Choosing the right corporate structure is crucial for success when establishing a business. One popular option is a Private Company Limited by Shares, commonly referred to as LTD.
It is a legal entity where ownership is divided into shares, and shareholders' liability is limited to their shares' value. This structure offers numerous advantages for entrepreneurs, small and medium-sized businesses, and those seeking a formal yet flexible corporate framework.
Understanding Private Limited Company (LTD) under CAMA 2020
In this article, we will delve into the world of LTD companies, exploring their characteristics, advantages, and obligations.
What is a Private Company Limited by Shares (LTD)?
A company limited by shares is a corporate entity that is legally separate from any directors and shareholders. As it can stand alone as a legal entity, it can enter contracts as a company and hold assets in its name.
The word limited here refers to the shareholders' limited liability. They are only responsible for any company debts up to the value of their shares within that company. No personal assets are at risk.
Companies limited by shares require high transparency. This inspires trust from the public – partners, clients, and customers – and makes your company seem more legitimate.
However, it also requires that any company officers, directors, shareholders, and finances are all placed on the public record. This includes the full name, home address, and date of birth of the director, plus the full name and address of any shareholders.
Key Characteristics 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.
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:
Requirements for Registering a Private Limited Company in Nigeria
Here are the requirements for Incorporating a Private Company Limited by Shares with the CAC:
Understanding Shareholding and how shares are issued
When a company limited by shares is incorporated, at least one share must be issued; the number of shares allotted to shareholders affects the distribution of dividends, voting rights in shareholder meetings, as well as the extent of shareholders’ liability, should the company enter insolvency proceedings.
Additional shares can be issued at a later stage in the event of a new business partner joining the firm, or to secure investment. Shareholding percentages can also be altered to reflect a change in ownership through the transfer and re-allotment of existing shares.
LTD Obligations and Requirements
- Registration: Register with the relevant authorities (e.g., CAC in Nigeria).
- Memorandum and Articles of Association: Document outlining company objectives, structure, and rules.
- Annual Returns: File annual financial statements and reports.
- Accounting and Auditing: Maintain accurate financial records and undergo audits.
- Compliance with Laws and Regulations: Adhere to relevant laws, regulations, and industry standards.
- Shareholder Meetings: Hold regular meetings to ensure shareholder involvement.
LTD Formation Process
The general process of forming a Private Company Limited by Shares typically involves:
- Choosing a unique company name
- Appointing directors and a company secretary (if required)
- Identifying shareholders and allocating shares
- Creating Articles of Association (company constitution)
- Registering the company with the appropriate government agency (e.g., CAC in Nigeria)
- Obtaining necessary licenses and permits
Public v Private Limited company
A company limited by shares can take one of two forms: a public limited company, or a private limited company. The main difference between the two structures comes down to how their shares can be sold and traded.
As the name suggests, a public company trades publicly and can sell its shares to the general public and trade on the stock exchange. A private company on the other hand is only able to sell its shares to interested investors. The vast majority of start-ups are incorporated as private limited companies.
Examples of Private Limited Companies
Here are some examples of categories where a Private Limited Company by shares can be established:
- Technology and Software: Tech startups, software development firms, app creation companies.
- Retail and E-commerce: Traditional retail stores, online e-commerce platforms.
- Manufacturing and Production: Food, beverages, textiles, consumer products.
- Healthcare Services: Private clinics, medical laboratories, healthcare service providers.
- Real Estate and Construction: Real estate development and property management firms.
- Financial Services: Banks, insurance companies, investment firms, other financial services providers.
- Entertainment and Media: Production companies, record labels, media outlets.
- Agriculture and Agribusiness: Farms, agricultural processing plants, agribusinesses.
- Logistics and Transportation: Logistics companies, transportation providers, freight forwarding businesses.
- Hospitality and Tourism: Hotels, resorts, travel agencies.
- Consulting and Professional Services: Legal, financial, business consulting firms.
- Education and Training: Educational institutions, training centers.
These examples showcase the broad applicability of a Private Limited Company by shares across various industries, making it a preferred choice for many entrepreneurs and business owners.
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:
