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Registering A Social Enterprise? Here’s What You Should Know.

Article by Adepeju Jaiyeoba

If you are an aspiring social entrepreneur, existing social entrepreneur or seeking legal registration for your social enterprise, this is for you.

Today, let’s talk about the important issue of legal registration for social enterprises and the dilemma of a social entrepreneur.

Last Sunday, I taught a one day certificate course in nonprofit and social enterprise management, taking a critical look at the legal, regulatory and compliance issues in the sector. At the session, it became obvious that social entrepreneurs in the House did not fully understand the registration category best suited and advantageous to them.

This dilemma is further compounded by the fact that there is no social enterprise category under the laws regulating business registration in Nigeria i.e The Companies and Allied Matters Act. All you have is:
– Company Limited by Shares
– Company Limited by Guarantee
– Business Name
– Incorporated Trustees for NGOs

I am aware that many lawyers actually advice their clients seeking to register a social enterprise to go under a company Limited by Guarantee as it allows you do business reflecting your social duties while not keeping any profit. All that is required is for the promoters to guarantee it.

Registering a social enterprise under a company Limited by Guarantee in my view is excellent if you really have an absolute commitment to working with grants and donations only, no plans for expansion in your business requiring raising capitals from investors, and a zero desire to raise funds for growth and capacity in exchange for shares which many investors find attractive.

Let me put it in a better perspective:

There are equity financing issues you need to be aware of.

As a company Limited by Guarantee, you have no equity to give, no shares to sell to raise funds and no bargaining tool to enable growth. The very nature of your structure does not even allow it.

So take for instance you pitch to Mark Cuban of SharkTank and he’s willing to invest in your social enterprise, he’s likely to find it unattractive because he practically gets nothing back in return. No stake. No shares. Nothing.

Your opportunities are also limited as you are not likely to be pitching in a venture capital gathering or a pitching session like that of SharkTank.

I’m not by any means putting down the registration of a social enterprise under a company Limited by Guarantee, I just think that Social Entrepreneurs should have full information to enable them make the best decision for the growth and advantage of their business.

Have a great day everyone and Drop your Comments or Questions.

7 comments

  1. Early Parents' Pool

    What kind of registration would you advice? And at what point of the venture should registration come in especially for a nonprofit?

    • Hello Early Parents Pool,
      I think it’s advisable to register a non profit as well as a company Limited by Shares. Ok when an NGO should be registered, I will say as soon as you have the funding or have started carrying out some activities. This is because of when you delay, you stand the risk of having to change your name which people may have known you as if the name is no longer available when you are ready to register.

  2. Hello Mary, If I understand you very well, you meant I should register the same name in two different categories.

    1. As an NGO
    2. As a Limited Liabilities Company

    If that is what you meant, then which should I register first and how do I tell Investors or Grants Organisations that we are both NGO and LLC company?

    Please I need clarity.

  3. My business is registered as a business name currently, do I need to change the registration status or upgrade to formally make it a social enterprise? Please kindly tell me what options I have. Can I still pitch as a business name?

    • The individual can pitch as a business name if for instance his or her business is not going beyond a spare part shop at Alaba for instance. A business name has no potential value to an investor. There’s nothing to give in exchange of any investment, no equity, no shares, no board position. I will advice that the person upgrades to a company Limited by Shares

  4. The information is not complete. You did not state what a social enterprise should register under with CAC.

  5. Are public servants allowed by law to register a company? If yes, what type? Thanks.

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