When Someone Sues Your Business: Why Your Business Name Can’t Save You (But Your Limited Company Can)

Let me tell you about two business owners in Lagos. Same industry. Same type of problem. Very different endings.

Chioma runs “Gainsquares Nigeria Enterprises” – registered business name with CAC. Beautiful certificate. Active Instagram. Making good money.

Wilson runs “Movexport Logistics Limited” – registered as a limited company. Same certificate energy. Same Instagram game. Similar revenue.

Then one day, both of them had the same nightmare: a client sued them for ₦5 million over a wedding dress dispute that went completely wrong.

Six months later, Chioma lost her personal car, her savings account was frozen, and she was seriously considering selling her family land to settle the debt.

Tunde? He lost the business. It hurt. But his personal house, his car, his children’s school fees account—untouched. Protected. Safe.

Same problem. Different structure. Completely different life outcome.

And this is the conversation nobody wants to have with you when you’re excitedly registering your “business” with CAC. They collect your ₦28,000 or ₦30,000, give you a certificate, and send you on your way.

What they don’t tell you is that the type of registration you choose doesn’t just affect your paperwork. It determines what happens to your entire life when business goes bad.

Let Me Explain This in Layman’s Terms

Imagine you decide to start selling pure water in your area.

Option 1: Business Name (This is like selling from your personal bucket)

You buy pure water in bulk. You sell it. If someone buys your water and gets typhoid or serious stomach infection, they can come to your house, demand money from your personal savings, seize your generator, your TV, even force you to sell your family land to pay hospital bills.

Why? Because YOU and THE PURE WATER BUSINESS are the same thing. There’s no separation. When the pure water business has a problem, YOU have the problem. Your personal property. Your family’s assets. Everything you own.

Option 2: Limited Company (This is like having a separate business cart)

You buy pure water in bulk. You sell it from a registered business that’s separate from you. If someone gets typhoid from your water, they can only go after what belongs to the business. They can take the business cart. They can take the remaining pure water stock. They can take the money in the business account.

But they cannot come to your personal house. They cannot touch your personal generator. They cannot touch your children’s school fees money. They cannot force you to sell your family land.

Why? Because the business (the company) is treated as a different “person” in the eyes of the law. When the business has a problem, only the business suffers. Not you personally. Not your family.

This is called limited liability. And it’s the single most important thing about registering as a limited company instead of just a business name.

What Actually Happens When Someone Sues Your Business

Let’s get very real about litigation in Nigeria. Because this is not theory. This is what plays out in Nigerian courts every single week.

If You’re Operating as a Business Name:

Remember that ₦5 million lawsuit I mentioned? Here’s exactly what happens when you’re running a business name:

1. The court sees you and your business as one person. There’s no legal separation. “Chioma’s Fashion Hub” is just another name for Chioma. So when they sue the business, they’re actually suing you directly.
2. Your personal assets are fully exposed. Your car. Your house. Your land. Your personal bank accounts. Your spouse’s joint accounts. Everything you own personally can be used to settle business debt.
3. Your family can be affected. If the debt is big enough and you can’t pay, courts can go after jointly owned property. That house you’re building with your husband? That land you bought with your wife? Fair game.
4. There’s no protection ceiling. If your business owes ₦10 million but only has ₦500k in the business account, guess where the remaining ₦9.5 million will come from? Your personal life. Your savings. Your assets. Your peace of mind.
5. The judgment follows you forever. Even if you close that business and start a new one, the debt is attached to you personally, not the business name. You can’t just “rebrand and move on.”

