How to Form a company from scratch in nigeria (step by step)
How to Form a company from scratch in nigeria (step by step)
Look no further, you will find the answer here.
Forming a company from scratch! It's a great move.
But is it a very easy thing?
Forming a company from the very scratch isn't only about having the money, you also need to know very well about what your business is and also all the processes involved, both during and after the company formation.
Registering the business name, Getting a suitable physical office for head office, hiring your first employee, and appointing the very first board of directors (B.O.D) as well as selling your first stocks...
These are tedious but:
Here's a step-by-step guide to easily get that done soon.
You might break the steps down as goals and follow them sequencially and achieve them over time.
Step 1. Pre-Incorporation (Action 1-4
1. Idea Generation:
Define your business idea, mission, and vision. Think, write down and visualize the idea, possiblity and potential outcome of what you want to put yourself in.
Think about the opportunities your ideal business will bring, the problems it will solve, and obstacles it might face. Document all these and have them in mind. This is a roadmap, which will remind you of your vision, on the process of bringing your idea to life.
2. Market Research:
There are many ways to conduct market research: Conduct market analysis, identify target audience, and assess competition.
Ask Google or people around you, how the field which you have in mind has been performing recently, and what is a possible expectations for it in the closest future.
For example:
When I think of starting an exportation of agricultural crops from Nigeria to USA, I started by asking google, if USA really need products like corn seeds, millets, wheat, beans etc; from Nigeria.
And if it is possible to ship, if I can get a buyer right from home without going to the united States first.
Market research helps an aspiring business person to more clearly see the business scenario beyond the concept , plan, and forecast.
The research is more dependable than reports from competitors.
3. Business Plan:
Create a comprehensive business plan, outlining goals, strategies, and financial projections.
After conducting your market research, it's time to put down the business plan.
The scope of the plan is not only to pitch other people to pick interest in your idea, but also to open your heart and mind to accepting reality, seeing what is possible, by outlining the overall scope, mission and vision of the business.
Business plan is also a roadmap for you to always come back and get directions while you are running your business.
4. Choose a Business Structure:
Decide on sole proprietorship, partnership, LLC, or corporation.
As you are writing your plan, decide the structure of the business.
Depending on what you want, and how you want it. This also depends on the nature of the activities in the business. For example, if your business will require many people as employees, share holders, or as owners.
And if the business can be owned, run and managed by one person or very few persons.
The structure of your business determines whether it is going to wax as a big business company, small business company or micro- enterprise.
Step 2: Registration (Action 5-8)
1. Choose a Business Name:
While chosing your business name, ensure uniqueness and availability.
Make your business name memorable, special and different.
To check if a business name is available, go through C. A. C website .
For instance: An Igbo young female business founder who's name is charity Isaac, end dark in complexion named her hair salon business " CHAYA BLACK BEAUTY SALON"
2. Register Business Name:
File with state/federal authorities.
If you are in Nigeria, visit the C.A.C ( Corporate affair commission)'s office to register your business name.
Here are things you need to do to get your business name registered with C.A.C. Nigeria:-
"1. Check for availability of the Business Name. Read more about name reservation and Reserve a new Name.
2. Complete pre-registration form – CAC-BNo1 and upload relevant registration documents(Online using Company Registration Portal)
3. Pay filing fee Check the Fees for our Services here
Now registration is end-to-end on the COMPANY REGISTRATION PORTAL (CRP) with electronic Certificate of Registration and Certified Extract of registration information. "
This information is from the Nigerian Corporate affair commission ( c.a.c) official website.
3. Obtain Business Licenses:
Example:
1. The licence to conduct a raffle draw, issues by Nigeria lottery regulatory commission.
2. License obtained as a miner, or as a herder, or butcher, or a fisherman.
There are Local, state, and federal level of government issued licenses.
4. Register for Taxes:
Obtain EIN/TIN (Employer Identification Number and Tax identification number.
The Internet EIN application is the preferred method for customers to apply for and obtain an EIN. Once the application is completed, the information is validated during the online session, and an EIN is issued immediately.
EIN is used to identify companies while TIN is used to identify individuals that can be taxed and what type of tax applies to you.
Step 3: Incorporation (Actions 9-12)
1. File Articles of Incorporation:
An article of incorporation, says about the business name, address, leader, and operators; your rules, belief, and expected directions for your vision etc.
Article of incorporation is like a constitution which shapes the organizational structure, states who is what, and roles of each person or group of persons in that organization called company.
It states who the boss, manager, CEO, CTO, CMO, etc; are, their positions, roles, and boundaries.
It also contains the code of conducts, ethics and principles of business operation.
Articles of incorporation are a set of formal documents filed with a government body to legally document the creation of a corporation.
Articles of incorporation generally contain pertinent information such as the firm’s name, street address, agent for service of process, and the amount and type of stock to be issued.
2. Create Bylaws:
Outline company governance and operations. Here's where you write down vividly, behavioral preferences that you want from your employees, from a-z.
