Choosing Between Sole Proprietorship & Limited Liability Company
By Ted Iwere
Choosing between registering your small business as a sole proprietorship or a limited liability company (LLC) is not as easy as it seems.
The right choice for your business may differ from that of another business.
This is why it’s important to understand what these terms mean, their legal implications and difference.
This article takes a quick look at these often confusing concepts to help you make the right choice for your business.
So keep reading!
A Sole Proprietorship is a one-man business.
That means that the business has a single owner, who takes all the risks and profits.
It is the most popular form of business structure among small businesses in Nigeria.
Legally, a sole proprietor is registered as a business name (BN) and is regarded as the same with his or her business.
Hence, when the business suffers a loss or lawsuit, the owner and his or her personal assets are not protected from such events.
One advantage of a sole proprietorship is that it is cheaper and simpler to form.
For instance, the documents CAC may need for registering a limited liability company is more than what it needs for registering a sole proprietorship.
But, a limited liability company means that the liability of the business is limited to the assets of the business.
A limited liability company can be limited by shares or by guarantee depending on whether they’re a for-profit or a non-profit entity.
This is the biggest advantage of registering your business as an LLC.
The business owner(s) enjoy legal protection in the case of loss or lawsuit.
This is because the law recognizes any business registered as an LLC as a separate legal entity from its owners.
Registering as a limited liability company makes it easier for clients and customers to do business with you.
Because they are seen as credible due to the rigorous legal formalities they have to undergo.
But it also means that it’s more expensive and complicated to register (e.g higher annual fees, filing requirements and costs).
So, which is the best choice for your business?
The right choice between sole proprietorship and LLC depends.
It depends on whether your business is a low or high-risk business.
A low-risk business has little exposure to lawsuits compared to a high-risk business.
Or whether you prioritise getting your business registered as fast as possible over protecting your assets.
The best way to get the right answer for your specific business is to consult an expert for a one-on-one evaluation.
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