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Types of companies in Nigeria

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Do you want to establish a company in Nigeria? One of the things you should know is the different types of companies in Nigeria so that you will understand what type of company suits you and your type of business.

I have had people ask me questions like, what is a company? Are there different types of companies? Is a limited liability company a type of company?

It’s good you are here…

This article will answer all your questions, leaving no stone unturned.

But before we proceed, we should know what a company is.

What is a company?

In simple terms, a company is any business organization that manufactures or sell products or provide services as a commercial venture. The company may or may not be incorporated.

A company is a legal commercial business. One person may be the owner of the company (sole proprietorship) or a group of people may partner and be the owners of the company (partnership/corporation).

A company is a legal entity which a group of individuals form to engage in and operate a business— can be either commercial or industrial. Also, different types of companies pay different taxes.

What are the features of a company?

The features of a company are what makes it a company. There are several characteristics a company must possess. If a business Falls short of these features then we can not refer to it as a company.

So, what kind of establishment is qualified to be called a company? The features include:

1. A company is an artificial person

Have you ever wondered why in a legal setting, they refer to a company as an artificial person? Well, this is because the company is actually an artificial person. It has some traits in common with the natural person.

For example, the company has a name, it can own properties, it has bank accounts; it can even file a lawsuit against a person or another company, vice versa.

Furthermore, it can partner with other companies and carry out other civic activities. So it is a person; an artificial person.

2. A Company must have a Seal

We have established that the company is an artificial person so it is only right that it has it legal stamp or seal with the company’s name engraved on it.

So one of the features of a company is having a seal/stamp. This seal would serve as the signature of the company.

This is what the company will use to verify, permit and authorize various documents and deals.

3. Must be a Separate Legal Entity

Being a legal entity simply means it is wholly independent of the people controlling its operation or seeing to the administration of the company.

This simply means that the company is not accountable if its members don’t pay their debt.

In the same vein, should the company incur any debts, the members are not responsible for the company’s debt.

4. Continuous Existence

In most case, a company is independent of its owners, shareholders, the board of directors, or employees.

People would come into the company, play their roles, and leave or quit. But the company stays. except if the company’s management mismanages it and consequently, the company folds.

Otherwise, the existence of the company is much stable and Perpetual.

5. Must be registered

This is a very important feature of a company — it has to be registered by the law under the mandate of the companies act.

The registration process of a company demands a name, office, phone number, address, a memorandum of association, board of directors, share prices, shareholders, and other legal documentation that will be required of you.

6. Incorporation

You can decide to incorporate your business or not. This means you can incorporate your company or not; it is not mandatory. Although in some cases it is important.

Incorporating the company is intended to shield the company from uncertainty and risk. It also has other benefits.

However, if as a business owner you are sure of handling all the risks, you can decide not to incorporate the business. After all, all the profit goes to you alone.

The type of business you run, your goals, and even your need to guard your personal assets will influence your decision.

As a business owner, learning more about incorporation can help you decide if it is the right thing for you to do.

Types of company
Types of company

Types of company

There are different types of companies. Basically, the types of companies include:

  • Private Limited Company (LTD)
  • Public Limited Company (PLC)
  • Companies limited by guarantee and
  • Unlimited Companies.

However, we have listed the types of companies based on certain characteristics. Companies are classified based on:

  • Liability
  • Members (Ownership)
  • Control

Based on Liability

Based on liability, companies are limited by shares. The companies are divided into three(3). They are:

Private limited company

A private limited company (LTD), also called limited liability company is a privately owned business entity. As an entity, the company is different from its owners.

The LTD places a limit on the number of shares an individual can own. It also limits the owner’s liability to their shares.

Furthermore, it has a minimum of two(2) shareholders and a maximum of fifty (50). Moreover, shareholders cannot publicly trade shares.

The LTD is by far the most registered company in Nigeria. It is simple to run.

The shareholder’s risk is limited to the number of shares he has in the company. That is even if the company is facing financial crises, it is not mandatory for the shareholders to bail the company out with their private funds or properties.

2. Public limited company (PLC)

A public limited company is one whose shares are sold to the public with no restriction whatsoever. This type of company is best suitable for large companies.

