Should your startup be limited by shares or not?
Well, it depends.
There are different categories of companies and your startup can be registered as any of them in Nigeria.
We have the Company limited by shares, Company Limited by guarantee, and the Unlimited Company.
A Company limited by shares is a company that has the liability of its members limited to the extent of their shares or financial contributions to the company.
To this end, upon failure of the company or winding up, the shareholders’ profits or liability would be limited to the number of shares they have in the company.
This means that the personal properties of the founders will not be used to offset the liability of the company.
A Company Limited by guarantee on the other hand is a company that is formed for charitable purposes such as the promotion of art, culture, education, research, charity, religion, etc.
An Unlimited Company is more or less like a partnership where the liability of members is unlimited upon liquidation of the company.
For the purpose of this article, we shall be focusing on companies limited by shares.
Such a company could be a private company or a public company and the shareholders will be either private individuals or companies.
A startup registered as a private limited liability company will not make an open call to the public to subscribe to its shares.
But if the startup goes public just as Jumia did, it will then be able to call the public for the subscription of its shares and will be registered under the Security and Exchange Commission (SEC) of the country where the company is listed.
What are the characteristics of a startup registered as a Company Limited by Shares?
A company of this nature can be easily identified with the following characteristics;
a. The Memorandum and Article of Association clearly identify the company as a Company limited by shares.
b. The Company can only accommodate two to fifty shareholders.
c. The name of the company must end with Limited to differentiate it from the Public companies which end with PLC.
e. It must have a secretary. Under the new CAMA, the secretary need not be a professional with qualifications and experience in company secretarial duties.
What are the advantages of registering your startup as a Company Limited by Shares?
The most significant benefit of this kind of company is that the directors’ and shareholders’ obligations to pay for business debts are restricted to the value of their shares.
This means that their personal assets-property, cars, finances are secured and cannot be used if the startup fails or becomes insolvent.
Also, this type of company enjoys tax incentives for the First Eighteen Months after Registration.
How many people Do You Need To Set up a company limited by shares?
Under the new Company and Allied Matters Act(CAMA), there must be at least one director and one shareholder. Although, the director and shareholder may be the same person. But 2 to 50 is the ideal number.
Having more people join your start is a good idea as you will not only have more money to set things up but more robust ideas that can help you run and scale things faster.
Who can own a company limited by shares?
Any person or a corporate body can own such a company. The owners are known as the shareholders, members, or subscribers and they will appoint directors to run the day-to-day activities of the company.
However, in practice, the shareholders are often the directors of the company.
In conclusion, a startup registered as a company limited by shares is one of the easiest companies to manage as the shareholders are not much and can be easily controlled.