Nigeria
  • The company name must not be existent in the directory of the CAC
  • Two individuals above the legal age of 18 must subscribe to the Memorandum of Association of the company
  • Since the shares cannot be offered to the general public, the company cannot be listed on to a public stock exchange
  • The disclosure requirements of the accounts for private limited companies are lenient compared to public companies

3. Public Limited Company

The public limited company is a more transparent business entity which performs in the market and is subjected to publish its performance status and financial records every year as per its corporate governance regulations. This type of business structure is best suited for larger corporations with more ambitious plans. Thus, the specifications of public limited companies are planning to set up business in Nigeria are –

  • Minimum members starting the company must be seven
  • The allotted share capital must be 500,000 Nigerian Naira
  • The subscribers must comprise twenty-five per cent of the authorised share capital
  • The company must publish the disclosure of company financial records and performance related documents in the form of annual reports yearly
  • The transparency rules are strict for public limited companies by CAC
  • The company must possess a registered office or a branch office or a franchise outlet in Nigeria
  • The company name must not be existent in the directory of the CAC
  • Liability is limited to the investment threshold made while starting or joining the company
  • Can conduct flexible mergers and acquisitions with other companies.

4. Public Company Limited by Guarantee

The business entities which are limited by guarantee are often administrative terminologies used to denote charitable organisations or not for profit companies. The share capital of such companies can be unlimited, but the liability of their shareholders is minimal. The company does not have any agenda to earn extra profits and therefore, does not trade in public stock exchanges, and the income generated is solely for encompassing the company's objectives and not for additional motives.

5. Private Unlimited Company

A private unlimited company is very similar in comparison to its limited doppelganger business entity. The legal liability of the members is unlimited and such form of entities can operate legally with or without a minimum or maximum threshold limit for their share capital. Apart from the difference in authorised share capital and liability guidelines, the remaining features of the public unlimited companies remain in similarity with that of its limited counterpart.

How to Register Company with CAC

  • Decide on a company name
  • Perform a name availability search at the CAC and reserve the name
  • Complete the CAC documentation required by filling the given forms – forms CAC 2, 3, 5, 7, Memorandum and Article of Association for corporations
  • If the company name suggests professional or specialised services such as law, accounting, medicine, engineering, consultancy, etc., then in this case the documents must include a copy of a certificate of qualification or evidence of (such as certificate or degree in specified field) from at least one of the directors of the company
  • Payments must be made for stamp duties
  • Submit the documents to CAC for verification and filing

This article claims to cover all the details regarding the different business entities that can legally be set up in Nigeria but what it does not encompass is the amount of struggle that aspiring businesses have to go through for administrative processes like company incorporation and business registration. Let us assist you in the business setup phase of your company’s life cycle by our varied portfolio of business setup and post setup services. Contact us to know more about how to set up a business in Nigeria.

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