Many people when they start a business think that the registration of a business name is the best, because of the financial costs of the registration. However many people do not know the difference between the two and the implications.
Every entrepreneur starts business by registering a company. A company is an enterprise that is technically apart from the individual(s) that runs it. A company should be able to enter into its own contracts and pay its own liabilities.
A business name has been said not to be a company. Why?
1. A business name is simply a trading name. Almost like an official alias. All contracts entered into with that name are synonymous with the proprietor and may as well have been entered into with the individual promoter. So a business name could Sade Abubakar trading as ‘Shade Barks’
2. A limited liability company could have a trading name e.g Mr Biggs is a trading name of UAC Plc. UAC bears all its assets and liabilities
3. Carrying on business in a registered business name is the cheapest and easiest way to get formalised but not the safest. If the proprietor becomes liable for business or personal debts, his business and personal assets will be at risk. Creditors can possess his home, business goods and everything he owns.
4.A business name cannot register a trade mark. Such proprietor is at risk of losing the intellectual right to his creations.
5. With a business name there are still tax liabilities and annual liabilities for filing annual reports at the Corporate Affairs Commission.
Whereas with a limited liability company
1. The registration cost will be more than a business name but does not have to be prohibitive as it depends on the share capital.
2. The company has what is known as Perpetual Succession; meaning that it survives with or without the promoters. There has to be a minimum of two promoters.
3. The liability on contracts entered into is limited to the share capital of the company.
4. There must be at least two juristic persons who form the company. (A juristic person is one who the law recognises as a person, e.g a human being or another company, but not a business name)
5. The company can sue and be sued in its own name.
6. The company can be passed on to your children and generations yet unborn.
7. The company can be turned into a public company, subscribe for public funds and be listed on the stock exchange.
8. A business name can be converted to a limited liability company.
The possibilities of a limited liability company far outweigh the restrictions that a business name has. Which would you rather have?