How to Convert a Sole Proprietorship to a Private Limited Company in Lagos
Introduction
Many entrepreneurs in Lagos start their businesses as sole proprietorships because it is simple, cheap, and easy to register. It allows them to begin trading immediately, operate under a business name, and build their brand with minimal formalities. However, as a business grows—whether in sales volume, employee strength, partnerships, or investment opportunities—the limitations of a sole proprietorship quickly become apparent.
When you reach this point, the logical step forward is to convert your sole proprietorship into a private limited company under the Companies and Allied Matters Act (CAMA) 2020. This conversion allows your business to enjoy legal personality, limited liability, corporate governance structure, better access to loans and investors, and greater credibility in the marketplace.
In Lagos, where the competition among businesses is fierce and where many corporate clients prefer to transact only with registered limited liability companies, conversion is not just a formality—it is a strategic move toward expansion and sustainability.
This comprehensive article explains, in detail, how to convert your sole proprietorship into a private limited company in Lagos, the step-by-step process, the documents required, cost implications, and the legal, tax, and regulatory considerations. It also includes a real-life case study, a FAQ section, and a conclusion and call to action for those ready to take this critical step in their business growth journey.
Understanding the Legal Difference Between a Sole Proprietorship and a Private Limited Company
A sole proprietorship is a business owned and managed by one person. It is registered under Part B of CAMA as a Business Name with the Corporate Affairs Commission (CAC). It does not have a separate legal personality, meaning the owner and the business are legally the same. The owner bears unlimited personal liability for debts and obligations.
A private limited company, on the other hand, is registered under Part A of CAMA. It has its own legal identity distinct from its owners (shareholders). This means it can sue and be sued in its own name, own assets, enter contracts, and its shareholders enjoy limited liability—their personal assets are protected from business debts.
Key differences include:
| Feature | Sole Proprietorship | Private Limited Company |
|---|---|---|
| Legal Personality | Not separate from owner | Separate legal entity |
| Liability | Unlimited | Limited to share capital |
| Ownership | One individual | 1–50 shareholders |
| Perpetual Existence | Ends on owner’s death | Continuous existence |
| Capital Raising | Limited | Easier via equity or investors |
| Regulation | Simple | More structured under CAMA |
| Credibility | Moderate | Highly recognized by banks, investors, and government |
Why You Should Convert Your Sole Proprietorship to a Limited Liability Company
There are several compelling reasons to upgrade your business structure:
Limited Liability Protection: As a company, your personal assets (like your house or car) are shielded from business debts.
Professional Image: Clients, investors, and institutions perceive limited companies as more trustworthy and credible.
Access to Finance: Banks, investors, and venture capitalists prefer funding incorporated companies.
Ease of Expansion: You can bring in partners or shareholders easily by issuing shares.
Corporate Continuity: The business continues to exist even if the founder retires or dies.
Tax Benefits: Registered companies can access tax incentives and deductions unavailable to sole proprietors.
Legal Protection: Your business name becomes exclusive and cannot be duplicated under CAC registration.
Eligibility for Government Contracts: Many public tenders and contracts in Lagos require bidders to be incorporated entities.
Legal Basis for Conversion Under CAMA 2020
The Companies and Allied Matters Act (CAMA) 2020 recognizes that a registered business name (sole proprietorship or partnership) can evolve into a private limited company. Although CAMA does not provide a direct “conversion” clause, the law allows a new company to be incorporated and the assets, liabilities, and goodwill of the old business transferred to it by Deed of Transfer or Sale.
This process is sometimes called “re-registration” or “transition from business name to limited liability company.”
Once the new company is registered, the CAC can annotate that the business name has been converted or taken over by the new entity.
Step-by-Step Process for Converting a Sole Proprietorship to a Private Limited Company in Lagos
Step 1 – Conduct a Name Availability Search
The first step is to verify if your existing business name is available for incorporation as a limited company.
If you are already using the name “ABC Ventures,” you can check if “ABC Limited” or “ABC Nigeria Limited” is available. If not, you may add distinguishing words (e.g., “ABC Global Limited”).
This is done via the Corporate Affairs Commission (CAC) online portal – www.cac.gov.ng.
Step 2 – Reserve the Company Name
Once the name is confirmed available, you will need to reserve it officially on the CAC portal.
The reservation is valid for 60 days, during which you must complete your incorporation.
Step 3 – Prepare Incorporation Documents
To register a private limited company, you must prepare and submit the following:
Memorandum and Articles of Association (MEMART) drafted by a lawyer.
Statement of Share Capital and Return of Allotment.
Notice of Registered Office Address.
Particulars of Directors and Shareholders.
Particulars of Company Secretary.
Means of Identification and Signatures of all Parties.
