Starting a business in Nigeria involves several important steps, one of which is registering the business with the Corporate Affairs Commission (CAC).
As you go through this process, you may encounter two key terms that can be confusing to new business owners: ‘BN’ and ‘RC.’ These two prefixes are significant because they identify the type of business entity that is registered.
BN vs. RC: Understanding the Differences in Nigerian Business Registration
This blog will explore the differences between ‘BN’ (Business Name) and ‘RC’ (Registered Company), what they mean, and how they affect the legal and operational aspects of your business.
Understanding ‘BN’ (Business Name)
What is a Business Name?
A Business Name (BN) is the legal name under which a sole proprietor or a partnership operates. It is suitable for individuals who want to run small businesses or partnerships without the complex structure and formalities required by registered companies.
A business name registration ensures that the business is recognized under Nigerian law and provides some legal protection for the name.
Who Should Register Under a Business Name (BN)?
- Sole Proprietors: If you are running a one-man business without a formal corporate structure, registering under a Business Name is the ideal path.
- Partnerships: Small businesses with two or more individuals operating as partners can also register under a Business Name.
- Freelancers and Small Traders: Individuals providing freelance services, artisans, and small-scale traders typically register under a Business Name.
Key Characteristics of a Business Name (BN):
- Less Formal Structure: Business Name registration doesn’t require formalities like board meetings, company secretary, or annual filings.
- Unlimited Liability: Owners of businesses registered under a BN are personally liable for the debts and obligations of the business.
- Low Registration Cost: The process of registering a Business Name is simpler and cheaper compared to registering a company.
- Ownership: The business is owned and managed by the individuals registered under the BN, and they are responsible for all aspects of the business.
- Non-Separate Legal Entity: A business name is not a separate legal entity. This means the business cannot sue or be sued in its name – all liabilities rest on the owners.
Example of a BN Registration Number:
If you register a business name, you will receive a number like BN 123456, which identifies your business as a sole proprietorship or partnership.
Understanding ‘RC’ (Registered Company)
What is a Registered Company (RC)?
A Registered Company (RC) refers to a corporate entity such as a Private Limited Company (Ltd), a Public Limited Company (PLC), an Unlimited company, or a Company Limited by Guarantee. These are formal business structures recognized under the Companies and Allied Matters Act (CAMA) 2020, and they offer more legal protection and operational flexibility compared to a BN.
Who Should Register Under a Registered Company (RC)?
- Private Limited Companies (Ltd): Entrepreneurs who want to establish a more formal and scalable business structure should register a private company limited by shares.
- Public Limited Companies (PLC): Larger businesses aiming to raise capital through public offerings are registered as public limited companies.
- Non-Profit Organizations (Companies Limited by Guarantee): Companies that focus on non-profit activities, such as charities, may register as companies limited by guarantee.
- Unlimited Companies: Businesses that prefer not to limit the liability of their shareholders in the case of insolvency should register as unlimited companies. This structure may be suitable for entities that want more freedom in capital structure without the protection of limited liability.
Key Characteristics of a Registered Company (RC):
- Separate Legal Entity: A registered company is a separate legal entity from its owners (shareholders). It can own property, sue, and be sued in its own name.
- Limited Liability: The liability of the owners is limited to the amount of capital they have invested in the company.
- Corporate Governance Requirements: Companies are required to have formal governance structures, such as appointing directors, holding annual general meetings, and filing annual returns with the CAC.
- Higher Costs and Formalities: Registering and running a company involves higher costs and more administrative responsibilities than registering a business name.
- Continuity: A company continues to exist even if the owners or shareholders change, providing more continuity compared to a business name.
Example of an RC Registration Number:
When you register a company, you will receive a registration number like RC 123456, identifying your business as a registered company under Nigerian law.
Key differences between BN and RC
Now that we've outlined the basics of each registration type, let's compare them directly:
Legal Status:
- Business Name (BN): Not a separate legal entity from the owner(s), meaning the business and the owner are legally the same.
- Registered Company (RC): A distinct legal entity, separate from its shareholders and directors.
