Factors To Consider Before Choosing A Business Structure And Types Of Business Structures In Nigeria

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Important choices are made when beginning a business. One of them is the choice to have a business plan that fits your want and one other essential one is deciding on the best business construction. Choosing the right legal structure for your business is very important as it affects how the organisation is going to be run.

At ReDahlia, we’re keen about SMEs and everything entrepreneurship which is why our mission is to be all the pieces to the entrepreneur. We know it may be very powerful to start out and achieve business and not using a spine therefore we preach what we all know and have finished.

Like I at all times say, you don’t must be carried away with the entrepreneurship craze seen on social media. The important factor is that you’re pleased doing no matter you’re doing. We should not all known as to be entrepreneurs. Just be fulfilled in what you do – whether or not it’s a 9 to five or the rest. But in the event you determine to run your personal business, we would like you to do it the best means.

Well, you don’t simply determine on a business construction, every business construction has its totally different peculiarities and these elements will decide the extent of management, potential to entry finance and the final operation of the corporate.

Therefore, earlier than we proceed to the various kinds of business constructions in Nigeria, I’ll defend gentle on the elements to think about earlier than you make your last resolution.

See Also: Cheap ways to promote your business and grow your revenue.

Factors To Consider Before Choosing A Business Structure


It is sweet to ask the place the corporate might be within the nearest future. So return to the business plan to make sure the objectives and aims are aligned with the kind of business construction you select. The construction ought to give room for adjustments and progress and shouldn’t restrict you.

See Also: Factors to consider when pricing your product or service.


The easiest business sort is the only real proprietorship when it comes to beginning it up and operational complexity. It is cheaper to register and report revenue and tax as private income. It is troublesome, nonetheless, to safe exterior funding.

Partnerships, then again, require that you simply signal an settlement with companions to outline earnings and roles. The company is extra complicated as a result of it requires complicated reporting necessities each on the federal and state ranges.


On the floor, an organization carries the least quantity of private legal responsibility, for the reason that legislation acknowledges it as its personal entity. What this implies is that prospects and collectors don’t have entry to your private property however they’ll sue the company.

Partnerships share the legal responsibility between the companions as said of their partnership settlement. The sole proprietor bears all of the dangers of the corporate and his private asset shouldn’t be separate from the business.


The tax construction is totally different for every of the business constructions. The company pays extra tax than the only real proprietor for the reason that sole proprietor doesn’t pay the corporate income tax. However, the brand new Finance Act by the Federal Government has changed what it used to be. So, the recommendation of a tax professional ought to be kind of, for steerage.

See Also: Types of taxes in Nigeria and how they’re administered.


The business construction you select will affect the extent of management you’ll have within the operation of the business. A sole proprietorship would be the most suitable option for you if you wish to have main management of the business and its actions.

Control could be negotiated in partnership business construction within the partnership settlement.

A company is designed to have a board of administrators who make main choices. However at inception, a single particular person can management an organization, however because it grows, the necessity to function the company as a board-directed entity will increase.

See Also: Benefits of blogging to businesses and what to do before starting a blog.

Capital Investment

You need to speak to buyers, enterprise capitalist or take out financial institution loans then the company is your greatest wager since it’s simpler to safe exterior funding. A company may safe extra funding by promoting shares.

The sole proprietor doesn’t take pleasure in all these advantages and might solely receive funding via private accounts, private credit, grants, taking up companions, household and pals.

Licenses, Permits, And Regulations

There are some companies that want particular licenses, permits, and laws to function and subsequently, should tackle a specific business construction. Please converse to your lawyer for steerage.

Business Structure

Types of Business Structures In Nigeria

The Sole Proprietorship

This is the best business construction – one particular person proudly owning and working the business alone. The proprietor is solely liable for the corporate’s liabilities and this locations his property liable to seizure to fulfill a debt or authorized declare filed in opposition to him.

Raising financing is tougher in a sole proprietorship and in consequence, one may have to rely upon one’s financial savings, grants, house fairness, and household and pals.

See Also: Best practices for email marketing for small businesses.

The sole proprietorship is reasonable to register (Sole proprietorships could select to function beneath a registered business title which is registered with the Corporate Affairs Commission (CAC)).  

Also, the proprietor solely pays private income tax in his state of residence. For straightforward business registration, contact ReDahlia Workspaces to get it finished. The sole proprietor is liable for the earnings and money owed of the corporate.

