DOING BUSINESS IN NIGERIA: Comparing the LLC and Sole Proprietorship.

DOING BUSINESS IN NIGERIA: Comparing the LLC and Sole Proprietorship.

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All over the world, aspiring entrepreneurs are always faced with the conundrum of either starting out as a sole proprietor or a limited liability company. While both business structures have their individual merits and demerits, most often than not, it is usually the nature of the intended business or the resources available to the entrepreneur that determines the option endorsed.

In Nigeria, a sole proprietorship is basically a business name registered, owned and managed by one person. It is the most commonly practiced type of business in Nigeria because it is the easiest to start, and ease that comes with running the business and decision making.

By virtue of the Nigerian Company Law, in a sole proprietorship, the owner of the business and the business are considered a single legal entity and the owner enjoys the profit and bears the loss of the business alone.

As opposed to a sole proprietorship, a limited liability company (LLC) is a separate business entity where the investors/owners of the business have limited liability based on an agreement or the amount of investments made.

Other considerations include:

  1. Ease and cost of start-up: The sole proprietorship is easier to start-up and requires a lesser amount of capital than the LLC. Nevertheless, it is easier for investors in an LLC to raise capital than it is for a sole proprietor who only depends on his/her own resources.
  2. Liability Risks: A sole proprietor is personally accountable for any debt or losses the business might incur. In a LLC the burden of debt is evenly spread among investors based on an investor’s financial commitment.
  3. Decision Making: In an LLC, the board of directors are in charge of the decisions that affect the running of the company. However, a sole proprietor answers to none and is not legally required to consult anyone. Whatever he decides stands.
  4. Ease of transfer of ownership: Ownership interests in a LLC may be sold to third parties without interrupting the continued operation of the business. On the other hand, a sole proprietor cannot be sold whole. Instead, each of its assets, licenses and permits must be individually transferred. New bank accounts and tax identification numbers are also required.

While the information provided in this article may not be all-encompassing, it, however, provides an intending entrepreneur with basic knowledge to guide him/her in making an informed choice between an LLC and a sole proprietorship.

What are your thoughts on the points highlighted? We want to hear your thoughts.

If you have any questions, use the comment section, or get in touch via +2347014979879 or hightowerlawyers@gmail.com. You will be glad you did.

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