A Private Company Limited by Shares (Ltd), commonly referred to as a Private Limited Company or Ltd, is a type of corporate structure that offers numerous benefits to entrepreneurs, small businesses, and startups.

It offers a flexible, yet structured framework for small and medium-sized enterprises (SMEs) and family-owned businesses.

Uncovering the True Characteristics of Private Limited Companies

This article explores the key characteristics and features of this type of company, as defined by the Companies and Allied Matters Act (CAMA) 2020.

What is a Private Company Limited by Shares (LTD)?

A Private Company Limited by Shares (Ltd) is a corporate entity that operates as a separate legal entity from its directors and shareholders. As a distinct legal person, it can enter contracts, own assets, sue, and be sued in its name. This separation provides a significant advantage in terms of liability and continuity.

The term "limited" refers to the limited liability of the shareholders, meaning they are only responsible for the company's debts up to the amount unpaid on their shares. Their personal assets are not at risk in case the company faces financial difficulties.

In Nigeria, Private Limited Companies are governed by the Companies and Allied Matters Act (CAMA) 2020 and are a popular choice for small and medium-sized enterprises (SMEs) due to the protection and flexibility they offer.

Basic Characteristics of a Private Company Limited by Shares in Nigeria

This table reflects the regulatory requirements for Private Limited Companies in Nigeria under the Companies and Allied Matters Act (CAMA) 2020.

 

CharacteristicsDescription
ShareholdersMinimum number of shareholder(s) – 1
Maximum number of shareholders – 50
Board of DirectorsMinimum number of director(s) – 1
Authorized Share CapitalMinimum share capital of ₦100,000 (Private Limited Company)
Paid-Up CapitalPaid-up capital required at incorporation (must not be less than 25% of the authorized share capital)
Board MeetingsMinimum of 4 board meetings per year (quarterly)
Annual General MeetingsMust hold at least one AGM annually within 15 months of the previous AGM
TaxationSubject to Companies Income Tax (CIT) at 30% on profits exceeding ₦100 million; CIT rate is reduced to 20% for companies with profits between ₦25-₦100 million. Companies below ₦25 million are exempt from CIT.
Naming RequirementsThe company name must be unique, must include "Limited" or "Ltd," and cannot conflict with existing names. It must comply with CAC's guidelines on business names.
Forms Required For RegistrationForm CAC1.1 (Application for Registration), Form CAC2.5 (Particulars of Directors), Form CAC2.3 (Particulars of Shareholders), and other incorporation forms as required by CAC.
Public DisclosureBasic information on directors, shareholders, and the company’s address must be submitted to the Corporate Affairs Commission (CAC) and is publicly accessible.
Transfer of SharesShares are not freely transferable; the transfer is restricted and subject to approval by existing shareholders.
Financial ReportingMust file annual financial statements with the CAC, even if the company is inactive.
Employment ObligationsMust register for the Pay-As-You-Earn (PAYE) system for income tax and comply with National Pension Commission (PENCOM) regulations if there are employees.
See also  Requirements for starting a Guarantee Company

 

Key Features of a Private Company Limited by Shares

The Companies and Allied Matters Act (CAMA) 2020 introduces several provisions and reforms that affect the formation, operation, and governance of Private Companies Limited by Shares (LTD). Below are key aspects of Private Companies Limited by Shares as defined by CAMA 2020:

 

1. Minimum Shareholders and Directors

  • Shareholders: CAMA 2020 maintains that a Private Company Limited by Shares can be incorporated with a minimum of one shareholder and a maximum of 50 shareholders. Introducing the One-Person Company (OPC) under CAMA 2020 allows individuals to register a company as a sole shareholder.

  • Directors: A private company must have at least one director, though larger companies can have up to 15 directors. This helps streamline management, especially for small businesses.

 

2. Limited Liability

The liability of shareholders is limited to the amount unpaid on their shares. This means that the personal assets of shareholders are protected, and their exposure is only to the extent of their investment in the company. 

 

3. Separate Legal Personality

A Private Company Limited by Shares continues to have its own legal identity, separate from its shareholders. This ensures that the company can:

  • Own property.
  • Enter into contracts.
  • Sue and be sued in its name.

CAMA 2020 reaffirms this principle, solidifying the company's ability to operate independently of its owners.

 

4. Perpetual Succession

A Private Company Limited by Shares enjoys perpetual succession. This means that the company’s existence is not dependent on its shareholders, directors, or members. The company continues to exist even if ownership changes due to death, insolvency, or retirement.

 

5. Minimum Share Capital

CAMA 2020 stipulates a minimum issued share capital of ₦100,000 for Private Companies Limited by Shares. This represents a decrease from the previous requirement, making it easier and more affordable for small businesses to incorporate.

 

6. Restrictions on Public Offers

Private companies are prohibited from offering their shares or debentures to the general public. This restriction ensures that the company remains privately owned and controlled by a smaller group, protecting it from the complexities and regulations associated with public companies.