Professional Declaration by a Legal Practitioner (Form CAC 7).
Evidence of Consent from the previous Business Name owner to transfer assets and goodwill.
Step 4 – Execute a Deed of Transfer of Assets and Liabilities
Since the new company is a separate legal entity, it must formally acquire the old business’s assets, liabilities, and goodwill.
This is achieved through a Deed of Transfer, drafted and executed by a lawyer, stating that the sole proprietorship’s business assets, clients, goodwill, and liabilities are now vested in the new company.
It is advisable to stamp this deed at the Federal Inland Revenue Service (FIRS) to ensure it has legal effect.
Step 5 – File Incorporation Documents with the Corporate Affairs Commission
Once all documentation is ready, your lawyer will upload them to the CAC online portal and pay the statutory incorporation fees.
Upon successful processing, the CAC will issue:
Certificate of Incorporation
Status Report
Company’s Memorandum and Articles of Association
These documents officially mark the birth of your company.
Step 6 – Notify Relevant Authorities and Update Records
After incorporation, notify the CAC, Federal Inland Revenue Service (FIRS), and other agencies that your sole proprietorship has been converted to a limited company.
Update your Tax Identification Number (TIN) to the company’s name.
Inform your bank and update the account name.
Notify clients, suppliers, and partners of the change.
Publish a public notice in a national newspaper announcing the conversion.
Step 7 – Register for Taxes and Obtain Necessary Licenses
Register the new company with the Federal Inland Revenue Service (FIRS) and obtain a Tax Clearance Certificate.
If your business is in a regulated sector (e.g., real estate, hospitality, consultancy), ensure you renew or reapply for any business permits or licenses in the company’s name.
Cost Implications of Conversion
The cost of conversion depends on factors such as share capital, legal fees, and government charges. Below is a general breakdown:
| Item | Estimated Cost (₦) |
|---|---|
| Name reservation | ₦500 – ₦1,000 |
| Incorporation filing (₦1 million share capital) | ₦50,000 – ₦75,000 |
| Stamp duty on share capital | ₦10,000 – ₦15,000 |
| Professional legal fees | ₦100,000 – ₦250,000 |
| Deed of Transfer & publication | ₦30,000 – ₦50,000 |
| Tax registration | ₦10,000 – ₦20,000 |
| Estimated Total | ₦200,000 – ₦400,000 |
Common Mistakes to Avoid During Conversion
Using the same name without confirming availability.
Failing to execute a proper Deed of Transfer.
Not closing the old business name or notifying CAC.
Ignoring tax re-registration requirements.
Not updating licenses and permits in the new company’s name.
Delaying public notice of conversion.
Legal and Tax Implications of Conversion
Separate Legal Personality: The new company becomes a separate legal entity.
Limited Liability: The owner’s personal liability ceases; only shares are at risk.
Taxation: The company becomes subject to Companies Income Tax (CIT) instead of Personal Income Tax.
Banking: A new corporate account must be opened in the company’s name.
Employment Contracts: Staff may be re-engaged under the new company.
Intellectual Property: Trademarks or patents must be reassigned to the new entity.
Case Study 1 – How a Lagos Entrepreneur Expanded by Converting to a Limited Company
In 2021, Tola Beauty Studio, a popular salon in Lekki, operated as a business name for over five years. The owner, Ms. Tola, built a loyal clientele and expanded into training, product sales, and franchising.
As her brand grew, investors began to show interest in funding expansion into Victoria Island and Abuja. However, they required an equity stake in a registered company—not a sole proprietorship.
Tola engaged Chaman Law Firm, which handled her conversion process seamlessly. The firm reserved the name Tola Beauty Limited, drafted her Memorandum and Articles of Association, and executed a Deed of Transfer transferring her salon’s goodwill and assets into the company.
Within 14 days, the new company was incorporated, a Tax Identification Number issued, and her business account transitioned.
Six months later, Tola secured ₦50 million in investment funding and opened two new branches.
Lesson: Converting to a limited company not only grants credibility but also unlocks growth opportunities that a sole proprietorship cannot access.
Case Study 2 – From Street Fashion Brand to Corporate Powerhouse: The Transformation of “LaVida Wears”
In 2022, LaVida Wears, a fast-rising fashion and lifestyle brand in Surulere, Lagos, operated as a registered business name under its founder, Mr. Adewale Olatunji. The brand became popular on Instagram and through Lagos pop-up events, attracting celebrities and influencers who wore its locally produced streetwear.
Within two years, Adewale began receiving bulk orders from supermarkets and fashion outlets, including a Lagos-based retail chain that required an official supply contract worth over ₦120 million. The contract, however, came with a mandatory requirement — only incorporated limited liability companies could qualify as vendors due to legal and tax compliance reasons.
