The next step after evaluating yourself for the choice of a business and analyzing your proposed industry is to register your business as a business entity.
This is the foundation for setting up a business.
However, the same investigative approach we have used so far in deciding upon which business to start, is what we would employ for deciding what type of business structure is required. It is necessary that attention be paid to the pros and cons of the different business formations that exist. Before any business can be carried out, it must be registered with the relevant authorities saddled with such responsibilities.
If at all possible, work with an attorney to iron out the details. This is not an area you want to get wrong. You will also need to get the proper business licenses and permits. Depending upon the business, there may be city, county, or state regulations as well as permits and licenses to deal with. This is also the time to check into any insurance you may need for the business and to find a good accountant.
Types of business formations include:
1. Sole proprietorship/Partnership
This is for small business enterprise, small scale business and small scale partnership. It is worthy to note that this part does not spell out shares to be held in the business, it is just for the registration of the business name.
Individuals, partners and corporations are free to carry out business in their own name. However, the need to protect such individuals, firm and corporations, as well as to prevent members of the public from being misled as to the nature of their business necessitate the registration of certain business names.
Features of business name include;
- It does not confer legal personality
- Registration gives priority for the use of the firm’s name
- Registration is proof of partnership
2. Corporation/Limited Liability Company (LLC)
Limited Liability Companies can be Private or Public and Companies Limited by Guarantee. Majority of business fall under this Part.
Private Limited Company (Ltd)
A private limited company is a legal entity in its own right, separate from those who own it, the share holders. The limited liability and simplicity of running the private limited company makes it the most common of registered business. As a shareholder of a private limited company, the shareholder’s personal possessions remain separate (unless they are secured against the business for borrowing), and the shareholder’s risk is reduced to only the money they have invested in the company and any shares the shareholder holds which has not been paid for.
Limited liability companies are also considered prestigious by other companies and the general public due to its legitimate nature and the way important information is recorded. Anyone wishing to do businesses with a limited liability company can verify who is connected to the company and also the financial status of the company by conducting a corporate search. The level of transparency is very beneficial in terms of building public confidence in the company.
The private limited liability company has very few restrictions which makes it simple but yet a flexible solution for many businesses.
- The company must have a registered office in Country of Registration
- The company name must not be exactly identical to any other company name currently held in the registry.
- At least twenty five percent of the authorized shares must be allotted at incorporation
- At least two people above the age of 18 must subscribe to the memorandum and articles of association.
- The total number of members in a private limited company must not exceed 50, not including those who are bona fide employees of the company
- The authorized share capital shall not be less than 10,000
Public Limited Company
A public limited company differs from the private version in that it is able to sell its shares to the public and may be quoted in the stock exchange. A public company must have at least 500,000 authorized share capital and the subscribers must take up at least twenty five percent of the authorized share capital. The cost of running a public limited company is reasonably higher than that of a private limited liability company. It is therefore better suited for large organizations.
Guarantee Company (not for profit)
In simple terms a guarantee company is not for profit and is the type mostly formed by charitable organizations. A guarantee company does not have share capital, and the members do not own the company, they also do not receive any profits and have no claim to the company’s assets. All income generated is used to cover operating costs and to achieve the objectives of the company.
Part C of the Act deals with the registration of incorporated trustees. Organizations like churches, Non-governmental organizations, Charity organizations and social clubs fall under this category.
This part regulates group of people bound together by custom, religion, kinship, or nationality, or any body or association of persons established for any religious, educational, literary, scientific, social, development, cultural, sporting, or any charitable purpose. These set of people may appoint two or more trustees for the body or group and such will be incorporated under this part.
Advantages of this part include:
• Body Corporate nature
• Legal personality
• Perpetual Succession
• Power to hold land
• Common seal
Spend some time getting to know the pros and cons of each business formation.
While incorporating can be expensive, it’s well worth the money. A corporation becomes a separate entity that is legally responsible for the business. If something goes wrong, you cannot be held personally liable.
Other things you will need to do include deciding on a business name and researching availability for that name.