For any entrepreneur or business owner in Nigeria, one of the most important steps in starting a business is choosing the right legal structure. This decision not only affects the day-to-day running of the business but also its credibility, tax obligations, ability to raise funds, and even the personal liability of the owners.
The Corporate Affairs Commission (CAC), established under the Companies and Allied Matters Act (CAMA) 2020, is the government agency responsible for the registration and regulation of business entities in Nigeria. The two most common forms of registration are:
- Business Name Registration
- Company Registration
Although both are legally recognized, they are very different in terms of legal personality, ownership, liability, compliance requirements, taxation, and public perception. Many Nigerian entrepreneurs often confuse the two or use them interchangeably, but making the right choice from the start is critical for business stability, expansion, and long-term growth.
In this article, we will explain the key differences between business name registration and company registration in Nigeria so that entrepreneurs, startups, and founders can make well-informed decisions before setting up their business.
Key Differences Between Company and Business Name Registration
| Aspect | Business Name Registration | Company Registration |
|---|---|---|
| Legal Structure | Sole proprietorship or partnership | Corporate body with separate legal personality |
| Governance | No formal structure, managed by the owner(s) | Managed by directors, owned by shareholders |
| Liability | Unlimited liability — personal assets at risk | Limited liability — liability restricted to share capital |
| Ownership | Owned by a sole proprietor or partnership | Owned by shareholders |
| Legal Personality | No separate legal personality, business and owner are the same | Separate legal entity from the owners |
| Compliance Requirements | Fewer compliance requirements (only annual returns) | Stricter compliance: AGM, statutory records, corporate governance |
| Taxation | Taxed under Personal Income Tax Act (PITA) | Taxed under Companies Income Tax Act (CITA) |
| Business Continuity | Ceases upon death or incapacity of the owner | Continuous existence, regardless of changes in ownership |
| Capital Raising | Limited to personal funds or loans | Can raise capital via shares, bonds, and public offerings |
| Tax Liability | Profits are taxed as part of the owner’s personal income | Taxed as a separate entity, shareholders only taxed on dividends |
| Credibility & Perception | Seen as less formal, suitable for small businesses | Higher credibility, suitable for businesses seeking expansion |
| Regulatory Framework | Governed by Part B of CAMA 2020 | Governed by Part A of CAMA 2020 |
| Documents Received | Certificate of Registration of Business Name | Certificate of Incorporation, MEMART, and CAC Status Report |
| Ownership Transfer | Ownership transfer is difficult; typically remains with the proprietor | Ownership can be transferred by selling shares |
| Raising Capital | Limited to personal funds and loans | Can raise funds by issuing shares, bonds, or taking loans |
| Recognition in Large Contracts | Limited, often not accepted for large contracts | Accepted for large contracts, government deals, and international transactions |
| Suitability | Best for small businesses, sole traders, and family-run businesses | Best for larger businesses, startups seeking expansion, and raising investment |
What is Business Name Registration in Nigeria?
Business Name Registration applies to individuals and partnerships who want to operate under a business identity other than their personal names. A business name is essentially a trading style and is also referred to as an “enterprise” or “venture”. It is governed by the provisions of Part B of CAMA 2020.
What is Company Registration in Nigeria?
Company Registration, on the other hand, is regulated under Part A of CAMA 2020. Once incorporated, a company becomes a corporate body with rights and obligations distinct from its members. A company may be private or public, limited by shares, limited by guarantee, or unlimited.
The key difference here is that a business name is only a registered identity, while a company is a separate legal entity in its own right.
Legal Personality
- Business Name: For a business name, the owner and the business are the same in law. Debts, contracts, and liabilities are tied directly to the proprietor. This means that there is no existence of a separate legal personality for a business registered as a business name.
- Company: A company can sue, be sued, own assets, and continue existing independently of its owners. The provisions of Section 42 of CAMA 2020 confer a separate legal personality on a company.
This distinction is why many Nigerian entrepreneurs eventually upgrade from a business name to a company as their business expands.
Ownership and Structure
- Business Name: It is owned by a sole proprietor or partnership. Management for a business name is direct and flexible, with few formalities.
- Company: A company is owned by shareholders and managed by directors. By virtue of the provisions of CAMA 2020, a private company must have at least one shareholder and one director, while a public company requires at least two shareholders and two directors.
