Generally, Limited Liability Companies are regarded as being more advantageous than business names. In reality, they both have advantages and disadvantages over each other. However, LLCs have more advantages over BNs in several respects. Many of these advantages will be considered in this article under the following headings: CAC Matters, Tax Matters and Status.
Advantages of LLCs over BNs
CAC Matters
1. LLCs come with Tax Identification Numbers (TIN) at registration. This is contained at the bottom of the certificate of incorporation of LLCs. The purpose of the TIN is primarily to identify the company for tax purposes and to enable it open a bank account. BNs when registered do not come with TINs. Owners of BNs would have to apply manually for their business TINs at the nearest FIRS office.
2. LLCs have the advantage of combining several and varying objects in their memorandum and articles of association for registration. Presently, these objects can be as lengthy as 10 or more sentences. Furthermore, LLCs can combine different and associated types of businesses; for instance, it is possible to combine agriculture, civil engineering, trading, import and export, security etc. under the same company registration. Whereas, BNs are limited in the number of businesses that they can combine, and they are only limited 1 to 3 lines.
3. Every business can be registered under LLCs. Not so for BNs. For instance, businesses like Clearing and forwarding, Security, Banks, Travel Agencies etc. can only be registered as LLCs.
4. LLCs can form a conglomerate or group of companies. Three or more companies can be combined together to form a separate company called a group. This is only possible with LLCs. BNs cannot.
5. LLCs enjoy better continuity than BNs. While BNs often die with their owner(s), LLCs usually last far longer than their original owners or promoters.
Tax Matters
6. The assessed taxes of a company are different from those of its members. Companies are taxed differently from their owners. Whereas, the taxes of BNs are one and the same with those of their owners. We will see the reason shortly.
7. Owners of LLCs can hide their incomes and properties within the companies. This is done in order to avoid paying taxes on the properties. The ownership of the property is stated to belong to the company and stated as an expense in the statement of affairs of the company, thus, reducing the taxes paid on the property. Under BNs, all the properties and income of the business are attributed to the owners. In other words, whatever a BN owns belongs to its owner.
Status
8. A company is different from its owners. It is considered as a separate entity, personality or organism from its members. This is why a company’s tax liability differs from those of its owners. Whereas, the status of a BN is that of its owner. They are one and the same under the law. This is why a contract entered in the name of the BN is as good as being entered by its owner.
9. Following from the above is that, LLCs can sue and be sued in their names. They don’t need to sue in the name of their directors or members. Whereas, a BN must necessarily be sued in the name of its owner.
10. LLCs can borrow money in the name of the company. BNs cannot. For BNs, the owners must necessarily put down their names as the debtors or borrowers, and must pay back in full when there is a default. Because LLCs borrow in the name of the company, the owners are only liable to the number of shares that they hold in the company. This is why they are called limited liability companies.
Advantages of BNs over LLCs
CAC Matters
1. BNs are generally cheaper to register than LLCs. Registration of BNs does not involve payment for stampduty or share capital.
2. Again, filing Annual returns for BN is cheaper and simpler than that of LLCs. Apart from the higher cost involved, LLCs may also need to present a formal statement of affairs for filing.
3. Changing of the nature of business for BN is far easier than that for LLCs. To change the objects in BNs, the owners need only make a simple application which can be done electronically via the CAC’s Company’s Registration Portal (CRP) and get it effected almost immediately. Whereas, changing the objects under LLCs involves a manual and long procedure which includes sending the documents to the CAC head office in Abuja. Apart from that, the process is not fast. It may take several months. (Of course, this is an administrative bottleneck on CAC’s part). This makes the cost far cheaper for BN than LLCs.
4. Generally, Post incorporation matters are easier to effect under BN and LLCs. The main reason is because BNs are not different from their owners. They can decide to do what they like with the business without accounting to anyone. Whereas, LLCs must hold general or special meetings and file company resolutions before any change can be effected.
Tax Matters
5. Tax filings by BNs are not complicated, for the very reason that the owners are not different from the business. They only need to file one tax return for themselves and the business. Whereas, companies must file tax returns, and render PAYE returns for their employees.
Status
6. As already explained, BN is not different from its owner. As such it is much easier to operate a BN than an LLC. The owner of a BN owns everything about the business and does not need to consult anybody before making any decision, whereas the owners of an LLC do not necessarily manage the company and must therefore consult the owners before making any major decision. In the same vein, calculation of income of BN is far easier than that for the LLC, because the income of the BN is that of its owner. However, the income of an LLC is different from that of its owners.
7. Generally, BNs do not require registration with Special Control Unit against Money Laundering (SCUML). But for LLCs, it is now a general prerequisite for operation and opening of a bank account.
Articles on this site are meant for general knowledge only, not as professional advice. If you need personal advice on matters contained herein, you are advised to contact a professional.
We are a firm of legal practitioners and CAC certified agents. We help business owners, entrepreneurs and associations register their businesses, companies and associations with ease. If you need our help with any of the matters contained in the article, feel free to send us a mail at niyiama@yahoo.com or reach us on WhatsApp @ +234-08126194751.
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