What are the Differences Between a Business Name and a Company Limited by Shares?
Introduction
In Nigeria, starting a business begins with making a fundamental legal choice—should you register as a business name or incorporate a company limited by shares? This decision determines not just your brand structure, but also how your business is governed, taxed, perceived, and ultimately, how far it can grow.
Many entrepreneurs make this decision without fully understanding the legal, operational, and financial implications. The choice between a business name (also known as an enterprise) and a company limited by shares is not just a matter of paperwork. It affects your liability, credibility, access to funding, and even your ability to sign contracts.
In this article, we’ll break down the key differences between a business name and a company limited by shares, using Nigerian laws and practices—particularly the Companies and Allied Matters Act (CAMA) 2020—as our guiding framework. We will also examine a real-life case study and conclude with strategic recommendations and a strong call to action.
Understanding Business Name Registration
A business name is the simplest and most basic form of business registration in Nigeria. It is typically suitable for small-scale sole proprietors or partnerships. Under CAMA, a business name can be registered with just one person, without the need for shareholders or directors.
Key features include:
Registered with the Corporate Affairs Commission (CAC)
Requires minimal documentation
Inexpensive to register and maintain
Does not have a separate legal personality from the owner
All liabilities fall directly on the individual or partners
The owner(s) cannot sue or be sued in the business name—only in their personal name
Understanding a Company Limited by Shares
A company limited by shares is a type of incorporated entity with separate legal personality under Nigerian law. It can be a private company (Ltd) or a public company (Plc). For most entrepreneurs and SMEs, the private limited company is the standard.
Key features include:
Separate legal entity distinct from its owners
Can sue and be sued in its own name
Shareholders’ liability is limited to their share capital
Governed by Memorandum and Articles of Association
Required to file annual returns, appoint directors, hold AGMs, and maintain statutory records
Can attract investors and raise capital
Key Differences Between a Business Name and a Company Limited by Shares
1. Legal Personality
Business Name: Has no separate legal personality. The owner and the business are the same entity in law.
Company Limited by Shares: A separate legal entity. It can own property, enter contracts, and be sued independently of its shareholders or directors.
2. Liability
Business Name: The owner has unlimited liability. Personal assets can be used to pay business debts.
Company: Shareholders enjoy limited liability. They are only liable to the extent of their unpaid shares.
3. Registration Complexity
Business Name: Simple, quick, and requires minimal documentation.
Company: More complex. Requires registration of Memorandum and Articles of Association, appointment of directors, share capital declaration, and other formalities.
4. Ownership Structure
Business Name: Can be owned by a single individual or partners.
Company: Owned by shareholders and managed by directors. One person can act as both under the new CAMA provisions.
5. Perpetual Succession
Business Name: The business dies with the owner unless transferred.
Company: Enjoys perpetual succession. It continues to exist regardless of changes in ownership or management.
6. Funding and Investment
Business Name: Cannot issue shares or raise equity capital.
Company: Can raise funds by issuing shares, bringing in investors, or even converting to a public company.
7. Credibility and Perception
Business Name: May be seen as informal or small-scale.
Company: Perceived as more professional and trustworthy—important for contracts, tenders, and partnerships.
8. Taxation
Business Name: Profits taxed under personal income tax of the owner.
Company: Pays corporate income tax. Directors are taxed on their remuneration separately.
9. Regulatory Compliance
Business Name: Minimal compliance—just business renewal and tax filing.
Company: Must file annual returns, hold board meetings, maintain proper books, and notify CAC of major changes.
When Should You Register a Business Name?
You are just starting out and want a simple structure
Your operations are small-scale and low risk
You do not intend to seek external investors
You want to reduce setup and compliance costs
Ideal for: tailors, retailers, artisans, freelancers, personal service providers.
When Should You Incorporate a Company Limited by Shares?
You want to build a scalable business
You plan to attract investors or partners
You want legal protection against personal liability
You want to bid for corporate contracts or government projects
Ideal for: real estate firms, tech startups, law firms, manufacturing businesses, consultants, and NGOs (if limited by guarantee).
Case Study: From Business Name to Company – The Story of Chijioke Ventures
Background:
Chijioke started his logistics business in 2018 as “Chijioke Ventures,” registered as a business name. He operated with two delivery bikes and managed operations solo. He was able to grow slowly by delivering to SMEs in Lagos.
Challenge:
In 2021, a foreign company sought a last-mile delivery partner in Nigeria. Chijioke was shortlisted. However, when due diligence began, the company discovered he operated under a business name. This raised red flags—there was no legal personality, no shareholder structure, and no assurance of continuity. They dropped him.
Transformation:
With legal guidance, Chijioke incorporated Chijioke Express Logistics Ltd in 2022. He appointed himself as Director/CEO, allocated shareholding, and set up corporate governance processes. He also registered for taxes properly and opened a corporate bank account.
Result:
Within six months, he signed contracts with three eCommerce platforms. The limited liability structure gave clients more confidence. He is now considering converting to a public company in the future.
Lesson:
Chijioke’s story shows the limitations of a business name and the power of incorporating when you want to play at a higher level.
Common Myths about Business Names and Companies
Myth 1: A business name is the same as a company
Truth: A business name is a registration of a trade name. A company is a legal person created by law.
Myth 2: You must have multiple shareholders to register a company
Truth: Under the new CAMA, you can register a company with a single shareholder and director.
Myth 3: Business names don’t pay tax
Truth: Business name owners must pay Personal Income Tax. Tax evasion is illegal.
Myth 4: Companies are only for big businesses
Truth: Even small businesses can benefit from corporate structures—especially for liability protection and funding.
Converting a Business Name to a Company Limited by Shares
The CAC allows business name holders to upgrade to a company structure. The process involves:
Applying to CAC for re-registration
Reserving a new company name (or retaining old one)
Preparing incorporation documents
Paying prescribed fees
Filing notice of conversion
Benefits of conversion:
Legal separation of business and owner
Enhanced credibility
Opportunity to raise funds
Long-term sustainability
Conclusion
Choosing between a business name and a company limited by shares is more than a technicality—it’s a decision that can define your business trajectory. While a business name may suffice for informal operations or sole proprietorships, any business aiming for growth, investment, protection, and sustainability should consider incorporating as a company limited by shares.
Understanding the legal implications of each structure is crucial. With the flexibility provided by the new CAMA Act, every entrepreneur now has an accessible path to proper business formalization.
Call to Action
Your business structure is more than a name—it’s your foundation for growth, credibility, and legal protection.
At Chaman Law Firm, we help entrepreneurs and business owners make the right choice between registering a business name or incorporating a company limited by shares—based on your vision, goals, and risk profile.
✅ Want to know which structure is right for your business?
✅ Ready to incorporate your company and scale professionally?
✅ Thinking of converting your business name to a limited company?
Let us guide you with expert legal advice, CAC registration, and full business structuring support—professionally and promptly.
📞Phone: 08065553671, 08096888818
✉ Email: chamanlawfirm@gmail.com
📍 Address: 115, Obafemi Awolowo Way, Allen Junction, Ikeja, Lagos, Nigeria