As a business operator one thing that should be of utmost importance is the structure your business model is going to take in order for the business to run effectively and efficiently. Finding the right model ensures that as a business owner, your business does not fall into a very avoidable ditch.
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The Companies and Allied Matters Act
The importance of having the right model cannot be overemphasized and it is illustrated in the COMPANIES AND ALLIED MATTERS ACT (CAMA) which provides guidelines for the formation of any organization. It made provisions for all such organizations that can be formed within Nigeria some of which are, Companies limited by shares, companies limited by guarantees, sole proprietorship and partnership.
Parts of the Companies and Allied Matters Act
The CAMA is divided into three (3) parts:
- Part A for Companies
- Part B for Partnership and
- Part C for Incorporated Trustee
These will be the focus of this article.
Companies Limited by Shares/Guarantees
Generally companies have their own legal entity separate from that of its owner. In other words a company can be said to be the child of its owner which means it has its own identity and can sue or be sued separately. Companies also have strict rules which must be complied with in order to ensure that the business is not wound up by the provisions of the act governing it. Companies limited by shares simply mean that the liability of a shareholder is limited to the amount unpaid in his or her shares. There are two types of companies limited by share which are Private company and Public company limited by shares. Private companies are more suited for small sized businesses by public companies for suitable for large scale businesses. In the case of Companies limited by guarantees, it simply means that liability is based on the amount was guaranteed by the shareholder. It also does business for the purpose of promoting causes such as commerce, art, science religion and so on.
Sole Proprietorship/ Partnership
Sole proprietorship and partnership are forms of organizations registered as business names. This simply means that they are convenient to register unlike companies and do not go through any complicated management process. Due to its simplistic formation it is also easy to dissolve either by agreement or by law.
Sole proprietorship is an entity that is owned and run by one person who may appoint subordinates to help in maintaining the business. The owner bears all the risks and the business ends if he or she dies. While it enjoys a corporate name there is no legal distinction between the business and the owner.
Partnership exists when two or more people carry on business for the purpose of making profit. In a partnership every partner has a right to participate in the management of the business. All partners are considered to be equals are the share both the liabilities and the profits equally. Partners are also personally liable for the debts and liabilities except where it is a limited liability partnership.
This is similar to a company limited by guarantee in the sense that the people involved are bound together by custom, religion, sports or science etc. Incorporated Trustees however, do not engage in business and its owners are known as trustees not directors. Any profit found at the dissolution of an incorporated trustee goes not to the shareholders but to a similar organization.
There are so many other factors to be considered when choosing an organization best suited to your situation. This article talks about the basics which can help set up your business smoothly and gear it up for success. Forming a business organization has become easier with the help of the internet but that should not stop you from consulting a lawyer when necessary.
Written by Usha