If You’re Operating as a Limited Company:

Now let’s see what happens when Tunde’s “StyleCraft Enterprises Limited” gets that same ₦5 million lawsuit:

1. The company is sued, not Tunde. In law, StyleCraft Enterprises Limited is treated as its own “person” – separate from Tunde. So the lawsuit is against the company, not against Tunde personally.
2. Only company assets are at risk. The court can only go after what belongs to the company. The company bank account. Company equipment. Company inventory. That’s it.
3. Your personal life stays protected. Tunde’s personal car, his house, his children’s education savings, his wife’s business, his family land—completely protected. Untouchable. Safe.
4. There’s a clear liability ceiling. If the company has ₦500k in assets and owes ₦10 million, tough luck for the person suing. They can only recover what the company has. They cannot chase Tunde personally for the difference.
5. You can walk away and start fresh. If the worst happens and the company shuts down, Tunde can start a new business. The debt dies with the old company. His personal record stays clean.

This is not small thing. This is the difference between losing your business and losing your entire life.

“But Samuel, Business Name Is Cheaper to Run!”

I hear this argument every single week. Let me break down the numbers properly so you can see what you’re really choosing between.

The Cost of Running a Business Name

1. Initial Registration: ₦20,000 as of October 2025 (recently increased from ₦10,000)

2. Annual Returns (CAC): ₦5,000

3. Tax Rate: You pay personal income tax on all business profit (7% – 24% depending on your income bracket)

4. Accounting Requirements: Basic. Nobody is really checking.

5. Audit Requirements: None. Compliance Stress: Relatively low.

6. Total Annual Cost (excluding tax): Around ₦5,000 – ₦10,000

Sounds cheap, right? Let’s continue.

The Cost of Running a Limited Company

1. Initial Registration: ₦50,000 – ₦100,000 (depending on your share capital and who’s helping you)

2. Annual Returns (CAC): ₦5,000

3. Tax Rate: Companies pay CIT based on turnover: 0% (if turnover is below ₦25m), 20% (if turnover is between ₦25m and ₦100m), and 30% (if turnover is above ₦100m). You can claim many business expenses as deductions (more on this shortly)

4. Accounting Requirements: Proper bookkeeping is compulsory

5. Audit Requirements: Required if turnover exceeds ₦25 million annually

6. Annual Filing Fees: ₦15,000 – ₦30,000 (depending on complexity)

7. Total Annual Cost (excluding tax): Around ₦50,000 – ₦80,000

Yes, it costs more. Between ₦40,000 – ₦70,000 more per year.

But wait until you see what this buys you in tax savings alone.

Business Name vs Limited Company Nigeria: The Hidden Tax & Credibility Costs

1. The Tax Trap

With a business name, you pay personal income tax on ALL your business revenue. No proper deductions for business expenses. No separation between what you made and what you spent.

So, already you’ve made ₦5 million this year. Congratulations, you’re paying tax on ₦5 million, even if you spent ₦3 million running the business.

But with a limited company, you pay CIT based on your turnover, but here’s where it gets interesting. Under CAMA 2020 and current FIRS policy:

• Below ₦25 million turnover: 0% CIT
• ₦25 million to ₦100 million turnover: 20% CIT
• Above ₦100 million turnover: 30% CIT

And you only pay tax on actual profit (revenue minus legitimate business expenses). The list of deductible expenses is long:

• Salaries and wages
• Rent for office space
• Equipment and tools
• Marketing and advertising costs
• Professional fees (lawyers, accountants, consultants)
• Transportation and logistics
• Utilities and internet
• Training and development
• Office supplies

Important Update: Nigeria’s 2026 Tax Reform introduces 50 new exemptions and reliefs that make limited companies even more attractive. Small companies (turnover below ₦100 million and fixed assets below ₦250 million) are now exempt from the 4% Development Levy, withholding tax, and several other charges. These reforms take effect January 1, 2026.

Let’s do real math:

Scenario 1: Business Name

• Revenue: ₦5 million
• Business expenses: ₦3 million
• Taxable amount: ₦5 million (personal income tax doesn’t recognize business expense deductions properly)
• Tax due: Potentially ₦300,000 – ₦1.2 million depending on your personal income bracket

Scenario 2: Limited Company

• Revenue: ₦5 million
• Business expenses: ₦3 million
• Profit: ₦2 million
• Turnover: ₦5 million (below ₦25m threshold)
• CIT due: ₦0

That’s right. Zero naira in company income tax because you’re below the ₦25 million turnover threshold.

