Private Limited Company Incorporation

In Nigeria, the majority of incorporated businesses are run through private companies limited by shares. A private company limited by shares is a type of company, which has a share capital divided into shares. The value, class, and rights attributable to each share will be set out in the Articles of Association of the Company. The owners of shares are known as shareholders.

Unlike a company limited by guarantee, whilst the company is a going concern, the shareholders usually contribute to the working capital of the company by paying a sum equivalent to the total nominal value of their shares (together with any share premium) to the company. In most private companies limited by shares, this is usually a relatively small sum.

Whilst shares in a private company limited by shares may not be issued at a discount, the Articles of Association of the company may provide that shares must be fully paid or that they may remain partly paid or unpaid prior to an insolvent winding up.

However, upon an insolvent winding up, the shareholders will only have to make a contribution to the liabilities of the company to the extent that the total nominal value of their shares has not been paid to the company.

The majority of the features of a company limited by shares are the same as those of a private company limited by guarantee. It has an independent legal capacity. Accordingly, it can enter into contracts in its own right, own property, and other assets, and employ individuals. 

Private company incorporation is the legal process of registering a new business entity as a private company with the appropriate government authorities.

This establishes the company as a separate legal entity, distinct from its owners, and grants it certain rights and responsibilities under the law.

Incorporating your company privately offers several benefits, including limited liability protection, tax advantages, easier access to funding, enhanced credibility, and the ability to perpetuate the business beyond the owner's lifetime.

We offer a range of services to make it easy for you to get started, from facilitating registration with the Corporate Affairs Commission (CAC) to obtaining your Tax Identification Number (TIN). Our comprehensive business support will ensure you have everything you need to succeed.

(a) Independent legal capacity.

(b) No minimum issued share capital.

(c) Shares cannot be offered to the public.

(d) Liability for shareholders to contribute capital while the company is a going concern (although the Articles of Association of the company may provide that shares may remain partly paid or unpaid prior to an insolvent winding up).

(e) Upon an insolvent winding up, the shareholders' liability is limited to the outstanding unpaid nominal value of their shares (if any).

(f) The company must include the word ‘limited’ in its name (except in the case of certain older companies). 

Private companies limited by shares are used as a practical way for business owners to establish, operate, and manage businesses. Company law and the constitutional documents of the company provide a clear structure for the company and the financial liability of the members is limited.

Where the owners wish to have the benefit of limited liability, they will usually set up a private company limited by shares unless the company is to be a charity or other non-profit organization (such as sports clubs, workers co-operatives, and membership organisations) or they are intending to offer shares to the public.

They are commonly used to run trading businesses where the organisation:

(a) may need a significant amount of capital or financial flexibility (for example, with regard to raising equity or debt finance),

(b) intends to distribute the profits to shareholders and/or grow and sell its business (or the owners intend to sell their shares in the company), and

(c) wishes to have the benefit of limited financial liability (for example, when entering into contracts) and a clear structure for running and managing the organisation.

A company limited by shares is likely to be a more suitable form of company where the company is to be set up to run a profit-making business in which the shareholders will keep the profits. This is because its structure is more flexible from a financial perspective (for example, with regards to raising finance) and will be more familiar to third parties (for example, banks) than a company limited by guarantee. 

A private company limited by shares is owned by its shareholders. Any legal person (for example, individuals, companies or LLPs) may be a shareholder.

A private company limited by shares must have at least one shareholder. 

The first shareholders of a company limited by shares are the legal persons who subscribe to the company’s Memorandum of Association when it is incorporated.

The Articles of Association will contain provisions relating to shareholders including any qualifications for being a shareholder, the process for issuing and applying for any new shares, and any procedures relating to the transfer of shares.

Any new members of a company limited by shares must be entered in the register of members kept by the company. Similarly, their names should be removed when they cease to be members.

The model Articles of Association provide that a company limited by shares must issue each shareholder, free of charge, with one or more certificates in respect of the shares which that shareholder holds.

A company limited by shares may have different classes of shares with different rights. Where there are several shareholders, it is common for the Articles of Association to be supplemented by a shareholders’ agreement containing various rules, rights, and duties relating to shareholders. 

A company limited by shares must have at least one director.

The first directors of a company limited by shares are those specified in the company formation documents when it is incorporated.

The Articles of Association will contain provisions relating to directors including any rules relating to such matters as their appointment, termination, and payment.

No. However, they may choose to do so.

Minimum share capital is the minimum amount of assets a company must have. The purpose of this capital is to make sure that if a company goes bankrupt or has trouble with its finances, it has enough equity to pay its creditors.

Therefore, various industries have specific minimum share capital requirements that a company must have before incorporating a business or going public.

A company’s minimum issued share capital is the lowest amount of shares that the company can give to its shareholders. It mostly represents the monetary value of the shares that the company gives to its shareholders (which includes investors) in exchange for capital or other forms of consideration.

The minimum share capital requirement for a private limited company in Nigeria is N100,000 (One Hundred Thousand Naira).

