KEY THINGS TO KNOW WHEN INCORPORATING A COMPANY


Incorporation of a company is governed by the provisions laid out in the Companies and Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria2004, which defines a company as an association of persons formed for the purpose of doing business.




A company has a separate legal entity distinct from its members who constitute it. In other words, It has its own rights and duties and is endowed with the potential of perpetual succession, that is, once formed, a company will continue until such time as it is wound up. There are several types of companies categorized on the basis of business activity undertaken such as manufacturing company, service company, Non-Banking Financial Company (NBFC), charitable company, government company, one person company (sole-proprietorship), private limited company and public limited company.


A company offers several advantages over other forms of business organizations, such as :

  • A company is a legal entity, distinct and independent of its members
  • Liability of the members is limited to the extent of their capital contribution
  • Members are not liable for any act or omission on the part of the company
  • Company can acquire, own, enjoy and alienate property in its own name. As such the property would be that of the company and no member can make any claim upon it
  • The company can sue and also be sued in its own name
  • The continuity of the company and its functioning is not affected by the death, disability or retirement of any of its members
  • Shares of the company are transferable thus offering liquidity to the investors
  • Profit of the company can be shared by way of dividend
  • Investment in the company's funds can easily be made by permitting people to subscribe to the company's shares
  • A company can borrow funds by issue of debentures and can make a valid contract with its members
  • Once a company is incorporated, it can only be dissolved with the provisions of the law
  • In the event of winding up, the company's assets are distributed to the members in proportion of capital contributed by them




Disadvantages of a company


  • Unlimited liability : While the members' liability is limited, the company itself is fully liable for its debts and thus has unlimited liability
  • Compliances : A company structure requires several statutory compliances such as preparation of statutory registers and records, auditing, passing of resolutions, filing of returns with the Registrar of Companies etc
  • Personal lability of directors in certain cases :
  1. When the name of the company has been mis-described in any act or contract, those who have done the act or made the contract shall be personally liable.
  2. When in the course of winding up, any business of the company has been carried out to defraud the creditors, persons who are in knowledge of such misconduct shall be personally liable for the debts.
  3. Holding and subsidiary companies are required to present accounts and financial position of the group as a whole to its creditors and shareholders.
    • Control vs ownership: The control vests with the Board of Directors while the ownership is with the shareholders
    • Winding up: As compared to any other business structure, winding up of a company is a time-consuming and expensive process

To get more information on the cost of incorporating a company and contract us for the same purpose, PLEASE CLICK HERE

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