For many first-time entrepreneurs in Nigeria, the excitement of registering a business often overshadows the more pressing concern: How will I be taxed? Most people choose between a Business Name (often for ease and speed) or a Limited Liability Company (LLC) (for structure and legitimacy), but few stop to ask what either means for their financial future. Yet, the choice you make at this early stage has consequences—not just for branding or legal status—but for how the government taxes your hustle, and whether you can keep your profits or lose them to compliance mistakes. Let’s walk through what makes these two structures very different beasts when it comes to taxation.
- Business Name (Sole Proprietorship or Partnership): Simpler, But You Are the Business
This is the most popular choice for artisans, freelancers, traders, and solo entrepreneurs. It’s cheap to register, minimal paperwork, and the tax rules are light—or so it seems.
Tax Treatment: When you register a Business Name, you are not creating a separate legal entity. Your business income is considered personal income. You will be taxed under Personal Income Tax (PIT) rates, which range from 7% to 24%, depending on your total annual income.
A Practical Example is if your printing business under a Business Name makes N3 million in profit in a year, you’re taxed like an individual who earned that income—not as a business entity. You’ll file under Direct Assessment with the State Internal Revenue Service (e.g. LIRS or OYIRS).
Compliance Simplicity: No need for audited accounts. No corporate tax filings. But you still have to file annual tax returns and pay PAYE if you have staff.
Red Flags: No separation between personal and business assets. If the business is sued or incurs debt, your personal car or house could be on the line. Many banks, partners, and corporate clients view Business Names as informal or high-risk.
- Limited Liability Company (LLC): A Separate Legal Entity with Its Own Tax Obligations
A Company is a more structured setup. It exists independently of you. It can sue and be sued, own property, open bank accounts, and enter into contracts—all in its own name.
Tax Treatment: Companies are taxed under Company Income Tax (CIT) rules. The CIT rate is: 0% for companies earning below N25 million (classified as micro). 20% for companies earning between N25 million and N100 million (small). 30% for companies earning above N100 million (medium and large). You also need to account for: Value Added Tax (VAT) at 7.5% on goods/services. Tertiary Education Tax at 2.5% (if applicable). Withholding Tax, Capital Gains Tax, and others based on business activity.
For example, if your registered LLC earns N30 million a year, it falls under the 20% CIT bracket, taxed by the Federal Inland Revenue Service (FIRS). That’s a separate tax from your salary (if you’re a director or employee of the company).
Compliance: Must file annual returns. May require audited financial statements, especially as you scale. Formal bookkeeping is a must. More scrutiny from tax authorities.
Strategic Advantages: Liability is limited. Your personal assets are protected. You can bring in investors, issue shares, and build a stronger brand. Corporates and government agencies often prefer working with registered companies.
Choosing Between the Two: It’s Not Just About Today
If you’re running a one-man fashion brand or a freelance writing gig, a Business Name might serve you well in the early stages. But once you’re thinking about growth—getting investors, securing big contracts, hiring staff, expanding locations—you’ll find that a Company structure opens more doors.
Think of it this way: “A Business Name gives you ease. A Company gives you options.” You must also think of taxes as a strategic tool, not just an obligation. The structure you pick today decides which agency collects your tax, how much you’ll pay, how you’ll scale, and whether you’ll be attractive to big clients and funders.
Many Nigerian small business owners unknowingly make this decision based on cost alone. But cheap registration isn’t always smart registration. Before you file your CAC forms, think about where you’re headed—not just where you are now. Ask yourself: Do I want convenience today, or capacity for tomorrow? Because in business, how you’re taxed isn’t just about numbers—it’s about survival.
