As part of business education, in my previous article published titled “Partner or Not to Partner”, we discussed the importance of ensuring that every agreement between you and a partner, is documented in a contract that spells out everything the partnership entails.
Now let us take that idea further. It is very important that your business as a whole is a legal entity of its own, separate from you as the founder. In other words, your company should be incorporated or at the very least, be a registered business name.
To start with, what is the difference between registering a business name and incorporating a company?
A business name registration has far fewer procedures than incorporating a company; you do not need a lawyer to handle it for you by drafting documents such as articles and memorandum of association, which is like the constitution of your company. It costs you only N10, 000 and you do not have to file annual reports with the Corporate Affairs Commission (CAC) and pay company income tax to the Federal Inland Revenue Service (FIRS). However, you are not exempt from paying value-added tax.
Company incorporation, on the other hand, requires a lawyer who will draft incorporation documents that will explain the line of business you will be operating in, your shareholding structure, list the directors of the company, among others. Once your company is incorporated, you are obligated to file annual reports to the CAC and company income tax (currently 30 percent of revenue) to the FIRS. Also, only incorporated companies can own intellectual property like patents and trademarks.
So why should you go for incorporation rather than simple business name registration? Simple, it is because of the size of business types. If you are operating a small printing shop, for example, a business name registration will do. But as your business grows bigger and you want to take on larger printing jobs from governments and multinationals, that business name registration will no longer suffice. You will just have to upgrade. But overall, what are the advantages of registering or incorporating your business?
- It creates a separate legal entity from you and protects you too. This means that if your business is sued or goes bankrupt, for instance, it is not you that is being sued or whose property will be used to settle debts and loans. Your business is different as a person in the eyes of the law from you, even as its founder.
- It is much easier to obtain loans for a business that is registered or better yet, incorporated.
- You can open corporate accounts in banks.
- Your reputation increases with customers and clientele.
- You can employ staff easier when you are incorporated. You also become eligible to have members of the National Youth Service Corps (NYSC) posted to your company.
- It is easier for you to obtain visa for travel to other countries for business.
- And here is my favorite reason: it guarantees continuity of your business. Should anything happen to you today, your business can easily continue since the business is legally its own person, as long as you have got the right structure for your business.
With all these advantages, there is no reason why you should not incorporate your business.