It represents the total value of shares issued by a company, and can vary depending on the type of business entity.

Minimum Share Capital is the least capital base of a company as required by the Law. The Share Capital of a company is the capital base of such company, it does not mean that the company must have such fund (share Capital) in their account it simply means that the liability of such company is limited to that share capital.

Below is a comprehensive list of the minimum share capital of some designated Companies:

• Private Security Company-10 Million
• Lottery- 5 Million
• Sports Lottery — 30 Million
• Agents of Foreign Airlines- 1 Million
• Pension Fund Administrator- 5 Billion
• Shipping Company/Agent- 25 Million
• Issuing House-200 Million
• Broker/Dealer-300 Million
• Trustee-300 Million
• Fund/Portfolio Manager-150 Million
• Agricultural Seed, Productions, Processing, Marketing-10 Million
• Stock Broker-200 Million
• Stock Dealer-100 Million
• Corporate Investment Adviser (Registrar)-150 Million
• Corporate Investment Adviser-5 Million
• Individual Investment Adviser-2 Million
• Underwriter-200 Million
• Venture Capital Manager-20 Million
• Rating Agency-150 Million
• Asset Management (Intangible Assets)-300 Million
• Commercial Bank (With Regional Authorization)-10 Billion
• Commercial Bank (With National Authorization)-25 Billion
• Commercial Bank (With International Authorization)-50 Billion
• Merchant Bank-15 Billion
• Bureau De Change-35 Million
• Payment Solution Services (PSS) (As permissible under Super Agent, PTS and PSSP (combined)- 250 Million
• Super Agent (Agent Recruitment Management and other activities as specified in the Regulatory framework for licensing Super Agent in Nigeria)- 50 Million
• Payment Service Provider (PSSP) (Payment Processing Gateway and Portal, Payment Solution/Application Development, Merchant Service Aggregation and Collection)- 100 Million
• Mobile Money Operation (E-Money issuing, Wallet creation and management, Pool Account Management activities as permissible under Super Agent) — 2 Billion
• Switching and Processing (Switching and Card Processing Transaction, Clearing and Settlement Agent Services, Non-bank Acquiring Services activities as permissible under Super Agent, PTSP and PSSP)- 2 Billion
• Finance Company- 20 Million
• Payment Service Bank-5 Billion
• Health Management Organization (HMO) (National)- 400 Million (Paid Up)
• Health Management Organization (HMO) (Regional)- 200 Million (Paid Up)
• Health Management Organization (HMO) (State)- 100 Million (Paid Up)

Limited liability simply means debts incurred by the business are the business's own liability and not its directors or shareholders. A limited company is a separate legal entity from its members; if a company incurs debt, it is liable to settle it.

Shareholders are obligated to pay the company the shares they have taken. Once a shareholder fully pays for the share, they need not pay more.

So if two shareholders incorporate a company and one takes one share valued at ₦1 in the company, their sole responsibility as shareholders is to pay ₦1 each to the company for their shares.

The director will also not incur personal liability because they are considered company agents. However, in specific situations, such as wrongful or fraudulent trading, the court may impose liability on directors despite the general principle of limited liability.

In Nigeria, the Companies and Allied Matters Act (CAMA) governs the establishment and operation of companies, including limited liability companies. According to CAMA, the following individuals or entities can set up a limited company in Nigeria:

• Individuals: Any person who is of legal age (18 years and above) and of sound mind can establish a limited company in Nigeria. This includes Nigerian citizens as well as foreign nationals.
• Legal Entities: Legal entities such as corporations, partnerships, trusts, or other incorporated bodies can also establish a limited company in Nigeria. This allows for group ownership or investment in the company's shares.
• Foreign Investors: Foreign individuals or entities are permitted to set up limited companies in Nigeria. However, they may need to comply with certain regulatory requirements, such as obtaining relevant permits or approvals from government agencies.
• Professional Advisors: In some cases, professional advisors, such as lawyers or accountants, may assist in the incorporation process on behalf of their clients.

When setting up a limited company, you need this information:

(a) Directors - The names and addresses of the director(s). The application must include their countries of residence, nationality, date of birth, addresses, and occupations.

(b) Shareholders - The names and addresses of shareholder(s).

(c) Company secretary - The names and addresses of any company secretary.

(d) People with Significant Control over the company (PSCs) - The names and addresses of any PSCs and information regarding the nature and extent of their control.

(e) Company name - The name must not be the same as or similar to the name of a company already on the Companies Register. In addition, it should not be misleading or offensive.

(f) Registered office – The formally registered office address of the company for correspondence and legal documents.

(g) Statement of capital - The value and number of the shares to be subscribed for by each initial shareholder of the company.

(f) Memorandum and Articles of Association

No, registering a company and registering a trademark is different. Registering your company name with CAC cannot stop another business from using your trademark.

If you want to protect your trademark, you must register for a trademark, which is a separate process.

Corporate Affairs Commission is the body responsible for the registration of companies in Nigeria and it is usually known as the CAC as its short form.

