Business Structures

 So I heard you finally want to start your business. You’ve completed the necessary planning and you decided that you would actualize your action plans for real. Great stuff!

Before you jump right into monetizing your SKILLS AND God-given talents, I thought it’d be nice for you to consider the following:

Hmmmm…, lest I forget, let me share these two short stories with you before we delve into the main gist.

While Mr. Keke Louka was at his bankrupt customer’s house to deliver some goods, he overheard his customer talk with some “lawyerman” that he was grateful that his now insolvent business was in the form of a “ limited liability company”, otherwise his debtors would have come to strip him of all his personal properties. At this new revelation, Mr. Keke took all he heard at a literal value and rushed to his printer requesting that he make a new signboard and add the word “COMPANY” to the name of his “general merchandise”. He wanted to be certain that his own personal properties were safe in case of adverse circumstances. Two years down the line, he was personally slammed with a lawsuit by his creditors and the court went ahead to attach his “personal properties” after exhausting the assets of the business. He could not believe his eyes.

Again, one Pokuwa Donda, along with his red eyes came to his lawyer to lament how he could not wrap his head around the fact that his trusted “ business collaborator”, Maathai Bundu, suddenly pulled out of their two-year-old toddler business! And by pulling out, Maathai actually took the most important machinery that their business could boast of. Pokuwa did not even know that Maathai had bought the machinery for the business venture. How could he deal their business and their reputation such a huge blow?

Using the above scenarios as reference points- as we will revisit these stories every now and then in the course of this article series-, I’d start by highlighting that it is important to understand your business needs so as to choose the business structure that meets those needs. Mind you, no single business structure can entirely meet all your business needs.

We have three basic types of For-Profit Structures:

• Sole Proprietorship
• Partnership and,
• Registered Companies.

It is very important to understand the legal and business implications of the business structure that your for-profit will eventually take.

Let us take the SOLE PROPRIETORSHIP STRUCTURE as an example, any person that adopts this business structure is a sole trader that does business on his own. It is the default setting of most business enterprises in Nigeria, and I daresay the world.

These business people trade and render services on their own.

He or she basically calls the shots, I mean, (s)he makes all the decisions as regards the business.

Unfortunately, this is the structure of Mr. Keke Louka’s business although he wanted his “General Merchandise” to enjoy the benefits of an incorporated company.

A sole proprietor enjoys the benefit of taking all the juicy gains for himself; but then, he alone bears all the risks and losses that come with business. Like you would have noticed, once Mr. Keke went down the drain, the business also got lost.

A sole proprietor takes all the praise, blames, profit, extras, and liabilities, etc. that come with the business.

Now, no law in Nigeria bars a sole proprietor from employing as many employees as he wants. Really, Mr. Keke does not necessarily have to register his sole proprietorship business; but if he ever decides to, he may approach a lawyer to register under PART B of the Companies and Allied Matters Act, 1990. This legislation regulates issues pertaining to companies and other business structures in Nigeria.

Another thing that is worthy of note is that, if Mr. Keke Louka is a medical practitioner or an Accountant (any profession requiring formal qualification and certification), he must be professionally qualified to do so, otherwise, he is free to venture into any business of his choice.

The next type of structure you may consider is a PARTNERSHIP with another person.

I have discussed it in my partnership article.