Business Units: Forms, Features, Registration, Mergers, Choice, and Liquidation

In Commerce, a Business Unit (or business enterprise) is an organization formed by an individual or a group of individuals to carry out commercial activities with the primary aim of making a profit or providing essential services. The JAMB syllabus requires a thorough understanding of the forms, features, registration processes, mergers, factors affecting choice, and the dissolution of these units.

1. Forms and Features of Business Units

A. Sole Proprietorship (One-Man Business)

The sole proprietorship is the oldest and simplest form of business organization, owned, financed, and managed by a single individual.

• Features: Unlimited liability, single ownership, informal management, lacks legal entity distinct from the owner (no perpetual succession), and financed mainly through personal savings or small loans.
• Merits: Quick decision-making, pride of ownership, close contact with customers, absolute secrecy, and easy formation.
• Demerits: Unlimited liability, limited capital expansion, lack of continuity (if the owner dies), and heavy workload.

B. Partnership

A partnership is a legal relationship between 2 to 20 persons (under modern laws, up to 50 for professional services) who pool resources to run a business for profit.

• Features: Governed by the Partnership Act of 1890 (or a custom Partnership Deed), unlimited liability for ordinary partners, joint management, and shared profits/losses.
• Types of Partners:
  • Active Partner: Takes part in daily management.
  • Dormant/Sleeping Partner: Contributes capital but does not participate in daily operations.
  • Nominal Partner: Contributes only their famous name to boost the business's goodwill.
  • Limited Partner: Liability is limited to their contributed capital; cannot manage the business.
• Merits: More capital than sole proprietorships, shared risks, combined skills, and ease of formation compared to companies.
• Demerits: Unlimited liability for general partners, potential for internal conflicts, and lack of perpetual succession if a key partner dies or withdraws.

C. Limited Liability Companies (Joint Stock Companies)

A Joint Stock Company is an association of individuals registered under the Companies and Allied Matters Act (CAMA) in Nigeria as a separate legal entity.

• Private Limited Company (Ltd):
  • Membership ranges from 2 to 50 (excluding employees).
  • Shares cannot be transferred without the consent of other shareholders.
  • Cannot invite the public to subscribe to its shares.
• Public Limited Company (Plc):
  • Minimum membership is 7, with no maximum limit.
  • Shares are freely transferable and traded on the stock exchange.
  • Must publish its annual financial statements and hold a statutory meeting.
• Key Formation Documents:
  • Memorandum of Association: Governs the company's relationship with the outside world (contains the name clause, registered office clause, objects clause, liability clause, and capital clause).
  • Articles of Association: Governs the internal administration and regulations of the company.
  • Prospectus: An invitation to the general public to subscribe to shares (used only by Plcs).

D. Public Corporations (State-Owned Enterprises)

These are statutory bodies set up by an Act of Parliament or Decree, financed and controlled by the government to provide essential public utilities (e.g., water, electricity, rail transport) rather than maximize profit.

• Features: Financed by the taxpayers, run by a board of directors appointed by the government, and lacks the primary motive of profit-making.
• Merits: Provision of essential services, prevention of private monopolies, and large-scale employment.
• Demerits: Bureaucracy and red tape, political interference, inefficiency, and lack of profit incentive.

E. Cooperative Societies

These are voluntary associations of persons who pool resources to promote the economic and social interests of their members based on mutual self-help.

• Types: Consumer, Producer, Credit and Thrift, and Multipurpose Cooperatives.
• Features: Democratic control (one man, one vote), open membership, and profit shared as dividends based on patronage, not capital contribution.

2. Registration of Businesses in Nigeria

In Nigeria, the registration of business names and incorporation of companies are handled solely by the Corporate Affairs Commission (CAC) under CAMA.

• Step 1: Availability Search and Reservation of Name.
• Step 2: Drafting of Memorandum and Articles of Association (for companies) or filling of registration forms (for business names).
• Step 3: Payment of stamp duties to the Federal Inland Revenue Service (FIRS) and CAC filing fees.
• Step 4: Submission of documents for verification.
• Step 5: Issuance of the Certificate of Incorporation (giving the company its legal personality) and a Tax Identification Number (TIN).
• Note: Public companies require an additional document called a Trading Certificate to commence business, whereas private companies can start immediately upon incorporation.

3. Business Mergers and Acquisitions

A merger is the combination of two or more independent business units to form a single, larger enterprise.

• Types of Mergers:
  • Horizontal Merger: Combination of companies in the same industry and at the same stage of production (e.g., two commercial banks merging).
  • Vertical Merger: Combination of businesses at different stages of the same production process. This can be Backward (merging with a supplier) or Forward (merging with a distributor).
  • Conglomerate Merger: Combination of companies in completely unrelated industries to diversify risks.
• Reasons for Merging: To achieve economies of scale, eliminate competition, diversify risk, enjoy tax benefits, and acquire modern technology (synergy).

4. Determination of Choice of Business Unit

An entrepreneur considers several key factors before deciding which business structure to adopt:

• Capital Requirement: Large-scale operations require a Plc, while small operations can use a sole proprietorship.
• Nature of Risk (Liability): Limited liability is preferred to shield personal assets.
• Degree of Control: If the owner wants total control, sole proprietorship is chosen.
• Ease of Formation: Simple setups favor sole proprietorships or partnerships.
• Continuity: Businesses requiring perpetual succession must be incorporated as limited companies.

5. Dissolution vs. Liquidation

• Dissolution: The legal termination of a business partnership or agreement. It ends the contractual relationship between partners but does not necessarily mean the complete winding up of assets unless the business stops trading entirely.
• Liquidation (Winding-up): The formal process of closing down a limited liability company, selling off its assets to pay creditors, and distributing any remaining balance to the shareholders. It marks the permanent end of the corporate legal entity.