The annual compliance cost difference of ₦50,000 suddenly doesn’t just look reasonable, it looks like the smartest money you’ll ever spend. You’re saving ₦300,000+ in taxes while paying ₦50,000 in compliance. That’s a ₦250,000 net gain, minimum.

Even when you grow to ₦30 million in turnover and start paying the 20% CIT rate, you’re still only taxed on profit after expenses. A business name owner making the same revenue is getting hammered with personal income tax on the full amount.

2. The Credibility Cost

Banks won’t give you serious loans with a business name. Investors won’t touch you. Big corporate clients won’t sign contracts with you.

Try applying for a ₦5 million business loan with your business name. See what happens. The bank will look at you like you’re not serious yet.

But show up with a limited company? Same revenue? Suddenly you’re having real conversations about financing.

This credibility gap is costing you money you don’t even see. Opportunities you’re not even aware you’re missing.

Related: According to Resolution Law, “A business name cannot raise funds from creditors by any means, it must always be funded by its owners, however, limited liability can raise funds by a debenture and issuing more shares.”

3. The Partnership Problem

Want to bring in a partner? Want to give equity to a key employee? Want to attract investors?

With a business name, this is legally complicated, messy, and honestly not worth the headache. You’d have to convert to a limited company anyway.

With a limited company, you just issue shares. Clean. Clear. Professional.

4. The Lawsuit Nightmare We Already Discussed

That one lawsuit. That one angry client. That one deal that goes very wrong.

With a business name, you could lose everything you’ve built in your personal life over a business dispute. Your children’s school fees. Your family home. Your peace of mind.

Is saving ₦50,000 per year worth risking everything you own? Really?

“So Why Do People Still Register Business Names?”

Good question. Here are the only valid reasons I’ve seen:

1. You’re Testing a Side Hustle

If you’re just trying something small on the side while keeping your job, a business name makes sense. You’re not really “in business” yet. You’re experimenting.

But the moment this side thing starts making real money—like, paying your rent kind of money—it’s time to upgrade. Immediately.

2. You’re a Freelancer Working Solo

If you’re a consultant, freelance writer, designer working alone with no plans to hire staff, bring in partners, or scale beyond your personal capacity, a business name might work.

But even here, you need to ask yourself: what happens if a client sues me?

3. You Can’t Afford the Initial Setup Cost Yet

This is the most honest reason. If you genuinely don’t have ₦50,000 – ₦100,000 to set up a limited company properly, starting with a business name while you gather resources makes sense.

But treat it as temporary. Very temporary.

When You MUST Upgrade to Limited Company

Stop playing games and upgrade immediately if:

✅ Your monthly revenue consistently hits ₦200,000 or more

✅ You’re hiring employees or bringing in partners

✅ You’re dealing with corporate clients or government contracts

✅ You’re handling other people’s money (agency work, logistics, etc.)

✅ You have physical assets (equipment, inventory, vehicles)

✅ You’re in any high-risk industry (events, construction, manufacturing, food)

✅ You’re seeking funding or investment

✅ You need bank loans or credit facilities

✅ You’re ready to actually build something beyond just yourself

If even one of these applies to you, that business name is a ticking time bomb.

Important compliance note: If you’re running a limited company, make sure you understand your PSC (Persons with Significant Control) requirements. One small PSC error can cost you millions in penalties, we’ve seen clients face ₦19.75M in fines just from missing PSC updates.

The Real Reason This Matters in Nigeria

Let’s be very honest about something: Nigeria’s business environment is not gentle.

