Advantages and Disadvantages of Setting up a Private Limited Liability Company

By DIY Law | 1 min read
20th March 2020
Advantages and Disadvantages of Setting up a Private Limited Liability Company

If you have any plans of taking OPM (Other People's Money) and these other people happen to be institutions, a Private Limited Liability Company is the type of business entity you need. 

Advantages of Setting Up a Private Limited Liability Company

  • The company has the ability to continue to exist beyond the death of its shareholders, unlike in a Business Name or a Partnership (except the Partnership Agreement states otherwise). Companies like Coca-Cola, Procter & Gamble, Apple etc. are examples. 
  • It is also a separate entity distinct from its shareholders as such it is possible for a company to be liable for an action whilst the shareholders are shielded from such liability.

The advantages notwithstanding, incorporating a company creates some degree of additional complexity and expenses as compared to opting for a business name. 

Disadvantages of Setting Up a Private Limited Liability Company

  • Setting up a company can be expensive 
  • Having a company also limits your privacy. 
  • There are numerous filing obligations (annual returns, resolutions, change of directors and/or shareholders etc.) As a company, you are statutorily obligated to file annual returns, which must be supported by the company's audited accounts. 
  • The often mentioned double taxation.

Double taxation, as the name implies, means being taxed twice, and this is absolutely legal. So how does this happen? When a Company declares profits, it pays tax at a corporate level, i.e. as a company to the Federal Government through the Federal Inland Revenue Service (FIRS). And then when it distributes profits (dividend) to its members, each member pays personal income tax on that dividend to the government of the state where they are resident. So if you live in Lagos, the Lagos Inland Revenue Service (LIRS) would be the agency you will be paying your taxes to.

If you are looking at types of business entities, you should consider setting up a Private Limited Liability Company.

DIY Law
Legal, Simplified. | Winners of Innovating Justice Awards 2015. | Creating access to legal for African entrepreneurs. Posts are not legal advice.
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