A limited liability company can be defined as a company where the liability of the shareholders is limited to the quantity of share capital of each shareholder if ever the Company is liquidated. The shareholders agree to bear responsibility only up to the number of their shares in that Company. A company is an association of people who agree to contribute their capital to start a business that is different from themselves. They could choose to form a limited liability company.
In this post, you will learn about types of limited liability companies, two kinds of limited liability companies, and significant differences between the two, and shared attributes. Also, we will look at the advantages and disadvantages of a limited liability company, documents needed to form the Company, how to Form a limited liability company in Nigeria, steps for registering the business, who registers businesses? And the type of Certificate issued after registering the business. Let us start right away.
Two types of limited liability company in Nigeria
There are two types of limited liability companies. They are a company limited by guarantee and Company limited by share.
Companies limited by guarantee are formed not for profit but to promote science, art, and religion. The shareholder’s liability is limited to their promise or guarantee.
In a company limited by share, the liability of members is limited to the amounts they contributed to form and manage the Company. At liquidation, shareholders lose their nominal shareholding only.
Subdivision of a company limited by shares
A company limited by shares is also in two parts-Private and public companies.
- Private limited liability company is a company with a minimum of 2 persons and a maximum of 50. This number does not include its employee’s past or present, and it uses the abbreviation LTD or UNLTD.
- A public limited liability company is a company with a minimum of 7 persons, and it does not have a maximum number of members. This type usually does public offers selling a part of its shares to the public to buy and join the Company as shareholders. The public Company uses the abbreviation PLC meaning public liability company.
The major differences between private limited liability company and public limited liability company
- private limited liability company starts business after obtaining a certificate of incorporation, cannot raise capital from the public, or issue a debenture.
- While a public limited liability company cannot commence business after registration until it gets the Certificate of trading, the Company can raise capital from the public and even issue a debenture.
Shared Attributes of Private And Public Limited Liability Companies
Common Attributes of Private and Public limited liability companies is that when the Company goes bankrupt members have limited liabilities to the number of shares they own.
There is a continuous succession of the Company even if a shareholder dies, the Company is a legal person and can sue and be sued in its name, a part of the profit is distributed among shareholders, and the remaining income retained for growing the business.
Advantages of a limited liability company
- Huge capital: The Company has enough money to operate and could obtain a loan from a bank to fund its ventures. Moreover, a public liability company can sell its share to the public to raise capital.
- Specialization of Management: Managers are knowledgeable with technical skills and make up the Board of directors, while the owners are the shareholders.
- Legal Entity: It is a legal Person separate from shareholders, and so the owners cannot be sued for the Company’s indebtedness or any wrongdoing.
- Perpetual succession: In case of death of owners the Company continues to carry out the objects of its incorporation
- Expansion: Could expand into new businesses without the problem of lack of capital or needed skills.
Disadvantages of a limited liability company
- Not Flexible: The Company restricts its operations to the object clause stated in the memorandum of association. It cannot do any other type of business outside that clause.
- No Privacy: The owners of a Public limited liability company must prepare their accounts and publish it in a National Newspaper for the public. But a private limited liability company must submit the audited statements yearly to the Registrar of companies at the CAC.
- Hard to Register: The Registration formalities are burdensome, unlike that of sole enterprise business.
- Huge Formation capital: You need a lot of money to start the Company at a minimum of 1 million ordinary shares divided into 50 kobos, N1, or higher.
- Payment of Tax: Any profit declared is subject to corporate tax. So, the higher the gain, the more tax they pay. For a sizeable profitable public Limited liability company, this could run into billions of naira.
Documents needed to register a Limited Liability Company in Nigeria
The documents needed to register a Limited Liability Company in Nigeria are as follows:
- A form of identification of the Directors and Shareholders if different from the Directors. You could use (a) National ID (b) Driver’s License (c) Voters Card (d) International passport.
- A copy of Memorandum of Understanding and Articles of Association (usually drafted by the Lawyer or consultant handling the incorporation process,) allotment of share capital form, particular of the company secretary and particulars of directors.
- Provide a proficiency certificate if the object is a professional service, consultancy, legal services, Hospital, School, Media, training, and so on. Examples include a certificate of a professional body, trade association, and academic Certificate.
- Notice of approval for name Reservation from CAC
- Payment receipt from CAC
- Stamp Duty Certificate from FIRS
- Residence Permit (if a Foreigner shareholder is a member)
- The statement of nominal capital is the amount of the Company’s capitalization shared among the subscribers. For example, you can divide N1,000,000 share capital into two parts of 49% and 51% each between 2 shareholders.
- Provide the proposed address of your Company’s head office.
- All directors must sign the filled forms and memorandum of the association before you file, stamp, and verify them.
How to Form a limited liability company
A group of individuals could come together to start a company to solve a specific problem in their local area and decide on the nature of the business to open.
If it is a shipping business, the minimum share capital is 5 million naira, a hotel’s minimum share capital is 10 million naira, and they will also choose a name.
Then they will agree to the number of shareholders they want; a child can be a shareholder, and the directors must be 18 of age years and above. Follow the steps below
Steps 1: The promoters agree on the amount of capital the Company will need to operate like the cost of assets they need to manage the business, working capital, and the price of forming the business.
Step 2: Hire a lawyer to draft documents to file at the Registrar of companies like memorandum and article of association and statement of nominal capital.
Step 3: Stamp and lodge the documents at the Registrar of companies
Who registers Limited Liability Company in Nigeria?
The Corporate Affairs Commission is Nigeria’s Corporate Registry created by the Companies and Allied Matters Act, in 1990 to supervise the formation and administration of companies in Nigeria, replacing the Federal Ministry of Commerce and Tourism, the past Registrar empowered by the Companies Act of 1968.
