A lot of entrepreneurs, when starting out, often ask: “Should I register a business name or a limited liability company?” This question comes up frequently, and for a good reason. The structure you choose for your business has legal, financial, and operational implications.
This article breaks down the differences between a business name and Limited liability company (LLC or LTD), it highlights the pros and cons of each option, and helps you decide which one is right for your business.
Table of Contents
What is a Business name Registration?
A business name registration is a formal application to the Corporate affairs commission of Nigeria that you want to operate your business under a particular name.
If the Corporate affairs commission (CAC) approves your application, you have secured that name for your business, no other person or business in Nigeria can use that name to represent their business.
A business name registration is the entry level registration (most basic) amongst other types of business registrations/structures with the CAC.
Furthermore, doing business in Nigeria no matter how little without registering with the Corporate affairs commission is illegal.
The government also understands that some businesses are small-scale and does not require complex structures or formalities, so the government is saying instead of operating informally, you can simply register as a business name. This is the reason why a business name registration is best suited for petty traders and skilled artisans e.g electricians, car mechanics, painters, generator repair men etc.
What is a Limited Liability Company Registration
A limited liability company is both registering your business name with the CAC and establishing your business as a separate legal entity from its owners.
What does “entity” mean?
In simple terms, an entity means something that exists on its own. In business, when we say a company is a “separate legal entity,” we mean the business is treated like its own person in the eyes of the law. It can own properties, sign contracts, own a business and even be taken to court — all separate from the people who own it.
So, if you register a Limited Liability Company, the law sees your business as a separate “person.” But if you register a Business Name, there’s no difference between you and your business; legally, you are the same person.
Advantages and Disadvantages of Business name Registration:
Advantages
Simple and Cheaper to Register
A business name registration is cheaper to register compared to other forms of business registration types and it requires a fewer number of documents. It can be done within 2-3 working days while other business types may take a longer period.
Low compliance requirements and levies
A business name registration is the most basic registration type, therefore it comes with fewer compliance obligations. For example, owners of businesses registered as business names are not required to hold annual general meetings.
Also, business names are not required to pay company income taxes (since it is not a company), however, the personal income of the business owner can be taxed if it meets the taxable income threshold set by the government (above ₦800,000 annually).
Sole Control
The owner has full control of the business and can make decisions quickly without needing approval from directors or shareholders.
Legal recognition
Compared to not having your business registered, a simple business name registration gives your business legal recognition, you can open a bank account and issue receipts in your business name.
Disadvantages
Limited access to funding
Investors and financial institutions usually prefer dealing with Limited Liability Companies. It’s harder to attract serious investors or get business loans with just a business name registration.
No Legal Separation Between You and the Business
In a business name structure, you and the business are the same legal person. This means if the business runs into debt or gets sued, your personal assets (like your car or house) can be used to settle the business’s obligations.
Assuming you are a generator repair technician, an event center hires you to repair their 4,000KVA generator. Unfortunately, while fixing the generator, you damaged it beyond repair.
Now, the event center wants the value for the generator paid back to them. If the business does not have the amount of money to pay for the generator, the properties of the business owner can be sold to cover the cost of getting a new generator.
Advantages and Disadvantages of an LTD Company registration
Advantages
Limited Liability Protection
The company is a separate legal entity, so your personal assets are protected. If the business runs into debt or legal trouble, you’re only liable up to the value of your shares.
Using the analogy of the generator repair man above, the personal properties of the limited company owner will not be seized or sold due to the damages caused, instead, only the company’s assets such as equipments, money in the business account or shares of the company can be used to settle the claim or repay the debt.
Easier access to funding and investment
You can raise capital by selling shares, and investors are more willing to fund LTD companies because of the structured ownership.
Easier to get Contracts
Many government agencies, large companies, and corporate clients prefer working with registered limited liability companies because it gives them a sense of security and professionalism.
Having an LTD status shows that your business is formally structured, legally accountable, and reliable. In fact, some organizations will only consider bids or partnerships from companies registered as LTDs. This opens up more opportunities for contracts, tenders, and partnerships.
Business Continuity
If the owner of an LTD company dies, his shares can be inherited or acquired by other directors or partners, thereby making it possible for the business to continue.
Disadvantages
More Bureaucratic Processes and Delays
As the founder or co-founder of a limited liability company in Nigeria, you get to hold annual general meetings (AGM) with the board of directors or investors. If you are not used to holding meetings this might pose a problem.
Also, if there are more than one directors or shareholders in the business, you cannot make decisions alone. You will need to consult with other stakeholders before making major moves.
More taxes
Depending on how much your business generates, you will be required to pay taxes. For example, large companies (businesses with a gross turnover of above 100 million Naira) are expected to pay 30% on profit. Other taxes like Value Added Tax and industry levies might also be included.
