Should I Register My Business As A Company Or Business Name?
Business men and women, who want to register their businesses with the Corporate Affairs Commission, have asked several times the real difference between registering a business as a business name or a company. In other words, what are the advantages and disadvantages of registering a business name compared to company registration? I have tried to identify some salient differences between a business name and a company registration under the following subheads:
1. DISTINCT LEGAL PERSONALITY: Upon registration of a company, the company becomes a distinct legal personality from its shareholders. This means that in the eye of the law, the company and its members are two different persons. The company can do business in same way a natural person can do business. The company becomes what is sometimes referred to as an ‘artificial person’. On the other hand, upon registration of a business name; the business and the proprietor of the business are still one and the same person. The issue of ‘artificial person’ does not arise. The registration entitles the proprietor to open a bank account in the name of the business.
2. FINANCIAL BENEFITS: The persons who register a company can benefit financially in either of two ways. Firstly they will benefit as shareholders when the company makes profit and be paid dividends. Secondly they will benefit as employees of the company if they decide to work as directors in the company. This means double financial earnings for persons who register a company. On the other hand, the person who registers a business name has only one source of financial benefit. He/she enjoys the whole profits of the business alone and makes all the financial decisions of the business.
3. LIFESPAN: A company has the potential of being in existence forever. This is however, dependent on the profitability of the company. A profitable company outlives the individuals that registered it. New members join the company either through buying company’s shares or inheriting the shares of a deceased member. This explains why a lot companies are still in existence long after the persons that founded them are dead. A business name on the other hand usually dies upon the death of the proprietor. There are instances where the heir of the proprietor may decide to continue the business. In such a case, the heir may need to do a fresh registration.
4. INDUSTRY SPECIFIC REQUIREMENTS: There are certain sectors in Nigeria that requires the registration of a company before doing business in the industry. Highly regulated sectors like telecommunication, banking, air transportation, insurance etc mandatorily require the registration of a company in order to operate in these sectors. The implication is that a business name registration is not suitable for all types of business engagements. While some business can be done with a business name other types of business must register a company. Consult your lawyer on directions for the appropriate registration depending on the sector specific requirement of your business.
5. NUMBER OF PERSONS REQUIRED FOR REGISTRATION: Registration of a company requires a single adult person. An infant can join an adult person in registering a company. On the other hand, only an adult person can register a business name. Two to twenty persons can register a business name as partners. In that case, the partners should draft a partnership deed before commencement of business. A business name is required to be registered within twenty-eight (28) days of start of business.
6. COST OF REGISTRATION: The cost of registration of a company is higher when compared with that of a business name. Also the procedure involved in the registration of a company is more complex when compared to that of a business name. Consult your lawyer for direction.
Worthy of note is the fact that a registered business name can be converted and upgraded to a company whenever the proprietor of the business decides. This helps a business name owner retain the name for company registration. For inquiries on all types of registration with CAC contact C. A. Ndubuisi Esq. on 08064356211 to book an appointment.