The significance of this article is greater now than ever before. Recently, the Corporate Affairs Commission (CAC) through its Registrar-General, Hussaini Magaji (SAN), mandated all persons involved in the Point of Sales (POS) business operations to be registered with the CAC [1].
According to the Commission, this instruction is in line with the CBN Guidelines for Agent Banking, 2013, and Section 863(1) of the Companies and Allied Matters Act (hereinafter referred to as CAMA), 2020. For context, Section 863(1) of CAMA expressly provides thus;
“A person or association of persons shall not carry on business in Nigeria as a Company, Limited Liability Partnership, Limited Partnership or under a Business Name, without being registered under this Act”.
Aside from being an avenue for job creation, POS operators have in recent times begun to play a significant role in financial transactions nationwide. This importance has no doubt drawn the attention and the apprehension of the CAC, especially considering the various reports that POS channels were the most exploited payment channels by fraudsters in the year 2023 [2]. The purport of this article is to educate Nigerian entrepreneurs, particularly the POS Operators on the importance or otherwise of registering their various business names and the legal implications of the aforementioned directive of the CAC.
BUSINESS NAME REGISTRATION
It goes without saying that there are different forms of business entities that any person interested in doing business in Nigeria can adopt under the CAMA. These are Business Names, Limited Partnerships, Limited Liability Partnerships, incorporated companies and Incorporated Trustees [3]. However, the mainstay of this article is Business Names, the common business entity of POS operators in Nigeria.
For clarity sake, what is a business name? A business name simply refers to a name, other than one’s natural name, under which a person carries on business. The Companies and Allied Matters Act (CAMA) 2020 also defines a business name as “the name or style under which any business is carried on, whether in partnership or otherwise.”
Business Name as rightly earlier stated is the most employed business entity in Nigeria not only because it is relatively easy but because it is also cheap to register [4]. The phrase “business name” entails two main types of businesses i.e. sole trader or sole proprietorship and general partnership.
SOLE PROPRIETORSHIP
A sole proprietorship is a business owned by one individual, who can be a natural person [5] or an artificial person [6]. This business entity does not separate the owner from the business, meaning the owner’s assets and liabilities are the same as those of the business. Sole proprietorships are commonly used by small and medium enterprises where investment and risk levels are minimal, such as petty traders, artisans, POS operators e.t.c.
One significant advantage of a sole proprietorship is its ease of creation and quick decision-making process. However, a major drawback is that it is unsuitable for certain types of businesses, and the owner is personally liable for the debts and obligations of the business.
GENERAL PARTNERSHIP
A general partnership involves two or more individuals jointly conducting a business. Similar to a sole proprietorship, the assets and liabilities of the partnership are shared among the partners, meaning their liability is unlimited. This invariably means that every partner is personally liable for the partnership’s debts, regardless of which partner incurred them, as each partner acts as an agent for the others. A partnership may consist of both natural and artificial persons. [7]
Furthermore, as stipulated in Section 19(1) of CAMA, where a partnership has more than 20 partners, it must be incorporated as a company.
Hence, a business person who operates a sole proprietorship or a partnership is entitled to enjoy the benefits of a business name and register same. However, the provisions of Section 814 (1) of CAMA highlights certain instances where the registration of a business name would not be compulsory. By section (1) of said section every individual, firm or corporation having a place of business in Nigeria and carrying on business under a Business Name shall be registered in the manner provided in Part B if:
“Every individual, firm or corporation having a place of business in Nigeria and carrying on business under a business name shall be registered in the manner provided in this part if –
a. In the case of a firm, the name does not consist of the true surname of all partners without any addition other than the true forenames of the individual partners or the initials of such forenames;
b. In the case of an individual the name does not consist of his true surname without any addition other than his true forenames or the initial thereof;
c. In the case of a corporation whether or not registered under the Act, the name does not consist of its corporate name without any addition.
(2) Notwithstanding Subsection (1) where:
a. The addition merely indicates that the business is carried on in succession to a former owner of the business, that addition shall not itself render registration necessary;
b. Two or more individual partners have the same surname, the addition of “s” at the end of the surname shall not of itself render registration necessary; and
c. The business is carried on by a receiver or manager appointed by the court, registration shall not be necessary.
Furthermore, section 868 of CAMA expressly defines a “forename” to include “a Christian name and a personal name and when used with a surname includes any first name, and “surname” includes a patronymic”.