This structure makes companies more suitable for larger businesses requiring formal governance and investor confidence.
Liability of Owners
- Business Name: In a business name, the liability of the proprietor is unlimited. The owner’s personal assets can be seized or used to settle business debts.
- Company: In a company, the liability is limited by shares or guarantee (Section 21(1) CAMA 2020). Shareholders are only liable to the extent of their unpaid shares. This means that in the event that the company owes debts, the personal assets of its shareholders cannot be seized by creditors.
This protection of personal assets and properties is one of the biggest advantages of company registration in Nigeria.
Business Continuity
- Business Name: In a business name, the business comes to an end upon the death, incapacity, or withdrawal of the proprietor. There is no continuity of existence beyond the life of the owner.
- Company: A company enjoys continuous existence (also known as perpetual succession) and continues regardless of changes in ownership or management.
This is especially important for businesses that plan to outlive their founders and to build a long-term legacy.
Raising Capital
- Business Name: A business name is limited to personal funds, bank loans, or contributions from partners. It does not have shares and cannot issue them. Funding is therefore often restricted.
- Company: A company can raise capital by issuing shares, debentures, or bonds. Public companies can even access the stock market. A company limited by shares can obtain loans in its own name and attract investors by offering equity.
This makes incorporation more attractive for entrepreneurs seeking expansion and investment.
Statutory Filing and Compliance
- Business Name: Compliance for a business name is simpler. They are required by the CAC to file Annual Returns to update the status of the business on the Commission’s portal. Business names are not required to hold meetings before making business decisions.
- Company: A company has stricter compliance obligations. It must maintain statutory records, hold Annual General Meetings (AGMs), and comply with corporate governance rules. While company compliance may appear more demanding, it enhances transparency and boosts credibility with clients, regulators, and investors.
Recognition, Documentation, and Credibility
The recognition and credibility of a business entity in Nigeria often depends on its registration documents.
- Business Name: Upon registration, the proprietor is issued a Certificate of Registration of Business Name and an Application for Registration of Business (Status Report). These documents are valid but limited in scope. For example, many government agencies and contracting entities do not accept business names when awarding large contracts. Business names are often viewed as informal and more suited for small-scale enterprises.
- Company: Upon incorporation, a company receives a Certificate of Incorporation, its Memorandum and Articles of Association (MEMART), and a Status Report from the CAC. These documents establish the company as a full corporate body. Companies are generally given higher priority in the award of government contracts, dealings with large organizations, and international business transactions.
The type of documents issued and the credibility they confer is one of the strongest reasons entrepreneurs in Nigeria opt for company registration instead of a business name.
Taxation
- Business Name: A business name is taxed under the Personal Income Tax Act (PITA). Since a business name is not a separate entity from its proprietor, the profits of the business are deemed to form part of the personal income of the proprietor and taxed accordingly.
- Company: Taxed under the Companies Income Tax Act (CITA). A company pays corporate income tax in its own name, separate from the personal tax obligations of its shareholders or directors. Shareholders are only taxed personally on dividends received.
This separation provides advantages for financial planning and accountability.
Conclusion
The choice between Business Name Registration and Company registration in Nigeria is a strategic decision that directly affects the growth, liability, and credibility of the business.
A Business Name is simpler, cost-effective, and best suited for sole traders and small businesses. However, it exposes the proprietor to unlimited liability and limits opportunities for growth.
A Company, while requiring more effort and compliance, offers limited liability, continuous existence, credibility, and better access to capital. It is the preferred option for entrepreneurs seeking long-term expansion and sustainability.
At the end of the day, the right structure depends on the nature and scope of operations of your business. For example, a tailoring shop may be sufficient under a business name, while a technology startup or an oil and gas business (which can only be registered as a company with the Corporate Affairs Commission) would need to be registered under a company.
Do You Need Expert Help with CAC Registration in Nigeria?
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Disclaimer
This publication has been prepared for general guidance only and does not constitute legal advice. You should not act upon the information contained herein without obtaining specific professional advice. For tailored advice, kindly contact us.
WRITTEN BY:
Anulika Esther Ezigbo
Legal Associate
TCorporate Legal Advisory