 

7. Transfer of Shares

The transfer of shares in an LTD is typically restricted. Shareholders are required to obtain approval from other members or directors before transferring shares to non-members. This restriction maintains the company's private nature and gives existing shareholders control over new ownership.

See also  Company Membership under the Nigerian Law

 

8. No Requirement for an Index of Members

A Private Company Limited by Shares is not required to maintain an index of members under CAMA 2020. This provision reduces the administrative burden on small companies, as public companies must maintain such records.

 

9. Company Secretary

CAMA 2020 makes the appointment of a Company Secretary optional for private companies. This provision offers flexibility to small businesses that may not require a full-time company secretary, but it is still mandatory for public companies.

 

10. Annual General Meeting (AGM)

Under CAMA 2020, small private companies (with a turnover of less than ₦120 million and net assets of less than ₦60 million) are exempt from the requirement to hold an Annual General Meeting (AGM). This reduces the regulatory burden on small businesses, allowing them to focus on operations rather than formal meetings.

 

11. Filing of Annual Returns

Private companies are still required to file annual returns with the Corporate Affairs Commission (CAC). However, the introduction of electronic filing under CAMA 2020 makes the process more efficient, allowing for easier compliance with regulatory requirements.

 

12. MEMART (Memorandum and Articles of Association)

The MEMART is a foundational document for companies. The Memorandum outlines the company’s objectives and powers, while the Articles govern the internal management, responsibilities of directors, and the relationship between shareholders and directors.

 

13. Name Suffix

The company name must end with the word "Limited" or the abbreviation "Ltd."

Benefits of a Private Company Limited by Shares

Incorporating as a Private Limited Company offers several key advantages:

  • Limited Liability: Shareholders' assets are protected from business liabilities. If a private limited company is in financial trouble and has to wind up, shareholders would not risk losing their assets.

  • Separate Personality: Once a private company is incorporated, it becomes an independent legal entity that can sue and be sued and own assets separate from that of the company's owner(s).

  • Credibility: People perceive your business to be professional and trustworthy and can lead to better business relationships, increased customer trust, and improved opportunities for collaboration.

  • Raising Capital: Private Limited Companies can raise capital through the issuance of shares to shareholders. This can provide a stable source of funding for business growth and investment.

  • Credit Availability: This type of company is regarded as a corporate entity that draws in various venture capitalists and angel investors who support and help the company to raise more funds and expand its business.

  • Transfer of ownership: It is relatively simple to transfer the ownership of a company from one shareholder to another. A partial or complete transfer of ownership can be effected by selling all or part of the existing shares, or by issuing new shares to a new shareholder.

  • Name Protection: No two limited company names can be the same. Incorporating a limited company prevents anyone else from taking your company name (fraudulently or coincidentally).

  • Perpetual Existence: Unlike sole proprietorships or partnerships, a private limited company enjoys perpetual existence. The company exists in the eyes of law even in the case of death, insolvency, or bankruptcy of any of its members. 

  • Tax Exemption: Small businesses with an annual turnover of less than N25 million are exempted from paying Company Income Tax in Nigeria.

Requirements for Registering a Private Limited Company in Nigeria

Here are the requirements for Incorporating a Private Company Limited by Shares with the CAC:

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  • Proposed Company Names: At least two (2) options (1st choice and alternative).

  • Business Objectives: Description of the company's nature and objectives.

  • MEMART: Memorandum and Articles of Association outlining company structure and regulations

  • Particulars of Shareholders, Directors, and Company Secretary: The names, address, occupation, date of birth, distribution of shares amongst the shareholders, a government-issued means of identity, as well as electronic signature of shareholders, directors, and company secretary are required for incorporating a company.

  • Share Capital: Minimum authorized share capital of atleast ₦100,000.

  • Registered Office Address: Proposed company office location.

Conclusion

A Private Company Limited by Shares offers a balance of limited liability, professional credibility, and flexibility in ownership and management.

While it comes with increased regulatory responsibilities compared to simpler business structures, it provides a solid foundation for businesses looking to grow and attract investment while maintaining control over ownership.

Register your Private Company Limited by Shares (LTD) in Nigeria

Here's how SplashDict's team of CAC-accredited consultants can help:

  • Company Registration: Nigerian Private Company Limited by Shares Registration with the CAC.
  • Documentation Preparation: Our experts handle all necessary registration documents.
  • Business Name Search and Reservation: We check availability and secure your desired company name.
  • CAC Filing Fee Included: No hidden costs, everything is included in the package price.
  • First Board Meeting Minutes Provided: We will prepare the legally required meeting minutes for your first board meeting.
  • Submission and Processing: We ensure all requirements are met and manage the submission process for efficient approval by the CAC.
  • Tax Identification Number (TIN) Assistance: Issued upon incorporation.
  • Essential Documents Delivery: Receive your Certificate of Incorporation, Approved Memorandum & Articles of Association (MEMART), and Status Report.
  • Company Secretarial Support: Ongoing assistance with statutory requirements and filings.
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