In light of the foregoing, it stands to reason that the registration of a business name is not compulsory under the following circumstances;
- For an individual running a business (e.g. Sole proprietor), where he uses his full name, initial and surname or the surname without any addition. So for example, if Mr. Ayo Timilehin, a POS operator carries on business as “AY Cash”, he is required to register said business name. However, if he carries on business simply as “Ayo Timilehin”, “A. Timilehin” or just simply “Timilehin” he is not required under the law to register said business name. [8]
- Firm/partnership, where the full name, initial and surname of the partners is used without any addition. For instance, if Ayo Timilehin, Ahmed Sanni and Emeka Obi carry on business as “Timilehin, Sanni and Obi” or “Ayo Timilehin, Ahmed Sanni and Emeka Obi” or “A. Timilehin, A. Sanni and E. Obi” they are not required to register said business name. However, where the partners carry on business under the name “Cashflow Enterprises”, said business name must be registered.
- Company/corporation: when it uses its corporate name without any addition.
- Partners having the same surname: if there is an addition of an “S” at the end of such surname. [9]
THE IMPLICATIONS OF NOT REGISTERING YOUR BUSINESS
At this juncture, it must be said that the aim of this writer is not to deter existing and potential business owners particularly POS operators from registering their business or to encourage the disregard for CAC and CBN issued regulations but rather to enlighten the general populace on the true position of the law with regards the registration of business names in Nigeria.
Managing a business without registration in Nigeria might save one money on registration fees and allow for evasion of certain legal requirements, but these are the only apparent advantages. Here are some of the numerous disadvantages.
- There is no exclusive right to the business name. Anyone can subsequently register and use the name at any time without regard for its prior use. Just as multiple people can have the same name, so too can businesses.
- An unregistered business would often find it difficult to attract investment or secure loans from banks and financial institutions because they may appear unstable and illegitimate.
- A registered entity can seamlessly set up corporate bank accounts, apply for licenses and permits as opposed to an unregistered one.
- Certain tax benefits and incentives are available only to registered businesses. [10]
THE LEGAL IMPLICATIONS OF THE DECLARATION OF THE CORPORATE AFFAIRS COMMISSION
It must be said that Section 863 is not exactly and entirely a novel provision, similar provisions existed in Sections 559 and 584 of the now repealed CAMA wherein it was considered an offence to do business in a registerable business entity or framework without taking the steps to formally register same. Section 559 made it an offence to do business as a company without incorporation while section 584 criminalized doing business as a registerable business name without registration. Although these legal positions were rarely enforced under the old regime, there is no significant difference with the provisions of Section 863(1) of CAMA 2020 in force in Nigeria.
By this Provisions of Section 863(1) of CAMA, POS operators in Nigeria are not affected by the mandatory requirement for registration as long as such unregistered POS businesses operate under the true name of their proprietor/Partners.
CONCLUSION
In conclusion, the non registration of the POS businesses that fall within the category of businesses in the above-mentioned Section 863(1) of CAMA does not and should not constitute an offence. [11]
It is the writer’s opinion that given the current precarious economic situation, where numerous businesses are downsizing and closing down, promoting the ease of doing business should be the primary agenda of the CAC as opposed to embarking on the herculean task of policing and ensuring that every small and medium scale POS operators must be registered before carrying on business in the country.
REFERENCES
[1] https://charislegalpractice.com.ng/register-pos-business-nigeria/#:~:text=However%2C%20for%20a%20smoother%20running,to%20register%20with%20the%20CAC. [2]<https://www.google.com/amp/s/businessday.ng/technology/article/top-tactics-scammers-used-to-steal-from-nigerians-in-2023/%3famp> accessed 8th July, 2024
[3] https://firmusnigeria.com/step-by-step-guide-to-registering-a-business-in-nigeria/ [4]<https://360solicitors.wordpress.com/2021/01/23/business-names-under-the-new-companies-and-allied-matters-act-cama-2020/#:~:text=Business%20Name%20%E2%80%93%20Part%20E%20of,sole%20proprietorship%20and%20general%20partnership> accessed July 21st, 2024
[5] Section 814(1)(c) of CAMA
[6] Section 814(1)(a) of CAMA
[7] Section 814(1)(b) of CAMA
[8]https://www.linkedin.com/pulse/law-relating-registration-business-names-enterprises-under-duru-esq/
[9]https://www.linkedin.com/pulse/when-register-business-nigeria-ujong-okpa/
[10] ibid., 4.
[11]https://kslegal.org/wp-content/uploads/2020/12/CAMA-COMMENTARY-2020.pdf
Written by
Kelvin Erue Esq.
Associate, AOC Solicitors