The following conversation ensued between me and a walk in client.
Client: Good morning Lawyer, how are you today?
Me: I am very well, thank you. How are you?
Client: I am fine, Lawyer. Please I heard that you help people register their companies. Please I want to register a company.
Me: Okay, yes I do. Do you want to register a private company or a public company?
Client: Well I don’t know the difference o. All I want is to register a company.
Me: Okay, I think you’re most likely referring to a private company. Please note that you must have at least two Directors and a registered place of business.
Client: Two Directors? It’s just me o. This company belongs to me. I don’t have any director and I don’t want to have anybody close to my company. It is my sweat and I need to protect it. In fact that is why I want to register it under my name alone.
Me: From your description above, I would simply have advised you that what you need is to register a business name. But then I owe it to you to let you know that there are two types of business registration and each have their advantages as well as disadvantages.
Client: Really? What’s the difference? I thought they were the same thing o.
Me: Well, they are not the same and the business registration that would suit you would depend on your response to the few questions I would ask you shortly.
Client: Lawyer, I want the one that is the best and that will help me protect this my business very well.
Me: Very well sir, So, do you have a wife and children?
Client: of course I do
Me: Do you want them to continue with this your business in the event that you are incapacitated by sickness, death and other natural circumstances?
Client: Yes of course. In fact I would like my son to take over from me.
Me: Would you like to borrow money from the bank to expand this business someday?
Client: Yes of course
Me: How much do you make from this business yearly?
Client: Well, sometimes 10 million, sometimes 15 million depending on a lot of things.
Me: If I tell you that your wife and your son can be the directors in your business, would you still object to incorporating a Company?
Client: I am working hard for my wife and children
Me: Then let me explain this two concept very well to you and have you decide which is better for you.
The above conversation is a typical one and very common among lawyers. Many times, clients walk into your office with a request to register a company. They often times come as a result of some misguided steps which they have taken and which has created problem for them. Sometimes they come in because they have one or two things to sort out regarding their business and evidence of registration of their companies become a requirement. Apart from stating that it is very imperative to register your business whether as an incorporation or a business name, there are other things that every business man should note before deciding on what type of registration to settle for.
There are quite a number of differences between incorporation of a company and registration of a business name and the aim of this article is to discuss some of these differences.
The first difference is that a business name can be registered by one person (i.e. sole proprietor) but in order for a company to be successfully incorporated, more than one person (i.e. directors) is needed. From the above conversation, the client stated that it is a one man business, without further inquest, one would simply take his instruction to register a business name and not a company. However, there are clients that come in with a desire to register a business name and with interactions, are able to convince a lawyer that all they need is a business name. Both registrations are valid and have their advantages and disadvantages.
While incorporation of a company requires investors and shareholders, registration of a business does not require or have anything to do with shareholders. What this means is that if a person does not intend to raise capital for the business through the issuance of shares, a business name is ideal. This also implies that to register a business name would be easier and more cost effective than registering an incorporation.
The third difference to note is that the minimum amount of money that a company must have before it can be incorporated is N10,000 but no amount of money is required by law for the registration of a business name. This further shows that the registration of a business name is cheaper than that of a company.
Appointment of a company secretary is a compulsory requirement for registering a company, This does not come to play in the registration of a business name. This simply means that while a company would be required to employ and pay a company Secretary, a business name does not have any need in law to do so.
Another important difference to note is the fact that the business of a sole proprietorship might come to an end on the death or bankruptcy of the owner or partners while a company can exist perpetually and the death of a director does not affect the existence of the company. In my interactions above, I explained to the client that the advantage of incorporation for him would be for his company to out live him and be able to cater for his wife and children. This would also ensure that in the event of expansion, the company has a life of its own and can outlive all its directors.
Lastly, a company is a separate legal entity (i.e. can sue and be sued in its name) while a business name is the style in which a person trades – A company is different from the directors but a business is not different from the owner of the business. For example, if an issue occurs and a customer/client intends to take the matter to court, that person must sue the company using the company name (i.e. BANZ DEEZ LIMITED) but when it involves a business, the proprietor(s) and not the business is the party sued (i.e. Mr. Andrew Sobandele (trading under the name and style of Andy Fittings)).
The above differences are non-exhaustive and as such there are some other differences that you may be aware of that are not mentioned in this article. Proper advice from a Lawyer is still necessary. So, please seek advice before you embark on this journey.
Somoye Ifeoluwayimika practices law in Lagos
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