Quick FAQs

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Starting a Business, things you should know.

1.       I want to set up a business, how can I go about it?

1.1.     You can either register a company or register an enterprise otherwise known as a “business name”.

2.       What is the difference between the two?

2.1.      A registered company becomes a separate legal entity from you and has virtually the same legal rights as you would have under law, while an enterprise essentially is you but trading [doing business] under a name and style of your choice, which is why it is called a business name.

2.2.     The registered enterprise has no separate legal rights different from that of the proprietor/owner.

3.       When you say “legal rights” what exactly do you mean?


3.1.     Legal rights essentially refer to any right recognised by law such as the right to undertake any legitimate business of your choice, sue and be sued in your name, to own property, buy, sell or dispose of same etc.

4.       Is there any advantage of one over the other?

4.1.     Yes.  The registered company has several advantages over a registered business name. First the company is a separate legal entitity. It is an artificial person with most attributes of a human being. The company is better than a human being because it can exist for long-longer than a human being can. Second, most companies are limited liability companies and so the liability of their members are limited to the amount remaining unpaid on their shares in the company.  This is unlike registered business name which dies once the proprietor dies and in respect of which the liability of the proprietor is coextensive and infact the same as that of the business. 

4.2.     Generally also, credit institutions prefer to deal with companies when compared to enterprises. As a general rule, it normally costs less to register an enterprise.

5.       How much will it cost me to register a Company or an Enterprise ?

5.1.     Cost of registering a company will depend on how much share capital you wish to register with, this is because the Government will levy you 1.5% of what ever your share capital is as Stamp duty, you will also pay a filing fee to the Corporate Affairs Commission [CAC] at the rate of N10, 000 per Million.

5.2.     This means for a 2 Million Naira Share capital company for example you will pay 1.5% of that amount to the Government and N20, 000 to CAC.

5.3.     Please note that there are other related expenses you may have to consider and of course where you use the services of a professional in registering the company you will have to contend with its charges as well.

5.4.     Enterprise registration on the other hand has nothing to do with share capital and all you are expected to pay are filing fees and registration fees not exceeding 6-7 thousand Naira officially.


 5.5.     However in practice there are some other related costs and also the fees of the professional handling the registration should also be budgeted for.

6.       What is the procedure and how long will it take to set-up a business i.e. company or enterprise?

6.1.     For both registrations the first step is to secure approval from CAC to use the name you wish to register the company with. This process is known as the “reservation and availability of name” or ‘Availability’ for short.

6.2.     Once the name is approved it is reserved for the applicant for 60 days after which you must commence the registration process during the 60 day reservation period. Where you do not do so before the expiration of the 60 days, you will have to apply for a revalidation of the earlier application for another 60 day term.

6.3.     Upon approval of your proposed name, the professional handling your registration should forward to you for execution two sets of documents, the first being the Incorporation forms while the second is the document containing the Memorandum and Articles of Association [MEMART] of the company.

6.4.     Once you have signed both documents properly the MEMART and the Statement of Nominal Share Capital form are taking for stamping after which all the documents are sent to the CAC for filing.

6.5.     Normally the process should not exceed 15working days at most but administrative lapses at the CAC often arise which may extend it beyond that time.

6.6.     The CAC also has a special facility known as “Fast-track registration” this essentially allows you register your company in one day once the application is filed. An extra fee is levied by the CAC for this service in the sum of N50, 000[Fifty-thousand Naira].

6.7.     Please note that Nigerian law does not support individual ownership of companies, i.e. before a company can be registered in Nigeria there must be at least two shareholders, and two directors on the board of the Company.

6.8.     Enterprise registration on the other hand is a less complicated process and just entails filling out the requisite forms as soon as the proposed name is approved. After that the application is filed and baring any administrative lapses should be fully registered within 10 working days.


 6.9.     An individual may solely own an enterprise.

7.       But I am the only one for now, do you mean I cannot not register my company?

7.1.   You cannot  register a company with you as the only shareholder. In practice however you may appoint any person you are familiar with and allow him/her own a percentage of the company’s shares [even as low as 1%] just to make up the requirement of the law. Such a person may also be nominated to the Board as a Director.

