I had previously dropped some pointers on post-incorporation duties of a corporate entity. In this post, I would like to take a step backward and let you know what the pre-incorporation duties are and how to decide what type of company to incorporate with the Corporate Affairs Commission (‘CAC’).
So, you have one or two ideas and you’re hoping to get it legalized; what do you do? First question you ask yourself is: Do I want a business organization or a non-business organization? From the wordings, you can tell that one allows you carry on business for profit making while the other is a no-no. Business organizations are such as; sole proprietorships, partnerships and incorporated companies (private and public). Non-business organizations are such as; companies limited by guarantee and incorporated trustees. At CAC, you may register any one of these business and non-business organizations under one of three headings: Business Name, Company or Incorporated Trustees.
Some factors affecting your choice of business organization would be: nature of business, available capital, number of members, extent of liability of members, extent and sphere of operation, cost of registration/expenses, position of the law, amongst others.
How do you know which organization fits your ideas? A private company is recommended where the capital available to start off is relatively small, where a small & medium scale business needs to acquire incorporated status, where family and friends want to engage in business expected to last over a long period and enjoy corporate personality.
A public company is recommended where the medium or large scale business needs to acquire corporate status; capital available to start off business is relatively large; the business organization would have access to public funds through offering its shares for subscription; membership is not limited or restricted; the business organization is not driven by family ties or relationships.
A company limited by guarantee is recommended where the company’s object is for promotion of commerce, art, science, religion, sports, culture, education, charity; the company’s profits is not to be distributed to members; it is a subsidiary company set up to render corporate social responsibility obligations for the main company.
An unlimited liability company is recommended where there is a move towards enlarged partnership; it is a professional service company with core values of honesty & integrity. The Unlimited company registration may be imposed by law for organizations involved in management of public funds. It is also used where contributed funds are to be managed by a company exhibiting due honesty, for example, stock brokers, insurance companies, amongst others.
A business name is required where an individual or group of individuals intend to set up a sole proprietorship (business run by one person) or partnership (business run by two or more persons). Generally, a business name is registered for its advantages; ease of registration, less formalities, privacy, ease of decision making, ease of management, ease of dissolution, etc.
Incorporated Trustees is recommended where the idea is to promote religious, educational, literary, scientific, social, development, cultural, sporting or charitable purposes. It does not accommodate profit making and its income and property are applied solely towards the promotion of its objects.
Let the above serve as your Business Guide 101 to making your decision on the right type of business organization you need for your ideas. When you have decided, then your sole pre-incorporation duty is to comply with all the requirements set forth by the Corporate Affairs Commission for incorporation (these requirements may be discussed at a much later date).
I hope reading this post has been value for your time. Thank you and Stay Tuned!!!
Post by: Kitan Kola-Adefemi
For: MindtheGap Legal Team