Clients will suddenly decide they won’t pay you after you’ve delivered. Landlords will show you pepper over small disagreements. Partners will misbehave. Competitors will try dirty tactics. Government agencies will show up asking questions.

In this environment, the question isn’t “Can I afford to register as a limited company?”

The real question is: “Can I afford NOT to have legal protection?”

Because that one lawsuit. That one bad deal. That one client who decides to be wicked. That one FIRS audit that goes sideways.

That’s all it takes to wipe out everything you’ve built if you’re not properly protected.

Learn from others’ mistakes: LawPàdí shares a case study about Taju, an importer who lost everything when goods were destroyed in transit, because his business name structure meant he was personally liable for all the loans he’d taken to buy those goods.

What About Converting from Business Name to Limited?

Good news: You can absolutely upgrade your existing business name to a limited company. The process takes about 2-3 weeks if done properly.

You don’t lose your business reputation or client relationships. You’re just putting proper legal structure around what you’ve already built.

And honestly? The relief you’ll feel after making this switch is incredible. Suddenly you’re sleeping better knowing your personal life is protected from business chaos.

Pro Tip: If you’ve already started building something under a business name, make sure you also understand how the TIN integration works between CAC and FIRS when you upgrade.

Here’s My Actual Recommendation

If you’re just starting and genuinely testing an idea, register as a business name first. But give yourself a deadline: 6-12 months maximum.

If by month 6 this thing is working and making money, upgrade immediately. Don’t wait. Don’t convince yourself you’re “still small.” Don’t delay because of the cost.

The moment your business starts making real money is exactly when you need protection most. Because that’s when the stakes get higher. That’s when disputes become expensive. That’s when one mistake could actually hurt you.

And if you’re already running a business name that’s generating income? Stop what you’re doing right now and start the conversion process today. Not next month. Not “when I’m more established.”

Today.

Because the lawsuit doesn’t send you a memo saying “I’m coming in three months.” It just shows up. And when it does, you’ll be very happy you built protection when things were still calm.

The Bottom Line

Running a business name in Nigeria is like driving without insurance in Lagos traffic. You might be fine for a while. You might even be fine for years.

But when that accident happens—and in business, accidents are not “if” but “when”—you’ll wish you’d paid for protection.

Yes, a limited company costs more to maintain annually. Around ₦50,000 – ₦80,000 more.

But that cost buys you:

• Legal protection for everything you own personally
• Massive tax efficiency that can save you ₦250,000+ annually (0% CIT for businesses under ₦25m turnover)
• Credibility that opens doors you didn’t know existed
• The ability to scale, hire, and grow properly
• Peace of mind that your family is protected from business chaos

That’s not an expense. That’s insurance. That’s an investment in your business’s survival that literally pays for itself through tax savings alone—before we even talk about liability protection.

And in this Nigerian economy where anything can happen, protection is not optional anymore.

Additional Resources:

• 10 Common CAC Compliance Mistakes Nigerian Businesses Make
• Understanding VAT and Company Income Tax in Nigeria
• How to Open a Business Account in Nigeria

What Happens Next?

If you’re reading this and realizing your business name is not giving you the protection you need, here’s what to do:

1. Book a free business structure consultation with us to understand exactly what your situation requires and what converting will cost.
2. Get your documents organized – your CAC business name certificate, bank statements, and any existing client contracts.
3. Let us handle the conversion properly so you don’t lose momentum while changing structure.

We handle hundreds of these conversions every year. We know exactly how to move you from business name to limited company without disrupting your operations or confusing your clients.

And we do it in a way that sets you up properly for everything that comes after – proper accounting structure, tax efficiency, compliance systems, the whole thing.

Because converting structure is not just about filing paperwork with CAC. It’s about building proper infrastructure that protects you while letting you grow.

Stop risking everything you’ve built trying to save ₦50,000 per year on compliance costs.

Your future self; the one who didn’t lose their house over a business dispute, will thank you for making this decision while you still had the choice.