8.       What is the difference between a Director & Shareholder?

8.1.     Directors are responsible for the management of the Company and basically execute the business objectives and strategy of the company. Shareholders are owners of the company to whom the Directors of the company are accountable.

8.2.     Depending on what percentage of the company’s shares they own in the company they also partake in profit sharing.


 8.3.     In reality however, except for well structured businesses, there is normally no distinction between the two as proprietors of companies normally act as its directors. There is nothing wrong with this but the danger  lies in the fact that this kind of arrangement makes things unclear and results in serious corporate governance breaches.

9.       What is a share? & how do I determine how much I will own in the company?


9.1.     With regards to companies, a share is a bundle of rights which may be described for convenience as a unit of ownership of a company, The rights comprising the bundle include the right to attend meetings of the company, the right to vote on any issue at the meeting and the right to share in the profits. These are mere examples. The more units you own the more of the company you own. Being the owner or part owner of a company, you are at liberty to determine in your own best interests how much of the company you wish to own, that is how much of the Company’s share capital you wish to subscribe to.

9.2.    Typically the basis for determining shareholding is the amount of equity (money) invested or put at risk by each person. Other basis include the contribution (non-cash) of each person to the establishment of the company. 

10.    Is my company’s share capital the same as our working capital?

10.1. Share capital is a legal term denoting the amount of money with which the company proposes to or with which it does in fact operate its business.  Share capital refers to equity ie the capital belonging to the owners or investors. It is also money worth which they have purchased shares in the company.  There are different types of share capital such as Authorized share capital which is the amount of capital that is registered by the Corporate Affairs Commission (CAC) as the share capital of the company. This is also called the nominal share capital of the company.  Another type of share capital is paid up share capital, which is the proportion of the authorized share capital that has been paid up or received by the company. An illustration will help here. Imagine that you incorporate a company with a share capital of N1,000,000 (One million Naira) divided into 2,000,000 shares of 50 k each. The authorized share capital of this company is therefore N1, 000,000 because that is what is registered at the CAC. Imagine also that you have not allotted (ie distributed) all the shares to shareholders of the company. You have allotted only 50% of the authorized share capital (1,000,000 of the 2,000,000 units of shares) but these shareholders have actually paid the company for only half of these. In other words, out of the amount due on the 1,000,000 shares (1,000,000 multiplied by 50k = N500, 000) you have received only the amount for 500,000 units (ie 500,000 multiplied by 50k = N250,000). N250,000 is therefore the paid up share capital. The law requires that each company must have at least 25% of its authorized share capital paid up.



 10.2. Your working capital on the other hand refers to the amount of resources [financial and/or assets] which you have available to undertake your proposed business at any given time. Unlike share capital which is purely equity, Working capital may comprise equity, loans and credit.

11.    What is the difference between a Private & Public Company


11.1. The major differences between the two are as follows:

11.1.1. A private company may not solicit money from the public or offer its shares to the public while a public company may do either of these.

11.1.2. A private company is one which restricts its membership. In other words not everybody is allowed to join it at will unlike in a public company. In a public company there are no restrictions on membership. 

11.3. The total number of shareholders in a private company is not more than  fifty (not counting employees who are also members or persons who were members because they were employees and who have continued to be members even after the end of their employment) while a public company can have an infinite number of shareholders.

11.1.4. At registration, the minimum share capital a private company can be registered with is N10, 000 while that of a public company is N500, 000.

11.1.5. Public companies are expected to make public their accounts at the end of each financial year while private companies are not required to do so.

11.1.6. Finally, private companies normally have their names ending with the word “Limited” while public companies have their names ending with the word “Public Limited Company” or PLC for short.

11.2. Please note that it is not advisable for Small and Medium Scale enterprises to start business as public companies. However nothing stops a private company which is growing to seek re-registration as a Public company and vice versa.

12.    Where will registration be done?


12.1. The CAC has various centers all over the country, however in practice most registrations save for Enterprise registrations are done in Abuja .

13.    What is the difference between the Memorandum & Articles of Association?


13.1.  Your memorandum [MEMO] basically sets out the businesses which the company will be engaging in or the objects it will pursue. In effect the company may not engage in business not stated in the MEMO.

13.2. The Articles on the other hand essentially sets out how the Company is to run, sort of a constitution for the company.