Steps for registering a limited liability company in Nigeria online
If you live in Lagos, Kano, Rivers, and Abuja, you can carry out the name search and other registration activities online by clicking on www.cac.gov.ng, but in other states, go to Corporate Affairs Commission office, and they will perform the name search for you.
You can follow the steps below to register your Company.
- 1. Visit the Corporate Affairs Commission’s (CAC) company registration portal.
- Click on search for a name to register and confirm if the names you chose are available. Also, have unique names as you search.
- After carrying out the free search, click on the ‘Create Account’ button; to fill the form. After filling the form, submit your information to receive a response from CAC forwarding your login details to the email address you registered.
- After registration at the portal, log into the portal with your username and password. You may click on this link and use the Name reservation option to submit the first name and a new reserved name. But you must pay N500 to reserve a unique Name. Note that Name reservation ends once you get the notification of your Availability Code (which is a serial number) you need for the registration of your Company.
- After one or two days, log in to your Corporate Affairs Commission’s company registration portal (CAC-CRP) account to verify the status of your application. To do that, from your Profile, click on” Action,” then “Download of Name Approval,” and next click on the “Open” option to see the approved availability Code or serial number.
Once you get a notification of your Availability Code, go on and register your Company.
Pre-Incorporation Procedures of your Limited liability Company in Nigeria
From this point onwards four key steps are remaining, and they are:
- The filling of the needed information online
- Paying for the incorporation filing and Stamp duty (Online)
- Uploading of the scanned registration documents
- Receiving your Certificate of incorporation
Follow these steps to complete the registration of your Company with your Availability Code.
- Log in to your CAC-CRP account to start registration of your company. Begin by selecting “Registration” and choosing the category of incorporation from the list such as “business name” company or incorporated trustee.” Then enter the Availability Code, type in the Directors and shareholders names, and the number of shares they have. Also, add Drop off and pick up State. That is where you will collect the Certificate of incorporation and continue to fill the registration form CAC1.1with your company information until you complete it.
- To make payment of the filing fee, confirm the Fees for CAC Services and pay the filing fee right away. It is N10,000 for the first One million initial share capital. Make the payment online with your payment card, internet banking, or generate a voucher from the CAC company registration portal and take the bill to any Nigerian bank branch and pay.
- Next, stamp the registration forms electronically at FIRS. To do that, select “Get Stamp” and make the payment, the stamp duty is N8,000 to seal the documents fixing the stamps on form CAC1.1 and MERMERT electronically (learn more). Once you finish with FIRS, print the stamped forms and receipt of payment on the portal.
- Then move over to the document upload section of the CAC website and upload the following documents that you have scanned. They include:
- Signed forms CAC1.1
- Memorandum and Article of Association (MEMART)
- The means of identification of Shareholders, Directors, and Secretary (could be National ID card, Driver’s license, Voters card, or International passport.)
- The payment receipt as evidence of payment to CAC
- When you complete uploading your Company’s documents, click on the submit button.
- Visit the site the next day to check if your Certificate is out. Log in to your Corporate Affairs Commission’s company registration portal (CAC-CRP) account to get an update. Any time you see your Registered Company (RC) Number, which means the Certificate is ready.
- Go to the CAC office you selected as the Drop off office during the registration process to collect the Certificate of incorporation and certified true copy (CTC) of the Documents you uploaded. Exchange them with the original documents with you like Form CAC1.1, MEMERT, and give them to the CAC officials.
Note: You will have a Tax identification number automatically generated when they issue you with a certificate of incorporation at the CAC-CRP. This action occurred when you paid stamp duty at the Integrated stamp duty system portal with CAC-CRP. FIRS/JTB will send an email to your registered email address with your TIN.
Manual Method for Registering a Limited liability Company
- Go to the Corporate Affairs Commission office near you, and they will perform the name search for you. Pay for Name Reservation; it is N500 naira.
- Fill the form with two unique names and submit them to the officials. Give them 3 to 5 days and go back to the CAC office.
- If the name search is successful, collect the Notice of Approvaland ask for the registration forms and fill out the forms. A set is N500 Naira.
- Make sure your Lawyer has prepared your Memorandum and Article of Association (MEMART).
- The next thing is the payment for filing and stamp duty. The filing fee is N10,000, and Stamp duty is N8,000 for a company of N1 million shares. (NB: you must generate Remita Retrieval Reference (RRR) code which you can use for the payment).
- The RRR code is12 digits, so visit Remita Website and choose the reason for paying, then type in the amount you are paying. Also, enter your full name, email address, and phone number, then pass the Captcha test and click on the button labeled “proceed to payment,” and the new page will open that will generate a Remita Retrieval Reference (RRR) code.
- Then go to any bank to make the payment for filing and stamp duty with the RRR code. After paying, take your payment receipt and Memorandum and Article of Association to the stamp duty office of the FIRS for stamping.
- From FIRS, go to CAC office and submit the forms, stamped MEMART and the payment teller or receipt, the Notice of Approval, and photocopies of means of identification of the directors and shareholders to CAC officials.
- After submitting the registration form, visit the CAC office in one week to confirm if the Certificate is out.
- If the Certificate is ready, sign and collect the Certificate of incorporation. Collect the certified true copy (CTC ) of incorporation documents from CAC officials and give them the original Incorporation documents with you.
In this article, you learned about how to understand limited liability company in Nigeria and how to register the Company in the corporate affairs commission. You have the steps you need to do it quickly, so register that your new business today.
Also read: Understanding Sole Proprietorship in Nigeria