It’s not easy operating your own business. The venture will no doubt come in handy with several difficulties. However, for many individuals who have either seen it or experienced it, the benefits of owning a business exceed the drawbacks.
Additionally, the profession of being self-employed is not just for those with an entrepreneurial mentality. For a variety of reasons, owning a business can be thrilling. There are many advantages to owning your own business; be it you’re seeking a flexible lifestyle, are keen to innovate, or simply want greater control over your job and income possibilities.
Do you currently own a business, or are planning on venturing into one in the nearest future? Then you might want to consider reading this article to the end because it has loads of what you need to know.
What are self-employment and business ownership? Are they different?
People tend to use the words “self-employed” and “business owner” synonymously. But are they the same? Well, no.
Even though both terms appear identical, there are distinctions between them, and you can tell which one you are into by properly understanding what each entails. Considering how you manage your current business is one of the easiest ways to distinguish between being self-employed and owning a business. And it is our job to make you understand! Just move along with us.
Self-employment and what it entails
Working for oneself other than for a designated employer who provides a salary or wage is referred to as self-employment. We see instances in a wide range of professions, but an important aspect of it is that self-employed people have the tendency to be extremely proficient in the particular field they have chosen to work in.
Instead of receiving employment from an employer, self-employed people find their job and make a living through them. Be it a trade, a business, or a profession that they practice.
Now, if you are still finding it hard to understand the difference with mere definitions, knowing what category your business falls under might help. And we sure have them prepared for you.
1. Sole proprietorship
When a business falls under sole proprietorship, it means that it is run and owned by just one person. Of course, sole proprietors do not necessarily have to operate alone; they may choose to recruit staff to assist them.
It is important to note that with sole proprietorships, there is no form of legal separation between the owner and the business entity. This means that while the sole proprietor receives all business earnings, they are also fully liable for all losses.
2. Independent contractors
People called independent contractors are those employed by clients to carry out specified tasks, for which they would be solely compensated. They are not covered by workers’ compensation because they are not regarded as employees. Unlike typical employers, their clients do not have to deduct taxes from their compensation for any completed labor.
Doctors, attorneys, journalists, accountants, and workers in blue-collar professions; like plumbers, electricians, and handymen are a few examples of independent contractors.
3. Partnerships
A partnership is an agreement between two or more people to run a business together and split both the profits and losses. Aside from the fact that more than one person now has operational control, it is relatively comparable to sole proprietorships.
There are various kinds of partnerships, from general partnerships that allow members a particular share of earnings and liabilities. And there are others where partners might only have limited liability.
Business ownership and what it entails
To be termed a “business owner”, means you are not dependent on generating income via your labor. Business owners or entrepreneurs contract out work to third parties. This gives them more time to concentrate on what matters, like getting new clients and expanding their business.
In the end, business owners need to work to put management systems into place and automate processes like payroll, tax, timekeeping, and human resources. This way, their company can continue to run efficiently without them.
Still not seeing the difference? Well, we’ll help. Consider yourself a business owner if:
- You employ people or have other independent contractors who are self-employed working for you.
- If your company is recognized as a separate legal entity.
- You are in charge of tax collection and workers’ compensation insurance whether or not you have part-time or full-time employees.
How can I transition from being self-employed to being a business owner?
Although many may not accept it as true, overworking is the major problem of self-employment. The higher your customer base and sales increase, the more overextended you tend to become. Working alone usually makes it difficult to take a day off, and planning a trip seems nearly impossible.
If this describes you, you should be prepared to go from working for yourself to growing your company. Now is a wonderful opportunity to discuss your financial situation and future goals with us at AGATHA LEGAL. We’ve provided you with a few useful tips nonetheless:
- Get your business properly registered.
- Create an operating agreement for you and your workers/co-directors.
- Create a valid business structure.
- Create a corporate record book to ensure your business is properly handled.
- Think of how you’re planning on promoting your business and making implementations.
- Do proper budget planning. Feel free to hire market assistance.
- Think of how your registered business will interact with your future services/products/brands.
- Obtain insurance for your business and open a corporate bank account.
- Don’t rush things.
What Business Law means in doing business
Business law is a branch of law that deals with resolving disputes, maintaining order, defending rights, and liberties, and establishing guidelines as to how businesses interact with both the people and the government. Business law is very significant in holding up your business, and that is why you need to comprehend the laws and regulations that are relevant to them.
In Nigeria, business law is important for governing how businesses operate and it has been put in place to address a range of business issues. For example, for a company to pay out compensation to its workers, it needs the implementation of business law. This way, you as an employer, won’t have any trouble determining how to do so.
