Section 45 of the partnership Act, 1890 defined business as “every trade, occupation, or profession”. This definition covers all commercial and professional transactions. A business organisation in contrast to a public parastatal or a charity organisation, exists to provide goods or services at a profit. Profit is an important goal of a business organisation which distinguishes it from a non-business organisation.
Business organisations range in size from the one man business, through partnerships business less to private and large public limited companies (PLC’s): For all the existing forms of business ownership, government through the legislators and the judiciary sets expected standard of behaviours which forms the legal requirements of the businesses. In this regard, governments are becoming actively involved in regulating businesses, monitoring and providing assistance to them where necessary.
This factor explains the presence of several laws which are made to regulate business activities in different countries of the world. For example, in Nigeria, the main laws governing the setting up of business are contained in the partnership Act 1890, Company Act 1968, Nigerian Enterprises Promotion Acts 1972 and 1977 Company and Allied Matter Decree 1990, Banks and other Financial Institutions Decree 199 etc These laws encourage indigenes and foreigners alike to engage in private enterprises through any of the following forms of business ownership.
a. Sole Proprietorship
b. Partnership
c. Limited Companies
Legal Requirements of Businesses
(a) Sole Proprietorship
The legal requirements for setting up a one man business are very few with the consequence that the owner alone bears the burden of all the liabilities incurred in the course of running the business. Ownership is not distinguished from control. The account of a sole trader is not required to be published but account should be maintained so that the income tax due from the business can be determined
Advantages of Sole Proprietorship Enterprises
1. They are the easiest and quickest one to initiate. The proprietors of these types of enterprises are not burdened with much cost in setting up as long as they plan to do business under their own name
2. The owner of the enterprise is not required to share profits with anyone.
3. The business nature of this types of firm is that they are able to respond to business needs much faster than big enterprises.
4. They are relatively free from government control and special taxation. Of the three forms of business ownership this is the one that gets the least attention from the federal bureaucracy.
Disadvantages
1. The most serious disadvantage to sole proprietorship firms is the problems of unlimited personal liability.
2. There will probably be less capital available to sole proprietorship enterprise than in any other type of enterprise ownership. This is because financial institutions hardly extend lending facilities to them.
(b) Partnership
Section 1 (i) of the partnership Act defines a partnership as a relationship which subsists between persons carrying on business in common with a view to profit. The membership of the partnership ranges from two to twenty persons except for the firms of Accountants and legal practitioners which can exceed twenty.
The legalities required to set up partnership are minimal. Like the sole trader, the members of a partnership are owners of its property and liable for its contracts. Partnership can be established orally, in writing, or impliedly but it is advisable to enter into a written agreement Known as Articles of partnership, a copy of which should be fīled with the local tax authority. The usual contents of Articles of Partnership are:
1. Name of partnership
2. Nature of the partnership business
3. Duration of the partnership
4. Capital of the firm
5. Introduction of new partners
6. Premium payable by new partners
7. Management of the firm
8. Remuneration and indemnity of partners
9.Accounts and records of the firm
10. Retirement and expulsion of partners
11. Dissolution of the partnership
Name of Partnership
Partners can choose any business name as long as it is not a prohibited name. The names prohibited by section662 of the Companies and Allied Matters Decree, 1990 includes the following
1. Any name which contains the words “National”, “Government”, Municipal”, “State”, “Federal”, or any other word(s) which suggests that the business enjoys the patronage of the Federal, State or Local Government.
2. Any name which contains the words Co-operative” or its equivalence or abbreviation.
3. Any name which contains the words “Chamber of Commerce” “Building Society” “Guarantee”, “Trustee”, “Investment”, “Bank”, Insurance” or words having similar meanings.
4. Any name which is similar to any trade mark registered in Nigeria.
5. Any name which is identical with or similar to a name already registered under the decree for a firm, company or individual.
6. Any name which contains any words which, in the opinion of the Registrar, is likely to mislead the public as to the nationality, race or religion of the partners.
