Types of Companies in Nigeria: Understanding the Different Company Structures Under CAMA 2020

Starting a business in Nigeria involves more than choosing a business name and registering it with the Corporate Affairs Commission (CAC).

One of the first decisions you need to make is choosing the right legal structure for your organisation.

Under the Companies and Allied Matters Act 2020 (CAMA 2020), different types of companies exist for different purposes. Your choice of structure can affect your liability, ownership, fundraising options, governance requirements and how the organisation operates.

So, before registering a company, it is important to understand the options available.

What Types of Companies Can Be Registered in Nigeria?

CAMA 2020 recognises different types of companies, including:

• Private companies limited by shares;
• Public companies limited by shares;
• Companies limited by guarantee; and
• Unlimited companies.

There is also another form of legal structure commonly used by non-profit organisations: Incorporated Trustees. Incorporated trustees are not companies, but they are registered under CAMA for organisations such as associations, churches, clubs and foundations.

Let’s break them down.

1. Private Company Limited by Shares

This is one of the most common company structures for businesses in Nigeria.

A private company limited by shares is generally suitable for businesses owned by a relatively small group of shareholders, including many startups and small and medium-sized enterprises (SMEs).

The liability of members is generally limited to the amount, if any, unpaid on the shares they hold.

For example, if you establish a company with other shareholders and the company later incurs business debts, the company’s obligations are generally separate from the personal obligations of its shareholders, subject to the law and the particular circumstances of the case.

Private companies also have restrictions on the transfer of their shares and cannot invite the public to subscribe for their shares or debentures.

For many privately owned businesses, this structure provides a practical framework for operating as a separate legal entity.

2. Public Company

A public company is generally used for businesses that have a wider ownership structure and may seek to raise capital from the public.

A public company can invite the public to subscribe for its shares, subject to applicable legal and regulatory requirements.

Public companies are therefore associated with larger corporate structures and businesses seeking access to broader sources of investment capital.

However, becoming a public company also comes with additional regulatory, reporting and corporate governance obligations.

It is therefore important to understand the implications before choosing this structure.

3. Company Limited by Guarantee

A company limited by guarantee is designed for purposes other than making profits for distribution to its members.

This structure may be suitable for organisations established for purposes such as promoting education, social development, research, charity or other purposes recognised by law.

Instead of having shareholders holding shares, members undertake to contribute a specified amount towards the company’s liabilities if it is wound up.

An important feature is that the income and property of the company are applied towards promoting its objects rather than being distributed to members as profits.

This makes the structure different from an ordinary company limited by shares.

4. Unlimited Company

As the name suggests, an unlimited company does not provide members with the same limitation of liability associated with a company limited by shares.

If the company is wound up and its assets are insufficient to meet its liabilities, members may be required to contribute towards the company’s debts, subject to the applicable provisions of CAMA.

Because of the potential exposure involved, this structure is less commonly encountered than private companies limited by shares.

It should not be selected simply because it is available. The implications should be properly understood before registration.

5. Incorporated Trustees

Incorporated Trustees are not a type of company.

They are a separate form of legal structure recognised under CAMA and are commonly used by organisations formed for religious, educational, cultural, charitable, social or other non-profit purposes.

Churches, clubs, foundations and associations may use incorporated trustees where the structure is appropriate to their objectives.

An organisation registered as incorporated trustees operates differently from a company limited by shares and should not be treated as an ordinary business company.

Why Does the Choice of Structure Matter?

Choosing a company structure is not simply a registration formality.

The structure you choose can affect several aspects of your organisation, including:

Liability

Different structures provide different levels and forms of protection for members.

Ownership

The way ownership and membership are structured depends on the type of entity.

Fundraising

A business intending to raise capital from investors may have different considerations from a small privately owned business.

Governance

Different structures can have different requirements concerning directors, members, meetings, reporting and administration.

Profit Distribution

A company established to operate for profit has different considerations from a non-profit organisation whose income is applied towards its objects.

Long-Term Growth

The structure that works for a small business today may not necessarily be the structure that best accommodates its future plans.

The Common Mistake: Choosing Based Only on Cost

One mistake business owners can make is choosing a structure simply because it appears cheaper or easier to register.

The better question is:

What do you want this organisation to become?

For example, a founder establishing a small privately owned business may have different needs from an entrepreneur planning to bring in several investors and eventually access public capital markets.

Similarly, an organisation established for charitable or religious purposes may require a different structure altogether.

The registration decision should therefore take both the present needs and long-term objectives of the organisation into account.

Which Company Structure Is Right for You?

There is no single structure that is appropriate for every organisation.

A business owner should consider factors such as:

• The purpose of the organisation;
• Number and nature of owners or members;
• Whether profits will be distributed;
• The level of liability protection required;
• Future investment plans;
• Governance requirements;
• Regulatory obligations; and
• Long-term growth plans.

Getting the structure right at the beginning can help prevent unnecessary complications later.

Final Thoughts

Registering a business with the CAC is an important step, but choosing the appropriate legal structure is just as important.

Whether you are establishing a startup, growing an existing business, creating a non-profit organisation or setting up a larger corporate venture, understanding the available structures under CAMA 2020 can help you make an informed decision.

Don’t choose a company structure simply because it is the cheapest or most popular option. Choose based on what your organisation is actually designed to do and where you intend to take it.