THE DIFFERENCES BETWEEN A BUSINESS NAME AND A LIMITED LIABILITY COMPANY

 THE DIFFERENCES BETWEEN A BUSINESS NAME AND A LIMITED LIABILITY COMPANY

A sole proprietorship is often a registered Business Name (BN) that is owned and managed by just one person. Legally, the individual and his company are "one." Such a person is legally responsible for all business losses and gains. As he and the business are one and the same, if it fails, he will be held personally responsible. The good news is that he has total control over his company and is not required to split his income with anyone.

Legally speaking, a limited company is a distinct entity. is a term used to describe a legal entity where the shareholders and directors have certain protections. When a company of this type is established, it has an authorised share holding that establishes the maximum extent of shareholder liability. This is the most practical choice if someone is investing money in the company but does not want to be involved in running it.

DIFFERENCE BETWEEN A BUSINESS NAME AND A COMPANY

• A company limited by shares is required to have a director(s) and shareholder(s) while a business name is only required to have a sole proprietor or partners (proprietors).

• A Company limited by shares is a separate legal entity that is distinct from its shareholders and directors. It can sue and be sued, own properties and other assets in its corporate name. A business name on the other hand has no distinct legal personality from the owner and can sue or be sued only in the name of the owner(s) of such a business.

• A company limited by shares is a taxable legal person and pays its taxes to the Federal Inland Revenue Service(FIRS) in its corporate name under the Companies Income Tax Act. A business name does not pay taxes to the FIRS, rather, it is the proprietor of such a business that is required to pay taxes under the Personal Income Tax Act to the State Board of Internal Revenue.

• A company limited by shares acquires a legal personality upon incorporation. The liabilities of the shareholders of the company are limited by the number of shares that have been allotted to such shareholders that have not been paid for in the event of winding up(shutting down of company). What this means is that if the company has debts or liabilities, the debtor cannot go after the personal assets of the shareholders of the company as they are only liable to pay for the number of shares that have been allotted to them that have not been paid for. However, if a registered business name goes bankrupt or runs into debt, the debtors can sue and recover their money from the personal assets of the owner of such a business.

• A company limited by shares obtains a certificate of incorporation and other documents such as Memorandum and Articles of Association (MEMART) upon registration with the Corporate Affairs Commission(CAC). This is important as most organizations and government agencies require these documents to award contracts or to do business with a company. A business name on the other hand obtains a certificate of registration of business name and application for registration of business, it is limited in capacity to bid for big contracts from government agencies or other companies.

• A company limited by shares can have a maximum of 50(fifty) shareholders while a business name can have a maximum of 20 partners except for law and accounting firms. A company limited by shares is required to file returns at the CAC and hold annual general meetings while a business name is not required to hold general meetings before reaching its decisions.

• A company limited by shares can obtain a loan in the name of the company and can also raise funds by issuing its shares to private investors. A business name does not have shares and is mostly funded from the personal funds of the owner.

• A company limited by shares is appropriate for medium scale to large scale businesses while a business name is appropriate for small scale to medium scale businesses.

• A limited company may choose to go public and be converted to a public limited company (PLC), whereas a business name can only be converted to a limited liability company.

• A business name is automatically dissolved upon the death of its founder(s) unless there are other surviving partners to carry on the business, but a limited liability company cannot be dissolved upon the death of the shareholder, the other director of the company will continue to carry on the business upon the demise of any shareholder or director. And where the company has a single director/shareholder that died, the family of such person can apply for a Letter of Administration or Probate to take over the shares of the company and appoint a new director. A limited liability company will not be dissolved until it has been officially wound up with the CAC in accordance with the law.

ADVANTAGES OR DISADVANTAGES OF LIMITED OVER A BUSINESS NAME

• A business name is the registration of a trade name for business reasons, as opposed to a company, which is the establishment of a distinct legal body for the purpose of conducting business.

• Generally speaking, a business name can have one owner or two or more partners and is less expensive to register than a limited company, which requires a minimum of two shareholders but allows for the appointment of directors and managers to run the business.

• The owner of a business name is personally responsible for any acts and omissions related to registration. Companies are often different legal entities from their owners and are therefore subject to separate liability. Unless the court goes beneath the company's veil, for the acts and omissions.

• In a partnership, the proprietor(s) have complete control over the business's affairs; in a company, control is exercised by the board of directors or in accordance with the shareholders' shareholdings.

NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact +2347060692321