The cost of running a PLC is higher than that of a private limited company which is one of the reasons why they sell their shares; to raise funds with which the company will carry out its operational cost.

Their shares can also be listed in the stock exchange market. The least number of shareholder in a PLC is two and there is no limit to the number of shareholders it can have.

Furthermore, a public company must have at least 500,000 authorized share capital and each shareholder must take up at least 25%.

3. Guarantee limited company

Companies in this category are usually non-profit organizations. They are limited by guarantee and do not have shareholders. Members of this kind of companies are called guarantors.

Should the company go bankrupt, then the liability of the guarantor is limited to the amount they have. This amount has been pre-decided in the memorandum of the company.

It is not profit-oriented so the company uses all the money it realizes to cover the expenses made while running the company.

4. Unlimited company

Just as the name implies, the shareholder’s risk is not limited to the number of shares he/she has in the company.

That is, the shareholders stand a risk of losing their assets if the company is unable to pay the debt incurred while running the business.

The company use the assets of the shareholders to clear off the debts of the company. However, this is only when the company has been liquidated.

So before the liquidation, the company uses its own assets to clear its debts.

Until a formal liquidation occurs, the unlimited company is similar to the limited company; whereby its shareholders is not liable to pay for the debts the company incurred.

This type of companies are rare because it involves so much risks.

Based on Members (Ownership)

Based on ownership, company types are divided into three under this category. They include:

1. Sole trader (One person company)

This type of company is owned by one person. The person is the sole proprietor of the company; creates the company on their own/

This is the simplest form of enterprise.

No share holders, no board of directors and no partners. The risks and profits of the company are all the owner’s to bear.

It has just one owner. However, while drafting the memorandum of the company, the owner of the company indicates who will take over the company from him when he passes on or when the need arises.

Asides from bearing all the risk of this company, another disadvantage is that a-one- person-company hardly attract investors and partners.

In fact, in some types of business, it will be hard to get customers.

2. Private Company

Unlike a one-person company, a private company has shareholders. However, the company doesn’t offer its shares to the public like in public companies.

Owning of shares are limited to the close members of the company only. And although the members can transfer their shares to anyone, they can’t offer it to the general public.

Do not mistake private companies for small companies because they aren’t public; No. They are not small. An example of this kind of company is Virginia Atlantic and Dell.

3. Public Company

Unlike the private company, the public company offers its shares to the public for purchase. They can even trade their shares in the stock exchange market.

The least number of shareholder a public company is allowed to get is two.

When investors buy the stock of the company, then they become the equity owners of the company.

If a company that started out as a private company wants to become a public company, all they have to do is to fulfill all the necessary legal requirements.

Switching from a private to a public company comes in handy when the company wants to expand.

Types of companies based on Control

The companies under this category are classified based on the persons in control. Companies in this category include:

1. Government Companies

Companies referred to as Government companies are those that the government holds 51% of the share capital of the company. The remaining 49% of the share, the company offers it to the public and private individuals.

This kind of companies is a combination of both public and private sectors.

The annual reports of government companies are required to be presented in parliament.

2. Holding and Subsidiary Companies

A holding company is a type of financial organization that owns or controls to a great extent, other companies which are called subsidiaries.

A holding company is like a parent company that owns or controls other businesses while a subsidiary company is owned or controlled by a parent company; the parent company may not necessarily be a holding company.

Although the holding company controls the subsidiary and supervise it, it doesn’t run the day-to-day operations of the subsidiary.

3. Associate Companies

Just like the subsidiary company, a parent company also owns this type of company.

But unlike the subsidiary company, the parent company owns only a minority stake in the company and so does not control its subsidiary.

Associate company relationships often occur with joint ventures.

The parent company owns a significant voting share of another company. The voting share usually ranges from 20 to 50%, if it is more than 50%, then it would be a subsidiary company.

If it’s less than 50%, then the owner doesn’t have to incorporate the financial statement of the associate.

Conclusion

Now that you know the different types of companies, if you want to open one you should study very carefully to know the type that is good for you and your business in order to avoid any form of future complications or liquidation.

We hope you find this article helpful. In our other post, we told you the Requirements for registering a company in Nigeria.

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