types of companies and their formation

Types of companies. Starting a business is the dream of many people. But before starting a business, it is essential to decide on the type of company to form. A company is an organization that conducts business activities, and its formation can vary depending on its purpose, size, and ownership structure. In this article, we will discuss the different types of companies and how to form them.

Types of Companies

  1. Sole Proprietorship: A sole proprietorship is the simplest type of business structure. In this type of company, a single person owns and operates the business. The owner is personally liable for all the debts and liabilities of the business. It is relatively easy and inexpensive to form a sole proprietorship, and the owner has complete control over the business.
  2. Partnership: A partnership is a business structure in which two or more people own and operate the business. Each partner contributes to the business\’s financial requirements and shares the profits and losses. In a partnership, each partner is personally liable for the debts and liabilities of the business.
  3. Limited Liability Company (LLC): A limited liability company is a hybrid business structure that combines the characteristics of a corporation and a partnership. In an LLC, the owners (called members) have limited liability, which means they are not personally liable for the business\’s debts and liabilities. The LLC is taxed like a partnership, but it has the benefit of limited liability like a corporation.
  4. Corporation: A corporation is a separate legal entity from its owners (called shareholders). The shareholders own the corporation and elect a board of directors to manage the corporation. The corporation has limited liability, and the shareholders are not personally liable for the debts and liabilities of the corporation. Corporations can issue stocks, making it easier to raise capital.

Formation of Various Types of Companies

  1. Sole Proprietorship: To form a sole proprietorship, the owner must register the business with the appropriate state or local authorities. The owner must obtain any necessary licenses and permits to operate the business. The owner must also obtain a tax identification number from the IRS.
  2. Partnership: To form a partnership, the partners must draft a partnership agreement that outlines the terms of the partnership, such as the contribution of each partner, the division of profits and losses, and the management structure. The partners must also register the partnership with the appropriate state or local authorities. The partnership must obtain any necessary licenses and permits to operate the business.
  3. Limited Liability Company (LLC): To form an LLC, the owners must file articles of organization with the state\’s Secretary of State. The articles of organization must include the LLC\’s name, its purpose, the name and address of the registered agent, and the names and addresses of the members. The LLC must also obtain any necessary licenses and permits to operate the business.
  4. Corporation: To form a corporation, the shareholders must file articles of incorporation with the state\’s Secretary of State. The articles of incorporation must include the corporation\’s name, its purpose, the number and types of stocks, and the names and addresses of the initial board of directors. The corporation must also obtain any necessary licenses and permits to operate the business.

choosing the right type of company is an important decision that will impact your business\’s success. Each type of company has its advantages and disadvantages, and it is essential to consider them carefully before making a decision. When forming a company, it is crucial to comply with all the legal requirements and obtain any necessary licenses and permits to operate the business. By following these steps, you can start a successful business and achieve your entrepreneurial dreams.

What is a company? DEFINITION OF A COMPANY, A company can be defined as a legal person or entity created by the association of a number of people in accordance with the law for the purpose of pooling their capital together in order to set up a business venture.

Examples of limited liability Types Of companies

are Dunlop Nigeria Plc., Nigeria Plc., C.F.A.O. Nigeria Plc., Julius  Berger Nigeria Plc and Evan Medical Plc. A company is an artificial person and is more than a mere association of individuals. It is Legal with a personality of its own.



(1)      Unlimited liability companies: In an unlimited liability company, the liability of a member is limitless and he may be liable to the full amount of the company’s debts in the event of liquidation.

The members will contribute more money, including their capital, to settle the debt of the company. Section 21(1) of the Company and Allied Matters Act defines it as one not having any limit on the liability of members.

  • Limited liability companies: In the case of limited liability companies, the liability or burden of debt in the company is limited to the amount of share capital the shareholders had agreed to contribute individually in the event of liquidation.
  • In this case, a shareholder cannot suffer the liability of the company up to his or her private property.
Types of Companies Under Limited Liability Companies

(1)       Companies limited by guarantee: Types Of Companies limited by guarantee are not formed with the aim of engaging in trading activities or making profits. They are often formed by societies and other charitable contributions from members of the public to promote and develop certain interests or professions.

The liability of its members is limited by the Memorandum of Association to such an amount as the members may have undertaken to contribute to the assets in the event of its being wound up. Guarantee companies are usually formed for the furtherance of art, science, education, religion and charity.

(2)        Companies limited by shares:

Companies limited by shares are the companies in which the liability of the shareholders is limited to the full value of the shares they have acquired. In case of liquidation, the shareholders will only be liable to the full extent of their shares contributed as capital.

They normally engage in business activities to make a profit. Section 21(1) of the Company and Allied Matters Act, 1990 defined a company limited by shares as: “A Company having the liability of its members limited by memorandum to the amount if any, unpaid on the shares held by them.”


A private limited liability company is de one which by its articles restricts the right to transfer its shares, limits the number: of shareholders from two to fifty, prohibits invitation to the public to subscribe to its shareholders and the name of the private company >>>> with “Limited”, e.g. Bluebird Nigeria Limited.

  •  Public limited liability company: Public liability company is defined as one which. articles allow the public to subscribe to shares, must have a minimum of seven persons but no maximum number is prescribed.
  • It allows the shares to be transferred and the name of the public company must end with “Plc.\’ Zenith Bank Plc., Guinness Nigeria Plc., L Nigeria Plc., and First Bank Pc. This is the type that is popularly referred to as Joint Company.


  •  Legal entity or status: Both com­panies are legal entities, which means that can sue and be sued in their own names due to the fact that both are registered companies. The business name is \’\’ from the owners’ names.
  •  Limited liability: Both companies limited liability, meaning that in the liquidation, the shareholders can lose the value attached to the shares contributed.
  • Continuity of existence: The chances of continuity or existence of both companies are high as the death or withdrawal of a shareholder cannot affect the existence of the company.
  • Ploughing back of profits: Part of the profit can be ploughed back into the business for both companies while the remaining can be shared with the shareholders, according to the number of shares contributed.
  • Large capital outlay: Both companies are capable of pooling large capital together to set up a business.
  • Management: Both companies appoint directors for the proper and efficient management of the business.


 Private Limited CompanyPublic Limited Company
1Shares are not easily transferable, except with the consent of their membersShares are easily transferable
2Its shares are not quoted in the stock exchangeIts shares are not quoted on the stock exchange
3It has a minimum of two people as shareholdersIt has a minimum number of seven people as shareholders
4It has a maximum number of 50ownersIt has no maximum number of people as owners
5It does not issue debenturesIt issues debentures
6They are not allowed to use “Plc”The public is allowed to subscribe to its shares
7They are allowed to use the abbreviation “Ltd.” Or “Unltd” “Plc.” – Public Liability CompanyThey do not need a Certificate of Trading to commence business
8Shares are quoted on the stock exchangeThe public is not allowed to subscribe to its shares
9They are small or medium in size and have limited capitalThey are large in size and have large capital
10It is owned and controlled by those who contributed the capitalIt is owned by the shareholders and controlled by the board of directors selected by theme.
11It enjoys some level of privacy as it does not publicise  its annual accountsThere is no privacy as the annual account must be published.

163. TICK
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