This sort of business construction is appropriate for small or micro companies and professional companies (legislation, accountancy, pictures, and so on) owned by one particular person.

The Partnership

For many people to personal and function a business, contemplate structuring the business as a partnership; a normal or restricted partnership. The companions handle the corporate and assume duty for money owed and obligations in a normal partnership.

General companions are additionally present in a restricted partnership along with restricted companions. However, whereas the final companions are liable for the liabilities of the partnership, the restricted companions are merely buyers and don’t have interaction within the each day operation of the business and their legal responsibility can also be restricted.

See Also: 100 Profitable business ideas to start now for aspiring entrepreneurs and investors.

The cons of partnerships embrace a companion’s private liabilities being borne by different companions and every companion can take out loans and make choices on behalf of the others (if the partnership settlement permits so).

The authorized and accounting concerns of the partnership make it costlier to arrange than the only real proprietorship.

Partnerships are perfect for companies owned by relations or pals; for eating places, authorized businesses, and so on. Partners share earnings and losses.


Corporations are complicated and costly. They are unbiased authorized entities and adjust to extra laws and tax.

The greatest advantage of the company is the safety in opposition to legal responsibility – the group’s debt shouldn’t be that of its house owners. Raising funds can also be extra simply finished. It can promote shares and the loss of life of 1 shareholder can not cripple the business. One draw back is that extra tax is paid.

See Also: How to get Tax Identification Number (TIN) and open a bank account for your business in Nigeria.

Incorporated Trustee

The included trustee is an association that spiritual our bodies, charities and social entrepreneurs can use. Please converse to a lawyer for recommendation.

Like I point out originally, there are peculiarities, professionals, and cons in every association. The alternative you make will tremendously have an effect on the way in which you run your business, impacting all the pieces from taxes and legal responsibility, to manage over the corporate.

It’s at all times greatest to have interaction a lawyer for steerage on probably the most applicable choices to undertake. Discuss with a lawyer and work out which kind of business construction provides your business probably the most benefits in terms of serving to you obtain your organizational and private monetary objectives.

Intellectual property

Let’s speak a bit about mental property. You might imagine you don’t have any mental property to guard. Even earlier than one begins a business or sells the primary product or secures the primary consumer, there may be already an present asset.  

The very first property – the title, model, concept or invention, and emblem – ought to be protected. They can respect over time. Not defending them may be very harmful.

See Also: Different Classes of Trademark in Nigeria

Coca Cola’s model, if offered immediately, might be purchased with billions of dollars. Likewise, a small business immediately might need an enormous model title value enormous quantities sooner or later.

Trademark your model id to keep away from theft. We can do that for you at ReDahlia. Moreover, An unregistered emblem, model title or product is weak to copying and monetary losses. However, If they’re protected, then copycats could be sued. Your model has the potential of turning into massive sooner or later.

Steps On Registering Your Business With CAC

  • Decide on a reputation
  • Perform a reputation availability search on the CAC and reserve it
  • Complete the CAC documentation – varieties CAC 2, three, 5, 7, Memorandum and Article of Association for firms, The documentation for business title registration is restricted. If your title suggests skilled or specialised companies – legislation, accounting, medication, engineering, consultancy, and so on. – then the documentations will need to have a replica of a certificates of qualification or proof of proficiency – bachelors or masters diploma certificates, skilled qualifications, and so on. – from a minimum of one of many administrators of the corporate. We have noticed not too long ago that that is not a consideration
  • Pay the stamp duties
  • Submit to CAC for verification and submitting
  • Expect the unique certificates of incorporation and licensed true copies of the paid-for CAC paperwork in just a few weeks (7 to 10 working days with ReDahlia)

Entrepreneurs.ng is democratizing opportunities for entrepreneurs by putting their business on the world map. Call us today to tell your story.

The intent of this text is to offer a normal information to entrepreneurs on the subject material. Professional recommendation ought to be sought about your particular wants.

The put up Factors To Consider Before Choosing A Business Structure And Types Of Business Structures In Nigeria appeared first on Entrepreneurs In Nigeria.

Durodola Bolaji

A network marketer, entrepreneur and investor, I am happily married with kids. I reside in Ibadan and run a company in Northern side of Nigeria. I am currently earning passive income working from the comfort of my home using the Internet, email, and the telephone with an incredible sense of security and peace of mind. I've been earning a full-time income from home online since 2014, mostly within the network marketing and direct sales industry, and in recent years.

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