Giving your business a legal structure is one of the first things to do as a startup. The legal structure of a business is a category of business organization legally recognized in every country.
Your business can either be an incorporated business structure or unincorporated one.
In Nigeria for example, an unincorporated business is registered as a business name whilst an incorporated business is a company.
When a business is incorporated, a separate legal entity is born, (created /incorporated), separate from its founders.
For example Mr Chidi and Mr Ebuka incorporate a company called Lexis Limited, Lexis Limited is separate from them both and has the rights of a human being at law, although it is an artificial person. That incorporated business is called a company.
Registering a business name means you simply have a name, different from your natural name with which you do business. A single person(sole proprietor) or a group of people( as partners) can register a business name.
What advantages does a company have over a business name?
Because a business name structure is an extension of the proprietor(s), the business liabilities are unlimited. Legal protection for a business name almost doesn’t exist.
Also the lifespan of the business is tied to the lifespan of the proprietor and the death or exit of one of them (if they are partners) or the sole proprietor usually means the end of the business.
This makes the business name structure unattractive to investors.
What makes a company unique is that it is a legal entity on its own, separate from the founders. The founders can also limit their liability by incorporating a limited liability company. That way they will not be personally liable for the companies’ debts.
Also, a company can outlive its shareholders as it is separate from its shareholders. We have companies that are over a century old and are still waxing stronger. I can bet that most (if not all the initial) shareholders have passed on but the company still exists.
These features make it easier for a company to attract angel investors, seed funding and venture capitalists because the investors’ funds are more protected.
Companies can also raise capital by issuing shares.
In Nigeria, a limited liability company can be private or public.
A private limited liability company can only have a maximum of 50 shareholders and must have a minimum share capital of N10, 000. The name of private limited liability company must end with Limited or LTD.
A public limited liability company can as many shareholders as it desires and must have a minimum share capital of N500, 000. The name of every private limited liability company must end with Public Limited Liability or PLC.
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