The ethics, operational codes, ie: how co-workers interact, workplace etiquettes, responsibilities, and counter responsibilities, what should be overlooked by who and roles that any employee can play when the need arises.
This helps company operation to flow smoothly.
"The bylaws of a company are the internal rules that govern how a business is run. They’re set out in a formal written document adopted by a corporation’s board of directors and summarize important procedures related to decision-making and voting. This helps ensure that even as officers and directors come and go from the company, there’s a consistent process and agreed-upon procedures." --indeed.com
3. Appoint Directors:
Choose initial board members. Directors are the major decision makers of a business or company.
And the are voted into office by the share holders of the company or appointed by the initial sole founder of the business.
"A company’s management is entrusted to its board of directors. A board of directors is a collective body of individual directors of a company.
Situations may arise where a company may be required to appoint more directors to its board from time to time based on the requirements of the business or company shareholders. However, the appointment of directors must be according to the Companies Act, 2013 for it to be legally valid.
This article covers how a director is appointed in a company, reasons for adding or changing directors and the documents required for director appointment.". -- Cleartax.in
4. Issue Stock:
Distribute shares to founders/investors.
These two categories of people are the collective share holders of your company.
"As we’ve stated before, firms will issue stock to raise capital for a variety of business decisions. It is important to note that a firm might also choose to issue bonds, or other sources of financing. This section will focus on the processes a firm undertakes when they decide to issue stock as a source of capital.
Firms can raise capital in several different ways. The most common ways are discussed below: [1]
Private placement: These are usually done through an investment bank or a stockbroker, and typically the purchaser will be high-net-worth individuals / institutional investors. These methods are typically used by unlisted companies (those not on the stock exchange).
Rights issue:
These are shares that are offered to existing shareholders. They will usually be made on favourable terms to the existing shareholders, such as a discount to the current share price.
"Stock exchange listings: Businesses can offer capital through issuing shares of the stock exchange if they are listed, known as ‘new stock issues’. Listed stocks can be purchased through a broker by any member of the public.
If the company is unlisted, it can offer shares through an initial public offering (IPO):
Typically, an investment bank or stockbroker will be appointed to assist in the process – they will determine the market demand that is out there, assist in preparing the company financials, and assist in the prospectus preparation.
Steps usually involve:
- Analysis of the funding needs
- Appointment of an underwriter and timetable
- Due diligence by a financial adviser
- Determining the offer structure and pricing
- developing a marketing strategy
- Preparation and marketing of prospectus
- Receipt of funds
- Approval by stock exchange
Step 4: Post-Incorporation (Actions 13-16)
1. Open Business Bank Account:
Separate personal and business finances.
Your business or company is a standalone entity, and it should have a separate bank account no matter the size.
It helps anyone to easily measure the credibility of the business and it also keeps the business financially secure.
Skip to Managing the cost of
It’s easier to tell your cards apart
1. It makes your business more trustworthy.
You’ll need it to apply for loans and credit. Some banks just won’t have it any other way. It helps keep your books in order. You’ll have more financial security. It makes your tax returns easier.
You can sync your software.
It’ll help protect your business credit score.
You’ll have business-friendly transaction limits.
It’s easier to tell your cards apart
2. Obtain Business Insurance:
Liability, property, and workers' compensation.
Business insurance helps minimize financial loses, lawsuit, damages of covered properties etc.
3. Establish Accounting System:
Set up financial record-keeping. Financial Record keeping is the art of documenting, preserving and revisiting of information about how finances flow in and out of a business operation.
Establish a balance sheet, cash flow statement, Note to financial statements, Statement of change in equity.
4. Hire Employees:
Recruit and onboard staff.
Recruiting stages includes:- Screening calls, in-person interview, background checks and job-offer.
Ongoing Compliance
1. Annual Reports:
File with state authorities.
Here is what a company or small business does year by year to tell outsiders how the business performed the previous/ passing year.
"An annual report is a comprehensive report detailing a company’s activities throughout the preceding year. Its purpose is to provide users, such as shareholders or potential investors, with information about the company’s operations and financial performance." -- Corporate and finance institute.
2. Tax Filings:
Submit annual tax returns.
A tax return is a report prepared by a taxpayer which contains information about his tax affair for a given period for the purpose of complying with the tax law. --- Federal internal revenue service website.
3. Business License Renewals:
Update licenses and permits.
Some licenses are renewed yearly, depending on the states or federal law.
4. Board Meetings:
Regularly convene to discuss strategy and governance. Call board meeting where all the board of directors meet face to face to discuss about the company's future.
Additional Resources
1. Small Business Administration (SBA):
Government resources for entrepreneurs.
2. Business Incorporation Services:
Companies like Incfile, ZenBusiness, LegalZoom or C.A.C (corporate affair commission).
3. Accounting Software:
Tools like QuickBooks, Xero, or Wave.
4. Business Attorney:
Consult with a lawyer for personalized guidance.
Would you like to:
1. Explore specific business structures?
2. Learn about funding options?
3. Understand tax obligations?
4. Get information on business insurance?
5. Discuss company formation in your country?
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