Many Nigerian businesses start as a business name because it's quick and cheap, then find that corporate clients, investors and banks prefer a limited company. Here's how the two compare, especially after the 2026 tax changes.
The key differences
| Business name (BN) | Private limited company (Ltd) | |
|---|---|---|
| Legal status | Not separate from the owner(s) | Separate legal person |
| Liability | Owner personally liable for all debts | Limited to unpaid share capital, in general |
| Tax on profit | Owner's personal income tax (PAYE-style bands, 0%–25%) | Company income tax: 0% if small, otherwise 30% plus 4% development levy |
| Tax ID | BN number | RC number |
| Annual CAC filing | Annual return by 30 June | Annual return within 42 days of anniversary |
| Owners | Individuals (sole proprietor or partners) | Shareholders; directors run it |
| Raising investment | Very limited | Can issue shares |
| Client perception | Fine for small clients | Usually expected by corporates and government |
How is each taxed in 2026?
Business name: the business's profit is added to the owner's income and taxed under personal income tax: 0% on the first ₦800,000 of taxable income, then 15% to 25%. There's no separate "small business 0%" for the profit itself.
Limited company: the company pays company income tax. Under the Nigeria Tax Act 2025, a small company (turnover up to ₦100m, fixed assets up to ₦250m, no professional services) pays 0%. Otherwise it's 30% plus the 4% development levy. When profits are paid out as dividends or salary, the owners are taxed on what they receive.
Example: ₦20m profit, ₦80m turnover, a creative agency:
- As a business name, the owner pays personal income tax on about ₦20m: substantial, at rates up to 21% on the top slice.
- As a small limited company, it pays 0% company income tax. The owners pay tax only on salary or dividends they take out.
This is a simplified comparison, so get advice for your exact numbers.
When does a limited company make sense?
- You work with corporate or government clients that expect an Ltd, a TCC and audited accounts.
- You're taking on real financial risk: staff, leases, large contracts.
- You want to bring in partners or investors.
- Profits are growing and the small company 0% could save significant tax.
What extra work does a company involve?
- CAC annual returns and updated statutory registers
- Annual company income tax returns (even at 0%)
- Financial statements, with an audit where required. Some small companies may be exempt under CAMA 2020.
- Separating company money from personal money: salaries and dividends, not ad-hoc withdrawals
How to convert
Register a new limited company with the CAC, move contracts, bank accounts and staff to it, and close or keep the business name as a trading name, with advice on timing. Tell clients in writing and update invoices with the new RC number and Tax ID.
Frequently asked questions
Is a business name a limited liability company?
No. A business name isn't a separate legal entity, so its owners are personally liable for its debts.
Do business names pay company income tax?
No. Profit from a business name is taxed as the owner's personal income.
Can a limited company pay 0% tax in Nigeria?
Yes. A small company (turnover up to ₦100m, fixed assets up to ₦250m, no professional services) pays 0% company income tax from 2026.
Which is better for an agency or consultancy?
Most firms working with corporate or government clients choose a limited company. Consultancies should note that professional services firms can't use the small company exemption.