Type of Company

Advantages

Disadvantages

Private Company Limited by Shares

–          Limitation of liability to the amount of unpaid allotted shares held by each shareholder.

–          A separate legal entity from that of the members, can own property, sue and be sued.

–          Greater control of the affairs of the company due to fewer members.

·   Restriction on the transfer of shares – the offer of the company’s shares cannot be made to the public via prospectus and is subject to the pre-emptive rights of existing shareholders (the company must first offer new shares to be issued to existing shareholders in proportion to their shareholding).

–          Membership cannot exceed fifty (50).

–          The shares cannot be listed on the Nigerian Stock Exchange.

Public Company Limited by Shares

–        Limitation of liability to the amount of unpaid allotted shares held by each shareholder.

–          Shares can be issued to the public via prospectus and listed on the Nigerian Stock Exchange, thus allowing the company to raise large amounts of capital.

–      Shares are freely transferable which provides liquidity for shareholders.

–      Separate legal entity from that of the members, can own property, sue and be sued.

·   Less control on the affairs of the company due to a larger number of members.

–          Potential for mismanagement and slow decision making due to large number of members.

–          Highly regulated, routinely requiring the consent of the Securities and Exchange Commission to carry out its activities.

–          More vulnerable to takeovers.

Unlimited Company

–          Less regulated as they are not required to file copies of their accounts with the Corporate Affairs Commission (“CAC”).

–          Insolvency is less likely because the members or shareholders are jointly and severally responsible for the company’s assets.

–          The liability of the shareholders is unlimited, therefore exposing shareholders to undetermined and potentially vast liability in the event that the company runs into debt.

–          More suitable for non-commercial concerns, such as political associations.

Company Limited by Guarantee

·   A separate legal entity from that of the members, can own property, sue and be sued.

·   Enjoys exemption from taxes and duties on all income, provided that the income is not generated from trading activities (please note that the members are liable to pay personal taxes).

·   Liability of members is limited to the amount which they guarantee in the Memorandum of the company to pay in the event of the company’s winding up.

·   Profits made by the company cannot be shared among its members.

·   Usually incorporated for non-profit objectives. May however be incorporated for profit but will not enjoy tax exemptions in this case.

·   Longer incorporation process as the CAC is required to refer the Memorandum of such companies to the Attorney-General of the Federation for approval.