Liability:
- BN: Owners have unlimited personal liability, meaning their personal assets can be used to settle business debts.
- RC: Shareholders enjoy limited liability, only responsible up to the amount they’ve invested in the company.
Ownership:
- BN: Suitable for sole proprietors or partnerships, typically owned by one or a few individuals.
- RC: Can be owned by multiple shareholders, including private or public companies.
Management:
- BN: Managed directly by the owner(s) with minimal corporate structure.
- RC: Managed by directors and shareholders, adhering to corporate governance structures.
Registration Complexity:
- BN: Simpler and less costly to register, with fewer documentation requirements.
- RC: Requires more complex registration, including the preparation of Memorandum and Articles of Association.
Taxation:
- BN: Business income is generally taxed as personal income, with fewer corporate tax obligations.
- RC: Companies are taxed separately and may be subject to corporate tax rates, including other company-specific taxes.
Continuity:
- BN: The business ceases to exist upon the death of the owner or dissolution of the partnership.
- RC: Has perpetual existence, continuing even when ownership changes or shareholders pass away.
Ownership Transfer:
- BN: Transferring ownership can be complex, potentially requiring re-registration.
- RC: Shares can be easily transferred between individuals, and the company itself remains unaffected.
Funding Options:
- BN: Limited to personal funds or loans, making it difficult to scale quickly.
- RC: Can issue shares, bonds, and access a wider range of funding options, including venture capital or public offerings.
Administrative Burden:
- BN: Generally has lower administrative requirements, with minimal annual filings.
- RC: Involves higher administrative responsibilities, including annual filings, audits, and compliance with corporate governance standards.
Privacy:
- BN: Offers greater privacy, as less information about the business and its owner(s) is publicly disclosed.
- RC: Requires more transparency, including the public disclosure of company information such as directors, shareholders, and financial records.
Scalability:
- BN: Best suited for smaller-scale operations with limited growth potential.
- RC: Ideal for businesses aiming to grow, attract investors, and expand operations.
Comparing BN and RC at a Glance
This table provides a quick comparison of the main features distinguishing Business Name (BN) from a Registered Company (RC):
| Feature | Business Name (BN) | Registered Company (RC) |
|---|---|---|
| Legal Status | Not a separate legal entity | Separate legal entity |
| Liability | Unlimited personal liability for owners | Limited liability for shareholders |
| Ownership | Sole proprietorship or partnership | Owned by shareholders |
| Management | Managed by owner(s) | Managed by directors and shareholders |
| Registration Complexity | Simpler and less costly | More complex and expensive |
| Taxation | Taxed as personal income | Subject to corporate tax rates |
| Continuity | Dissolves upon owner’s death | Perpetual existence |
| Ownership Transfer | Can be complex, may require re-registration | Shares can be easily transferred |
| Funding Options | Limited to personal funds or loans | Can issue shares, bonds, and access wider funding |
| Administrative Burden | Lower, minimal formalities | Higher, with mandatory annual filings and audits |
| Privacy | Greater privacy of business information | Requires more public disclosure |
| Scalability | Limited growth potential | Ideal for businesses seeking growth or investors |
BN vs RC: Which One Should You Choose?
Choose a Business Name (BN) if:
- You are starting a small-scale business or a one-man business.
- You do not require the formalities and obligations of a company.
- You are comfortable with taking personal responsibility for the debts and liabilities of the business.
- You want to start with minimal capital and keep overhead costs low.
Choose a Registered Company (RC) if:
- You want to create a formal business structure with limited liability.
- You are planning to scale your business, attract investors, or raise capital.
- You need a separate legal entity that can enter contracts, sue, or be sued in its own name.
- You are involved in high-risk ventures and want to limit your personal liability.
Conclusion
Understanding these distinctions helps ensure that you choose the correct registration type for your business, aligning with legal requirements and your business goals.
For professional assistance in registering your business, whether as a sole proprietorship, partnership, or limited liability company, consult with accredited CAC consultants to streamline the process and ensure compliance with all legal requirements.