7. Any name which 1s, in the opinion of the registrar, deceptive objectionable because it contains an undesirable reference to person, practice or institution.
ii. Nature of the Partnership Business
The partnership is not expected to engage in an illegal business.
iii. Capital of the Firm
The contribution of each partner into the business must be clearly initiated, The contributions may be in the form of capital, loan etc.if it is loan, the rate of interest payable must be specified, if not specified, the interest rate shall be 5%. Also the profit sharing ratio must also be specified, if not specified, it must be shared equally.
iv. New Partners
New partners can only be admitted with the consent of all existing partners and will be entitled to the same rights as the existing partners unless the agreement provides otherwise. In addition, newly admitted partner may be asked to pay premium to the partnership, the amount of which will be fixed by the existing partners.
v. Management of the Firm
Management of the firm is the joint responsibility of all the partners (except a sleeping partner). The partners that see to the day to day running of the business shall be entitled to extra remuneration from the partnership. The remuneration may be in form of salary.
vi. Accounts and Records of the firm
The law require the partnership to maintain proper book of account in order to ascertain the profit of the partnership for a given period of time. This is useful for determining each partners share of profit and for tax purpose but the account is not required to be published for public Consumption.
vii. Dissolution of Partnerships
A partnership may be dissolved:
(a) By mutual agreement between the. partners
(b) On the termination of the special undertaking for which the partnership was formed.
(c) On the death, bankruptcy or lunacy of a partner.
On dissolution, the assets of the partnership are applied as follows:
(1) Firstly, to the payment of outside creditors
(2) Secondly, to the repayment of loans from the partners
(3) Thirdly, to the repayment of partners capital
Any surplus remaining after the satisfaction of these claims is distributed among the partners in the proportion in which they shared profits
The main advantages of partnership are:
(a) Few formalities required for starting up
(6) Sharing of partners’ knowledge and skills
(c) Sharing of management of business
(d) No obligations to publish accounts (except for Inland Revenue purposes)
(e) Sharing of profits (or losses) of business ole
The disadvantages are:
1. Each partner is liable for the debts of the partnership, even if caused by the actions of other partners,
2. Risk that the partners may not be able to work together at a personal level
3. The death or bankruptcy of one partner will automatically dissolve the partnership, unless otherwise provided for in a partnership agreement.
(c) Limited Companies
Limited Liability Companies falls into two categories. Private Limited Companies and Public limited companies. One important feature of a limited liability company 1s that it is a separate entity, independent of its members.
The company can own property, enter into transactions employ people and sue or being sued. Unlike a sole proprietorship or Partnership, Limited Liability Company has perpetual succession and the death or incapacity of any member will have no effect on the organisation.
In addition, the liability of a limited company is limited to the nominal value of the members’ shares, this is done to encourage the wealthy to give financial support to encourage industrial activities.
The Company Act of 1968 and the company and Allied Matter Decree of 1990 have laid down various principles and procedures to be followed in the running of business organisations especially Limited liability companies.
The legislation has helped in minimising the risk to suppliers and customers as well as to shareholders and employees by providing enough information about the rules and regulations guiding company’s activities.
The memorandum of a Public Limited Company must state that the company is a public company (i.e. its shares are available for purchase by the public) and the company’s name must end with the words ‘Public Limited Company’ (PLC).
A Private Limited Company does not offer its shares to the public and is restricted in the transfer of its shares between the private shareholders. The name of a Private Limited Company must end with the word ‘Limited’. Both kinds of company must have at least two members and one director.
Once registered under the Company And Allied Matter Decree, a private company can begin trading without further formality. A public limited company has to obtain certificate of trading from the Registrar of companies. All limited companies have to fulfill certain procedures before they can be incorporated. These include the filling of two important documents:
a. The Memorandum of Association and
b. The Articles of Association.
The Memorandum of Association must supply the following information.
