When it comes to forming a company in Nigeria, quite a number of factors come in play. So, to be able to fully understand the types of companies that can be established in Nigeria, considering what in itself a company seems prerogative.
A company according to the English Dictionary is any business, whether incorporated or not, that manufacture or sells products or provide services as a commercial venture. In other words, a company is a legal commercial business that may be owned by one person (sole proprietorship) or a group of people (partnership/corporation).
For the purposes of clarification, a sole proprietorship is a form of business or company as the case may be, owned and managed by a person where there is no legal separation between the owner and the business. While Partnership is a form of business where two or more individuals (between 2-20 or 2-50 partners on few exceptions) manage the obligations of the business.
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Forms of Companies in Nigeria
In accordance with The Corporate Affairs Commission (CAC), an agency of the Nigerian government charged with the regulation and supervision of the formation, incorporation, registration, and management of companies, there are Five (5) types of companies that can be incorporated in the country and these are mentioned and further broken down below:
1. Private Company Limited by Shares
This is the most common type of business incorporated in Nigeria to the extent that it may be mistaken to be the only type of Partnership Company registered in the country. The Private Limited Liability Company (as it is also called) is a legal entity on its own in the light that the personal possessions of the shareholders (owners) remain distinct. In other words, the owners’ risk is reduced to only the amount of money that has been invested in the company in any case of running into bankruptcy.
2. Private Unlimited Company
This type of company has the same similarities with the Private limited Company except for the fact that it can be incorporated with or without a share capital just that, the legal responsibility of the owners is not limited. In other words, in cases of bankruptcy, the owners of the business have the obligation to meet any insufficiency in the assets of the company so there is no separation between the personal possession of the owners and the business. But with the private unlimited company, the financial affairs of the company is protected from the public.
3. Public Company Limited by Shares
This type of company is able to sell shares to the public and may be able to quote stock exchange. It is more expensive to run a public limited company as compared to the private limited company hence advisable for very large organizations.
4. Public Unlimited Company
This Company also has similarities with its limited company counterpart as cases of incorporation with or without share capitals. It’s not always easy to identify this kind of company as it’s not compulsory to state the word “unlimited” (unltd. or ultd.) at the ending of its legal company name. Since the company is public, there is a low risk of owing more than the company has in assets as against bankruptcy.
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5. Company Limited by Guarantee
This type of company is not established based on the purpose of earning profit but mostly for charitable purposes. It does not have share capital as the owners do not own the company. Rather, all income generated in the course of operation is used to cover the operational cost of running the objective of the company.
Other Things You Need To Know in Forming a Company in Nigeria
- When it comes to membership of the company, the minimum number of persons on the board of director is two (2) for private, seven (7) for public companies and a maximum of fifty (50) for private companies and no upper limit for public companies.
- The minimum share capital for private companies is N10, 000. While that of the Public company is N500, 000.
- The minimum share subscription in Nigeria companies is 25% of authorized share capital.
- Companies can be 100% foreign owned but must be recognized under the Nigerian law.
- Companies that have the need for foreign management in cases of foreign currency in-flow and outflow need to be approved by the approved agency to prevent obstruction of functionality based on money laundering issues.
Now that the types of companies formed in Nigeria have been expanded, you have a vivid idea of the kind of company you will be forming if you are considering forming one in Nigeria.
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