When starting a business, one of the first legal decisions entrepreneurs must make is whether to register a business name or a company. While both provide legal recognition, they differ significantly in legal status, taxation, ownership structure, and continuity.
Below are the key distinctions:
1. Legal Status
A business name is not a separate legal entity from its owner. This means the owner and the business are legally the same. As a result, the owner bears full responsibility for the business’s obligations and liabilities.
A company, however, is a separate legal entity from its owners (shareholders). This means the company can enter contracts, own assets, sue, and be sued in its own name, independent of its owners.
2. Continuity
A business name—especially a sole proprietorship—typically ceases to exist if the owner dies or decides to stop the business.
A company enjoys perpetual succession, meaning it continues to exist regardless of changes in ownership, death of shareholders, or management changes.
3. Ownership Structure
A business name may be owned by one individual (sole proprietorship) or two or more individuals (partnership).
A company, on the other hand, is owned by shareholders, and ownership is represented through shares.
4. Taxation
For a business name, profits are treated as the personal income of the owner, and the owner pays Personal Income Tax (PIT) on the business earnings.
A company pays Company Income Tax (CIT) on its profits.
5. Tax Separation
With a business name, there is no separation between the owner and the business for tax purposes. All income from the business is considered personal income.
For a company, there is tax separation. The company pays tax on its profits, while directors or employees pay personal income tax on salaries or other earnings received from the company.
This analysis is based on insights by Eseosa Maurice Omoruyi, ICSAN.