(a) The company’s name
(b) The location of the registered office
(c) The objects or purpose of the company
(d) A statement that the liability of members is limited
(e) The amount of share capital, together with the numbers and class of shares.
(f) A declaration of association in which the initial members (subscribers) express their desire to form a company and to take up shares.
The details contained in the memorandum are often made available for public inspection. The articles of association are concerned with the internal affairs of the company and give details of the shareholders, directors, secretary and auditors.
The directors of a company are, in law, its agents. They may also be senior employees of the enterprise, They are appointed by the shareholders to use their experience to see that the company’s objects are achieved. Company law requires that information.about directors, including their interests in the company, be made available for the inspection by members and others.
The chief administrative officer of a company is the Company Secretary; who carries out the decisions of the Board and ensures that the legal requirements for meetings are met.
The following types of director are identified:
a. Managing Director – Usually the executive.
b. Executive Director- has day-to-day responsibilities as well as board duties.
c. Non-Executive Director – duties are confined to Board and Board Committee Meetings.
The ownership and control of a limited company are vested in the shareholders and the directors respectively. The shareholders in general meeting have final control over the company by Virtue of their power to joint or remove directors and to alter the constitution and regulations of the company.
All directors have a duty of trust and care in respect of their company obligations, and the executive directors of the company are also entrusted with the day-to-day management of the business. They are responsible for a satisfactory return on the investment of shareholders and the interests of other stake holders in the business such as the employees, customers, creditors and suppliers are also considered.
The main advantage of limited companies can be summarised as follows:
1. in the event of failure of the business, shareholders are protected against the loss of more than the nominal value of their share holding
2. The separate legal person of the company exists independently of the members
3. Shares (in plc’s) are readily transferable
4. Wider share-ownership is encouraged
5. Companies are required to submit annual report to the Registrar, and these are available for public inspection.
The disadvantages are as follows:
1. Precisely because liability is limited, it may be difficult for small companies to borrow as extensively as desired, since banks and other financial institutions may be unable to recover their funds if the business fails.
2. There are considerable legal procedures involved in setting up a company, as well as the procedures incurred in publishing the various financial accounts of the company.
Business Legislation
a. Workmen Compensation Legislation
b. Wages and Working Hours Legislation
c. Occupational and Industrial legislation
(a) Workmen Compensation Legislation
This is one of the legislations economies, workmen compensation likened to an insurance cover for employees against work related accidents or illnesses.
Employers’ premium for the purpose of compensating injured workers are computed on the basis of an enterprise’s record of work-related accidents. In an enterprise where there is no effective safety programme which keeps work-related accidents to the minimum, there is the possibility that the enterprise’s premium charges will be high. In this regard, the law relating to workmen compensation seeks to compel employers of labour to do all things possible to reduce work related accidents in factories and offices.
(b). Wages and Working Hours Legislation
This has been enacted in many countries to the effect that employers of labour are now expected to pay not less than the minimum wage for particular types of employment and employees may not be legally required to work in excess of a certain number of hours per day or per week.
This law is being implemented to protect employees from typical exploitation of the early industrial revolution. For instance, in Nigeria, as from May 1st 2000, the minimum wage was fixed at N7500 for Federal Government workers and N5500 for State and Local Government workers.
(c) Occupational and Industrial Legislation
Government have enacted legislation which stipulate minimum age of employees in certain occupations or industries. This is to prevent under-aged people from industrial hazard. In addition, there are legislation to protect environment from all forms of pollution. For example, enterprises are now expected to conform to regulations regarding air, water, noise and waste disposal in Nigeria.
Other legislation include those regulating safety of food and drugs, formulation of business partnership and corporation agreements, publication of business annual report, patents and copy-rights, public sales of stock financial use agreement, the resolution of labour disputes and the sales or merger of a business.
It must be emphasized that the central objective of government laws and regulations of private enterprises is to benefit and protect both business and consumer.