Adewale contacted Chaman Law Firm for legal advice on how to convert his sole proprietorship into a limited company without disrupting his existing brand identity. The firm provided a detailed restructuring plan that included:
Reserving the new company name LaVida Wears Limited, ensuring it aligned with the existing brand.
Preparing and filing all incorporation documents with the Corporate Affairs Commission (CAC).
Drafting a Deed of Transfer, which legally transferred all the assets, brand goodwill, customer contracts, and inventory from LaVida Wears (Business Name) to LaVida Wears Limited.
Re-registering the Tax Identification Number (TIN) and securing a Tax Clearance Certificate under the new company.
Updating LaVida’s vendor registration profile with the corporate version of its brand.
Publishing a notice of conversion in a national newspaper to inform the public.
Within 15 business days, the entire process was completed, and LaVida Wears Limited was officially incorporated. Shortly after, the company signed the ₦120 million supply contract and subsequently attracted a private investor from Lekki who injected ₦25 million into the brand for expansion into Abuja and Port Harcourt.
The company also opened a new corporate bank account and secured approval from the Bank of Industry (BOI) for a small manufacturing equipment loan — opportunities that were previously unavailable to Adewale as a sole proprietor.
Outcome: The conversion not only secured a multi-million-naira corporate contract but also rebranded LaVida Wears as a structured and scalable business entity capable of competing with international brands.
Lesson: In Lagos’ competitive and regulated business environment, credibility, structure, and legal compliance matter as much as creativity. Converting a sole proprietorship to a limited liability company can open access to contracts, investors, and business finance that would otherwise remain out of reach.
Frequently Asked Questions (FAQ)
What is the difference between a Business Name and a Limited Company?
A business name (sole proprietorship) is not separate from its owner, while a limited company is a separate legal entity with limited liability.
Can I use the same business name for my company?
Yes, if the name is available and approved by CAC. You may need to slightly modify it (e.g., adding “Limited”).
Do I have to close my old business name registration?
Yes. After conversion, notify CAC to close or annotate your business name as “converted.”
How long does the conversion take?
Typically, between 7 to 14 working days, depending on CAC workload and document readiness.
Will I pay taxes differently?
Yes. As a company, you’ll pay Companies Income Tax (currently 20–30%) and file annual returns.
Can I have the same bank account?
No. A new account must be opened in the company’s name.
Do I need a lawyer to do it?
Yes. A lawyer must draft the Memorandum and Articles of Association and prepare the Deed of Transfer.
What happens to my existing contracts and customers?
They can be assigned to the new company via the Deed of Transfer, ensuring continuity.
What share capital should I use?
The minimum is ₦100,000, but for credibility and investor readiness, ₦1 million or more is advisable.
Advantages of Incorporating Your Business in Lagos
Legal protection of assets.
Improved reputation among clients.
Easier access to finance.
Eligibility for government contracts.
Opportunity to expand regionally or internationally.
Clear business succession and continuity.
Practical Tips for Lagos Entrepreneurs
Choose a company name that aligns with your long-term vision.
Engage a corporate lawyer or CAC-accredited agent for accuracy.
Keep digital and physical copies of all registration documents.
Update all your contracts and stationery with the new company details.
Keep proper accounting and tax records from day one.
Conclusion
Converting your sole proprietorship into a private limited company in Lagos is one of the most rewarding steps any serious entrepreneur can take. It signifies maturity, growth, and readiness to operate at a corporate level. Beyond prestige, it brings structure, credibility, limited liability, and access to financing that can propel your business to the next stage.
While the process may seem procedural, it carries deep legal and financial implications that require professional attention. By engaging a competent law firm, you can complete the conversion quickly, correctly, and in full compliance with CAMA 2020 and CAC regulations.
Your business deserves to evolve—and the time to do it is now.
Call to Action
At Chaman Law Firm, we assist business owners and entrepreneurs in registering, restructuring, and converting their businesses under the Corporate Affairs Commission.
✅ Our Services Include:
Conversion from sole proprietorship to limited company
CAC registration and legal documentation
Drafting of Memorandum and Articles of Association
Preparation of Deed of Transfer and asset documentation
Legal and tax compliance advisory
📞 0806 555 3671, 08096888818, 08024200080
📍 Chaman Law Firm 115, Obafemi Awolowo Way Allen Junction, Beside Lagos Airport Hotel, Ikeja, Lagos
👉 Book a consultation now: www.chamanlawfirm.com/book-consultation
Take the next step.
Transform your business today—contact Chaman Law Firm to legally convert your sole proprietorship into a private limited company in Lagos, and position your enterprise for greater growth, protection, and success.