14.    If I register a company, will the company be able to open accounts with banks separate from my personal accounts?


14.1. Yes, all banks have corporate accounts for companies, once you fill in the requisite forms the account will be opened in your company’s name.

15.    I approached a bank to open an account in my Company’s name and was asked to bring a form CO7, what is that?

15.1. A CO7 is a form showing the current directors of your company as obtained from the records at the registry of the CAC.

16.    As an SME, should I not be eligible for some Tax exemptions?  

16.1. Unfortunately not. You do not get any exemption or rebate for being an SME.Governments intervention in the SME sector is to essentially see how they[the SME’s] can get access to the requisite funding and support needed to enhance their operations; it in no way is designed to help reduce their tax burdens. As such you will be required to pay the applicable taxes due from your business legally.

 16.2. However, you may be qualified for tax exemptions or rebates on other grounds for instance if you are a pioneer industry ie your business is in an area that the government considers is new, just starting or which requires special encouragement because of its peculiar challenges.

17.    What are the applicable taxes in Nigeria ?


17.1. The following are applicable Taxes in Nigeria

17.1.1.       Personal Income Tax:  Every Nigerian or person who earns income in Nigeria is liable to pay tax on the aggregate amount of his income whether derived from within or outside Nigeria.  

17.1.2.       Companies Income Tax: Tax is payable for each year of assessment of the profits of any company at a rate of 30%.

17.1.3.       Value Added Tax (VAT): Value Added Tax is a consumption tax levied at each stage of the consumption chain and borne by the final consumer.  It requires a taxable person upon registering with the Federal Board of Inland Revenue (FBIR) to charge and collect VAT at a flat rate of 5% of all invoiced amounts of taxable goods and services.  

17.1.4.       Capital Gains Tax: All gains accruing to a taxpayer from the sale, lease or other transfer of proprietary rights in a chargeable interest are subject to a capital gains tax of 10%.

17.1.5.       Education Tax:  an education tax of 2% of assessable profit is imposed on all companies incorporated in Nigeria .

17.1.6.        Personal Income Tax:  Every taxpayer in Nigeria is liable to pay tax on the aggregate amount of his income whether derived from within or outside Nigeria .  The Employers of labour are deemed to be agents of the tax authority for the purpose of remitting taxes deducted from salaries due to.

17.1.7.       Companies Income Tax: Tax is payable for each year of assessment of the profits of any company at a rate of 30%.

17.1.8.       Petroleum Profits Tax: Nigerian law by virtue of the Petroleum Profits Tax Act requires all companies engaged in the extraction and transportation of petroleum to pay tax.


 17.1.9.      Withholding Tax: This is really not another tax but a scheme to collect personal or companies Income tax or petroleum profits tax. Certain activities and services to are subjected to withholding tax. Where during a transaction in any of the specified activities or services, a payment is due from one person to another, the person making the payment is expected to deduct tax at the applicable rate and remit same to the relevant tax authority. At the end of the year when filing his returns each tax payer is expected to net off his tax liability against the withholding tax already paid. Accordingly it is wise to always demand that any withholding tax taken from your income is properly acknowledged in writing and appropriate returns are made to the tax authorities and copies of these given to you.

18.    As it is, the tax burdens on SME’s are enormous, how are we meant to survive? 18.1. Issues of taxation require that you consult professionals such as accountants or lawyers specializing in taxation to be sure of which taxes apply to you.


 18.2. It is important to note also that there are certain incentives instituted by Government to aid businesses, such as tax holidays, please consult a tax professional to see the incentives that are applicable to you and how you can go about utilizing them.

19.    If I were to pass on does that also mean my business is over?

19.1. This depends on whether you are a sole proprietor, in a partnership or your business is run through a company.

19.2. Once registered a company is a separate legal entity from its owners, therefore where one of its owners becomes incapacitated or should pass on, his interests in the company will simply pass on to his survivors and/or legal personal representatives.

19.3. They will now be entitled to all the deceased persons interests in the company as well as his liabilities.

19.4. An enterprise on the hand if you are a sole proprietor your business will die with you.

19.5. It is advised that sole proprietors seek proper legal advice on putting structures in place for their business. The same is the case in a partnership. A partnership ends on the death of any of its partners. Even if the remaining partners  choose to continue the business the law sees them as starting a new partnership.





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