If you don’t know how to calculate these taxes or have the time to calculate it, you may need to hire a tax professional which comes at an additional cost to your business.
More scrutiny from the government and investors
Limited liability companies can get investments from banks, private organisations or individuals but this often comes with scrutiny. You have to open your books for investors to see your financials and to also confirm if the company meets its tax and regulatory obligations. Sometimes you may even need to restructure your operations to meet investors requirements.
LTDs also have more regulatory oversight from the government compared to business names. Agencies like the Nigerian revenue service (NRS) and industry specific agencies are keenly watching for compliance with tax obligation, financial reporting and sector-specific regulations. The bigger your business grows, the more attention it attracts and the stricter the oversight becomes.
Business Name Vs LTD Company in Nigeria
The difference between a business registered as a business name and another business registered as a limited liability company can be found by comparing the advantages and disadvantages of both business types. However, we will present these differences in a tabular form for easier understanding and quick reference.
| Criteria | Business Name | Limited Liability Company (ltd) |
|---|---|---|
| Ownership Structure | Single owner or partnership | Can have 1 to 50 shareholders |
| Legal Status | Not a separate legal entity; owner and business are the same | Separate legal entity distinct from its owners |
| Registration Cost | Cheaper and faster to register | More expensive (depending on share capital) with more documentation required |
| Annual Returns | Must file annual returns | Must file annual returns |
| Access to Funding | Investors and banks rarely invest | Easier to access bank loans, grants, and attract investors |
| Decision-Making | Sole control by the owner | Requires agreement among directors/shareholders |
| Business Continuity | Ends if owner dies | Continues even if shareholders change or founder exits |
| Ability to Issue Shares | Not allowed | Can issue shares and bring in shareholders |
| Suitable For | Freelancers, artisans, micro/small businesses, petty traders. | Startups, growing businesses, investors, and formal enterprises |
Which one should you choose?
Deciding between a Business Name and a Limited Liability Company (LTD) largely depends on your business goals at the moment and the type of business you want to register. There are businesses that the corporate affairs commission will not allow to be registered as a business name.
If you’re just starting out, testing a business idea, or running a small operation (like freelancing, retailing, or artisan work), registering a Business Name might be the best option. It’s cheaper, faster, and has fewer compliance burdens. You maintain full control and can focus on growing without the pressure of corporate formalities.
On the other hand, if you’re building a business that you intend to scale, bring in partners or investors, a Limited Liability Company (LTD) is the better choice. It gives you legal structure, and the ability to separate your personal assets from business liabilities, which is essential for long-term sustainability.
Types of Business you can register as a Business name
- A small/medium sized grocery store (a grocery store is a store that sells everyday food items like rice, bread, beverages, canned goods, toiletries, and household essentials).
- Tailor.
- House Painter
- AC installer and Technician
- Barber/Hair dressers
- Electricians
- Capenters
- Plumbers
- Mobile phone repair shops
- Laptop repair shops
- Small neighbourhood dry cleaning services
- Photographers
- Graphic designers
- Writers
- Web developers
- Small restaurants
- POS operators
And many more
Types of Business you can Register as a Limited Liability Company
- School
- Travel agency
- Construction and Real Estate Firm
- Healthcare & Pharmaceutical Businesses
- Tech Startups and Software companies
- Import and Export Business
- Consulting firms
- Media and Entertainment companies (film production houses, music labels, event management etc)
- Manufacturing companies
- Financial services (Banks, Microfinance banks, Investment firms, money lenders etc)
- Hospitality and Tourism companies
- Oil and Gas services
- E-commerce platforms and marketplaces.
- Logistics companies
And many more.
Frequently Asked Questions on Business name Vs LTD Company
Can I upgrade my business name to an LTD?
Yes you can upgrade from a business name to a LTD company. This can be done on the CAC portal for a fee.
Do I need a lawyer to register an LTD?
It is not compulsory to have a lawyer register your Limited Liability Company
Can one person register and LTD Company in Nigeria?
Yes, one person can register a limited liability company in Nigeria to become the sole proprietor, director and own 100 shares, however, a secretary will need to be included during the registration process. Most people use their spouse and family relatives as secretaries. You can always change your secretary later on.
How much does it cost to register a Business Name vs an LTD Company?
Registering a Business Name typically costs ₦10,000–₦20,000, depending on CAC fees. An LLC registration costs ₦50,000 or more, depending on the share capital and additional legal fees or service charges
Can a Business Name attract investors?
A Business Name is less attractive to investors due to its informal structure and unlimited liability. Investors prefer LTDs for their formal structure, limited liability, and ability to issue shares. However, owners of business names might get loans from microfinance banks, fintech apps or grants.
We hope that this article has helped you understand the difference between a business name and Limited Liability Company. By now, you should not have a hard time choosing which business type to register.
You can read our other articles on how to choose the best bank for your business and Important steps to take after registering your business.
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