Any government or other authorized body laying down regulations for business operations does so to ensure quality and fairness for all. This implies that firms, particularly those who are just starting or operating on a small scale, need to pay attention to these regulations to avoid breaking the law.
That’s enough going on and on about the existence of business law. It’s high time we gave you examples of these laws that exist, ones you need to be familiar with.
1. The Nigerian company legislation (CAMA- The Companies and Allied Matters 1990)
This law regulates the various methods in which business can be conducted, with each component of it functioning distinctively. Companies, business names, and incorporated trustees are what make up its major components.
2. Company income tax
Companies that don’t engage in any petroleum operations are taxed by the Companies Income Tax Act (CITA). The tax is self-assessed using the preceding year’s accounting period, which corresponds to the fiscal year of the government.
However, specific regulations apply when a business starts, stops or changes its accounting date. Penalties and interest may also apply if tax payments and filings are met by the deadlines indicated in the CITA.
Two major things Business Law demands of you when starting your business
1. Find a suitable business name
The very first step you need to take is to make thorough findings on the name intended for your business. This is for your business name to be legally reserved, and this is done in an online application to the Corporate Affairs Commission (CAC).
As an applicant, you need to submit two intended names for your business to CAC. The latter will, in turn, use the names provided to search through its database to make sure that the name is not already in use by another business. Or that your business name is not similar to another’s.
2. Make a reservation
As soon as one of the names provided gets approved by CAC, a 60-day-long reservation time starts to count. It is within these two months that the full processes for your business registration are expected to be completed. There are also some crucial documents to be provided. Now, what are these so-called documents?
- Corporate Affairs Commission (CAC) form. This form holds the details of the first directors and shareholders.
- Article of association and memorandum.
- Other forms include statutory declaration and secretary information.
- Original receipts of registration fees and stamp payments.
Are there restrictions on business registration?
Well, the law, while being no respecter of persons, is also fair to allow anyone to start or join a business, a resident of Nigeria or not. But, there are age limitations. Meaning members under the age of 18 may not be allowed.
Also, if the person, entity, or organization registering their business has a history of engaging in dishonest commercial practices in either domestic or foreign trade, then they may be rejected at the registrar’s discretion.
Necessary procedures for employment
Having existed, an agreement between the employer and employee on what job is to be done, an employment relationship begins between the two—one is worked for and one is paid for working.
But before all of this, there are laws and collective bargaining agreements specifying the terms and conditions of employment. Additionally, the employer and employee both have rights and obligations to fulfill before, during, and after the contract. The Labour Act is what serves as a model for agreements between employers and employees.
According to Section 7(1) of the Labour Act, within three months of beginning a working relationship, the employers must give employees a contract that includes the following:
- Both the employee’s and the employer’s names.
- The employee’s name and address, as well as the job’s specifics.
- If the contract has a set expiration date, that information should be included as well.
- The employment contract should also include the employee’s wages, as well as terms and conditions relating to working hours, vacations, etc.
- A contract of employment may be terminated by either party upon the expiration of a notice issued by that party to the other.
Auditor(s) selection
According to CAMA, each company must elect an auditor or auditors to review its financial statements of the company at its annual public meetings. The first auditors of a company can be chosen by the directors at any time before the company is allowed to start the business. And the auditor(s) will serve in that capacity until the end of the following annual general meeting.
When there is no appointment or reappointment of an auditor at an annual general meeting, the company’s directors have to name someone to fill the position. In the event of this, the company is required to notify the Corporate Affairs Commission (CAC) within one week of the occurrence.
In case you didn’t know, an auditor is authorized personnel, who reviews and verifies the accuracy of a company’s financial records to ensure that it complies with the tax laws.
What Business Law says about taxes
Every business is typically profit-driven, if yours is not, then it’s not a business. So it is expected that it will pay taxes, just like any other working person or organization would. Here are some taxes that apply to business operations in Nigeria:
1. Company income tax
This is a tax imposed on a business’s income. For businesses with yearly sales of over N100 million Naira, this tax is assessed at a rate of 30% of the profit the company makes, after all, permissible deductions. For businesses with revenue between N25 million and N100 million, the tax is payable at 20%.
2. Stamp duties
These are levies to be paid on all instruments. Instruments include derivatives, options, and index funds. What the paperwork and the transactions are worth both affect how much tax is levied and at what rate. In this case, a set rate and ad valorem are applied. Ad valorem is a tax imposed at a rate percent of value.
3. Withholding tax
This tax is dependent on the nature of the payments. It is typically levied at a rate ranging from 10% to 5% of the total amount due. When a payment is to be made to the beneficiary, the withholding tax is deducted from the source.
