Guide to Setting Up a Sole Proprietorship in Nigeria

When it comes to sole proprietorship, the complete authority of running the business lies with a single owner. Sole proprietorship in Nigeria is one of the simplest business forms, as one person controls all business operations. Self-employed people, like freelancers, are also included in the sole proprietorship category. 

Setting up a sole proprietorship in Nigeria is a straightforward process. However, you must be aware of the required steps and documentation.

This guide will help you understand the procedure for a sole proprietorship in Nigeria.  

Who Can Be a Sole Proprietor in Nigeria? 

Sole proprietorships, often known as sole traders, are the most common legal entities businesses use to expand operations in Nigeria. This is due to factors that include enjoying profits, having complete autonomy in making decisions, and business-friendly laws. 

However, certain conditions must be fulfilled before becoming a sole proprietor in Nigeria, which include:

• The minimum age to establish a sole proprietorship in Nigeria is 18 years
• The sole proprietor must be a natural person and not a legal entity
• A sole proprietor can be a Nigerian resident or a foreign national
• The individual must not be blacklisted or banned from the industry chosen to operate in.
• The sole proprietor must be of a sound mind

Benefits of Sole Proprietorship in Nigeria

There are multiple benefits of setting up a sole proprietorship in Nigeria. However, when you decide on the kind of business entity you want, you must know both the advantages and the shortcomings of that particular entity. 

To incorporate sole proprietorship in Nigeria, you must develop a unique name for your business. Once you register your sole proprietorship and get the business name registration certificate, you can start your business operations. 

Listed below are some of the benefits of sole-proprietorship in Nigeria: 

• Complete control: A solo entrepreneur is not liable to anyone because they have entire control over the business. The profits and losses of their business belong entirely to them. Unlike limited liability companies, a sole proprietorship in Nigeria gets their share of privacy since they need not report to anyone else. 

• Limited legal requirements: The proprietor enjoys complete privacy in business decisions. This business is simple to start and requires a few legal documents.

• Unified taxation: The Nigerian income tax regulations require sole proprietors to pay personal income tax because a sole proprietorship in Nigeria is not a separate legal entity from the owner. 

The income of a sole proprietorship is taxed at a lower rate than a corporate tax. The personal income tax in Nigeria progressively varies from 7% to 24%, while the highest corporate tax rate is 30%.

• Easy to start: Due to business-friendly regulations in Nigeria, starting a sole proprietorship is a relatively simple process.

• Flexibility: A flexible business model allows the sole trader to change their business offerings if they please. 

• No minimum capital: A sole proprietor can start a firm with little money, which is not the case with limited liability.

Documents Required for Registering Your Business in Nigeria

To complete the company registration process, you must prepare certain documents and submit them to the authorities, which include the Corporate Affairs Commission (CAC) and the Companies and Allied Matters Act (CAMA)  in Nigeria. The key requirements are

• Pre-registration form – CAC-BNo1
• The Filing fee receipt
• Registration form/application form
• Approved business name
• Information on the business’s owner, including passport images
• The nature of the business
• Date of commencement of business operations
• The official address of the business location
• A government-issued ID card for identification

Other Criteria for Registering a Sole Proprietorship in Nigeria

It would be best to be mindful of the following things while you set up a sole proprietorship in Nigeria. 

• Because sole proprietors are not legal corporations, they do not pay corporate income tax in Nigeria. They instead pay PIT (Personal Income Tax). The Personal Income Tax covers the individual’s earnings (pay from work or earnings as a sole trader).

• The personal income tax rate varies depending on the amount of money earned, ranging from 7% to 24%.

How to Register a Sole Proprietorship Company in Nigeria?

There are two ways to incorporate sole proprietorship in Nigeria. You can take the online route or register your business offline.

Online registration

• Go to the Corporate Affairs Commission’s company registration portal (CAC-CRP) at services.cac.gov.ng to begin the registration procedure.
• To create an account, click the ‘Create Account button, fill in all the necessary details mentioned in the form, and submit your account details. You will get a response from CAC on your registered email id.
• Then, log in to the portal and search if the name you have chosen is available for registration and is not used by any other business. It is best to have at least two name choices when registering a sole proprietorship in Nigeria.
• To book a new name for your business, pay N500. Visit the portal in two days to see if you can access the name.
• Once you get your desired name, complete and submit the CAC-BNo1 pre-registration form at the (Online Company Registration Portal) with the relevant information.
• Review the CAC Services Fees and pay the amount. The cost of registering a name for your business is N10,000.
• Arrange all of your signed and scanned documents like so – the proprietor’s application form, the payment receipt for the fee, and an identity card.
• Finally, upload scanned documents.
• After processing, you will receive two certificates of registration.
• Wait for CAC’s approval of your application.

Once you complete these steps online, you can start a sole proprietorship in Nigeria. On approval, the CAC will issue a registration certificate containing your business’s name and the original copy of the name registration application.

Offline registration

If you want to set up a sole proprietorship in Nigeria offline, you can visit the CAC office near you and collect the application form. 

Listed below are a few steps to aid you in the offline registration process:

• Find the nearest CAC office on their website (www.cac.gov.ng) to access all necessary details.
• Choose business names – primary and backup – and pay N500 to get a name search form at the CAC office. Submit the completed name search form to CAC and follow up after two weeks to validate the results.
• If CAC accepts the name proposed by you, make a payment of N250 to obtain a company name registration form. The fee for filing for registering a business name is N10,000.
• Please fill out all the details in the form, attach any supporting papers, send it to their personnel, pay the filing costs, the CAC office/bank account, and wait for their response.
• You will receive an email from the CAC after completing the procedure.
• CAC will send you two registration certificates if your application is approved.

After completing these steps, you can incorporate sole proprietorship in Nigeria.

How Can Multiplier Help?

While setting up a sole proprietorship in Nigeria is easy, reading numerous documentation and compliance requirements for newcomers in the Nigerian market may be arduous. Also, obtaining the necessary approvals from the appropriate authorities may take months. 

So, why not outsource this responsibility to a global EOR firm like Multiplier, well-versed in the local self-employment legislation?

With Multiplier, you need not face the burden alone. Our experts can assist you in establishing your sole proprietorship in a foreign country and automate your payroll process for freelancers and employees. Our one-click payroll services will save you time and money when dealing with foreign taxation.