Just like NAFDAC is responsible for drugs and EFCC is responsible for financial crimes, the CAC is responsible for registration of all companies.

It was established under the Companies and Allied Matters Act (CAMA) to oversee the incorporation, regulation, and management of companies, partnerships, and other business entities registered in Nigeria.

Apart from resonating with your brand, your business name must comply with the CAC’s naming guidelines, which are in place to make sure business names are special, fitting, and don’t infringe on someone else’s trademark. 

Here are some of CAC’s naming guidelines: 

• Your business name has to stand out and be different from other business names or trademarks.
• Your business name should be related to what your business does; It shouldn’t mislead or confuse folks. For example, your business name should not imply you own a makeup studio if you are running a fashion store. 
• Your business name must not be offensive, rude, discriminatory, or go against what’s considered good behavior in society.
• Your business name must follow all the laws and regulations in Nigeria. Don’t pick a name that suggests anything illegal or unethical. Also, don’t choose names that could trick or fool the public.
• Certain words are off-limits unless you get special permission. For example, words like “Federal,” “National,” and “Government” are reserved and need clearance from the right authorities before you can use them in your business name

Memorandum of Association (MOA) is the charter document of a company. A company is created by registering a memorandum.

MOA contains the name of a company, the address in which the registered office of the company is located, objectives, and its authorised capital. The MOA has to be executed by the initial promoters of the company. The subscription to MOA should also require to be witnessed.

The details of subscribers to the MOA cannot be amended or changed at any point of time during the life of the company, as it constitutes the document giving birth to a company. Subsequent changes in the shareholding or directorship of the company should be reflected in its internal records and will not affect the subscriber details in the MOA.

Articles of Association (AOA) is the bylaws of a company and can be filed along with the incorporation document.

AOA contains rules and regulations for the management of a company’s internal affairs and conduct of its business. It defines the relationship of company between its members and directors and relation between members and directors. It also describes powers of directors. Further, the AOA describes the rights and duties of its members as well as the duties and responsibilities of its directors.

In case of a private limited company, the AOA will contain the restrictions of transfer of shares, if any. Also, AOA usually contains the names of first directors of a company.

The AOA has to be executed by the initial promoters of the company. The subscription to AOA should also require to be witnessed.

The registration process timeline varies depending on CAC and the efficiency of processing. This is the timeline:

• Name Search and reservation: 6 - 24 hours from submission.
• Grant of Certificate of Incorporation: 24 -96 Hours from filing.
• Total time: Approximately 2 - 10 working days.

A Director of a Company according to section 269(1) of CAMA 2020 is an individual duly appointed by the shareholders of the company and saddled with the responsibility of directing, managing, running and controlling the affairs of the Company.

Appointing a Director is one of the most important requirements when incorporating a Company in Nigeria. A Company must have appoint at least one Director for the purpose of managing the affairs of the Company.

In Section 283, CAMA specifically mentioned the persons that are not qualified to be appointed as a Director of a company in Nigeria whether a public or private company. Accordingly, these set of person cannot be appointed as Director of a Company in Nigeria. They are:

• A person under the age of 18 years.
• A lunatic or person of unsound mind.
• A person suspended or removed under section 288 of this Act. That is the person has been removed as a Director in the same company.
• An Insolvent, Fraudulent, Bankrupt, prohibited person or a Director that resigns from the Company as a Director.
• A corporation other than its representative appointed to the board for a given term. 

The CAMA 2020 also allows companies to have a single director subject to certain conditions i.e. they must be private companies and their annual turnover and net assets value are not more than NGN120 million and NGN60 million respectively. Foreign owned companies cannot be single director companies.

Shareholders or members own the company and have the right to vote on diverse issues. The right of ownership and voting rights are determined by the percentage of allotted shares you own.

The directors oversee the company's daily operations and ensure that it fulfils its obligations and meets deadlines. A person can be a shareholder and a director in a company.

The primary differences between Sole Proprietorship and Limited Company (LTD) lie in ownership structure, liability, taxation, and regulatory requirements.

In a Sole Proprietorship, the business is owned and operated by a single individual, who has unlimited personal liability for business debts and obligations. On the other hand, a Limited Company is a separate legal entity distinct from its owners (shareholders), providing limited liability protection to shareholders, meaning their assets are generally not at risk for business debts.

In terms of regulatory requirements, setting up and operating a Sole Proprietorship is relatively simple and inexpensive, with minimal formalities required. In contrast, forming a Limited Company involves more complex procedures, such as registration with CAC, drafting Articles of Association, and compliance with ongoing reporting and disclosure obligations, including annual filings and maintaining corporate records.

Overall, while Sole Proprietorship offers simplicity and full control to the owner, it comes with unlimited personal liability. Limited Company status provides limited liability protection to shareholders, but entails more formalities and potential tax complexities. Choosing between the two depends on factors such as risk tolerance, tax considerations, growth plans, and long-term business goals.