4. National Social Insurance Trust Fund (NSITF):
This tax is charged at a 1% rate from the employees’ payroll. Well, NSITF payment is not exactly regarded as a tax, but compulsory insurance for employees.
5. Education tax fund
This is a tax that all companies in Nigeria must pay. 2% of the profits of every business in Nigeria are subject to this tax.
6. Petroleum profits tax
Companies involved with the production or exploration of crude oil are the only ones concerned with this tax. It is assessed at a rate ranging from 50% to 85% of the determined profits when all operating expenditures have been deducted.
7. Industrial training fund
This is a 1% payroll tax levied on all corporate employees of businesses with a minimum annual revenue of 50 million Naira or with more than five employees.
8. Value Added Tax (VAT)
This is imposed on the supply of goods and services and is payable to the consumer. Currently in Nigeria, VAT is charged at 7.5%.
9. Capital gains tax
10% of capital gains from sales, exchanges, or other property transfers are subject to capital gains tax. It is deducted from the business’s chargeable assets.
What body controls the collection of taxes?
The three branches of government (federal, state, and local) hold the responsibility of collecting taxes. The organization in charge of taxes owed to the federal government is the Federal Inland Revenue Service (FIRS), while the State Boards of Internal Revenue receive the taxes owed to the state government (SNIR). Local government administrators levies as well, which are collected via different councils in Nigeria.
Licenses and permits
Every Nigerian and prospective foreigner must have a license to carry on their business in Nigeria. These permits and licenses are compulsive, regardless of your location, or the type of business you run. For instance, if you’re operating an online business without a physical office location, you’d need a license as much as one with a physical office does.
In Nigeria, the issuance of business licenses and permits is a way of controlling the operations of both public and private entities and bringing in money for the government.
However, you need to know that licenses and permits are not the same things. How are they different? Read on.
Business licenses are authorizations issued by the government to run a business in a specific location and/or sector. They are also approvals granted by the federal government or its agencies to individuals and corporate organizations to transact business in a specific location and/or sector. For instance, if you wish to run your business in Nigeria’s oil and gas sector, after registering your company with CAC, the Department of Petroleum Resources (DPR) will often provide you with the needed license.
Permits on the other hand are issued by the Ministry of Interior Issues, to foreigners who want to start a business in Nigeria. Without a business permit, a foreigner can’t be allowed to conduct business.
Every foreigner intending to control a business or work in Nigeria must, in addition to acquiring a business permit, only do so through a company that has an expatriate quota ( a license given to registered businesses to hire expats with the necessary skills).
The requirements for getting a business permit include:
- A certificate of incorporation from the applicant’s company.
- Memorandum and articles of association.
- Tax clearance certificate.
- CAC Forms (CO2 & CO7).
- Joint venture agreement.
- The shareholding of the company.
- Approval from all necessary professional bodies. Note that approval depends on what type of business is being carried out by the company.
5 factors to note in growing your business
1. Hard work; smartness
For you to have a very successful business in Nigeria will require you to be extra smart, and willing to put in the extra work than you have initially.
Despite what popular culture might have you believe, good work almost always requires working harder than ever, to accomplish more in more innovative and fruitful ways.
2. Mastery
Improve your skills! Do not expect to make things better without planning to reach a high level of expertise. Involving mastery in the game would give you an edge over your competitors and give you access to the kind of elite clientele and customer base you want.
Many a time, you’d hear people talk about how long they had been in a particular business, but only a handful can say they’ve improved. Be among the ‘handful’.
3. Workable business plan
Make your business plan more than just a detailed description of your goals and a strategy for raising startup funding. Include doable and realistic goals that direct your day-to-day actions and long-term decisions.
Despite the need to closely stick to your plan, it should not be overly rigid and should be intelligently altered when trends and client expectations change regularly.
4. Right colleagues/workers
You need people who also believe in your vision to work with you. Hire a staff that will carry out your vision. This is a very crucial aspect of your business because its fate depends on the kind of hands you put into your business.
5. Market knowledge
Every business has a target market, and you must tailor your goods and services to fit into that environment. To do this, you must consider your company’s location, the level of demand for your goods, the reasons why customers complain about them, their various needs, and the ability to foresee shifting trends. This will help you a long way, dear genius mind.
Takeaway
You and we have come a long way together and that’s worth cheering for. However all said may still seem like a chunk of work, or a mountain hard to climb. That’s why we at AGATHA LEGAL are here to help you and your business cross the legal hurdles successfully.
Fully grasping the laws surrounding the corporate world will help you as a business owner to properly manage your company as legally as possible. Therefore, we hope you put all you’ve learned to good use and also make your further research. Feel free to contact our qualified business registration personnel and lawyers at AGATHA LEGAL for further inquiries.
