Picking the right business structure is one of the most important business decisions you would make for your business. This is so important as it would determine the growth and future of your business. In Nigeria, we have the following business structures: Business Name, Limited Partnerships, Limited Liability Partnerships and Limited Liability Companies.
Here are 7 factors to help you choose the right structure for your business:
YOUR LEVEL OF CONTROL: The business structure you choose for your business would determine the level of control you would always have over it. If you choose to register a business name, that means that full control over all decision making in the business.
PROMOTERS: Promoters are the people who conceive the ideas and take steps to form the business. Where there are two or more of you, you might consider registering a limited partnership or limited liability partnership, depending on your individual contributions and the future of the business.
COST AND COMPLEXITY OF FORMATION: Generally, Business names and limited partnerships are cheaper and easier to set up than Limited liability companies and limited liability partnerships. So, if cost of set up is your major considerations, not to worry, you can always convert to a limited liability in future.
YOUR TAX LIABILITIES: This is a very important point. The business structure you choose would determine your tax liabilities. For instance, if you register a business name, you would not be expected to pay Company Income taxes, however when you register a limited liability, you are expected to pay companies income taxes.
YOUR ABILITY TO RAISE FUNDS: The kind of structure you choose for your business would either increase or limit your options when you intend to raise funds. With a business name or limited partnership, you can only take loans, while with your limited liability company or partnerships, the company can also sell its shares, take loans against its assets, etc.
PERSONAL LIABILITIES: In respect to a business name, you are the business, what ever liability the business incurs, is incurred by you and there is nothing shielding you. However, where a person registers a limited liability company, there is an automatic corporate veil that prevents the individuals from personal liabilities.
YOUR REGULATORY FILINGS: Just like your formation requirements, your regulatory filings are also reduced in a business name and a limited partnership compared to that of a Company or a business name
EASE OF TRANSFERABILITY: It’s a lot easier to transfer most or part of your interest in a limited liability than it is in a business name and that is because, in a business name, you are not separate and distinct from the business, you are the business.
DISCLAIMER: Please note that this article is for general information purposes only. These articles do not and are not intended to constitute legal advice based on any information provided in this article. Please consult with your own legal counsel on your situation and specific legal questions you have. The information provided in this article is not privilege and does not create an attorney-client relationship with STARR ATTORNEYS or any of the firm’s attorneys, nor does the transmission of comment or an email create an attorney-client relationship.
