Types of Business Organisation (ii): Companies, NGOs, Cooperatives and Joint Ventures

Part (i) covered businesses owned by individuals and partners. This part covers the rest of the forms the Institute of Chartered Accountants of Nigeria (ICAN) syllabus lists: companies of each kind, non-governmental organisations, public sector organisations, alliances, cooperative societies and joint ventures. Companies carry the most marks, because their features, formation documents and differences are easy to test.

For each form you need its characteristics, its purpose and its merits and demerits. Read Part (i) first if you have not, because the comparisons build on it.

Companies

A company is a business registered under the Companies and Allied Matters Act 2020 (CAMA 2020). Its main features are:

• Separate legal personality. It owns assets, makes contracts and sues and is sued in its own name.
• Limited liability. If the company cannot pay a debt, creditors cannot normally claim from the shareholders’ own assets. A shareholder with fully paid shares risks only what he or she invested.
• Taxed separately. The company pays tax on its own profit. Sole traders and partners are taxed on theirs personally.
• Ownership by shares. If a company has issued 100 shares, a holder of 40 owns 40% of it.
• Separation of ownership from control. In a large company the shareholders are not the managers. Directors run the business for them, so management must report to shareholders regularly, which is the purpose of financial reporting. Because managers might report falsely, the law on reporting and audit is stricter for companies than for other forms.
• Continuity. The company continues despite the death of a member or a sale of shares.

Ways of classifying companies

Private companies

A private company may not invite the public to subscribe for its shares. It sells shares only to people chosen by its owners, and shares cannot be traded on the stock exchange. Under CAMA 2020, a private company can be formed by one person and may have a single director. Holding a company seal is no longer compulsory, and general meetings may be held virtually.

The syllabus gives the minimum issued share capital of a private company as ₦100,000.

The Act defines a small company as one with turnover of not more than ₦120 million and net assets of not more than ₦60 million. The syllabus records several concessions for private and small companies, for example no mandatory company secretary or auditor, and an income tax exemption for private companies with annual turnover of ₦25 million or less.

Those figures follow the current syllabus, and tax thresholds change, so confirm them against the current law before the exam.

Public companies

A public company, usually called a Plc, may invite the public to buy its shares and may list them on the stock exchange. Its shareholders can sell their shares freely. It must publish more information and is more tightly regulated. To raise money from the public it issues a prospectus.

Company limited by shares

This is the most common form. Members’ liability is limited to the unpaid amount on the shares they hold. Most small businesses choose it because of that protection.

Company limited by guarantee

A company limited by guarantee has no share capital. Its members, called guarantors, promise to pay a fixed sum if the company is wound up, and that sum is the limit of their liability. It is normally set up for non-profit purposes, so surplus income is reinvested in its work and not paid out to members.

It has a separate legal personality, directors who manage it and a memorandum of association drafted for its type. Registration needs the consent of the Attorney General of the Federation. The syllabus gives a minimum member contribution of ₦100,000 and notes that it needs at least one director and one guarantor, who may be the same person.

Unlimited company

In an unlimited company the members are personally liable, without limit, for the company’s debts. Few businesses choose it. The merits are simplicity, fewer compliance duties and, in some jurisdictions, no duty to publish accounts. The demerit is personal risk, which makes it harder to raise capital.

Forming a company

Ending a company

Winding up can follow the end of an agreed life span, failure to start business within a year of incorporation, membership falling below the minimum, failure to file statutory returns, a court order, or insolvency.

Non-governmental organisations (NGOs)

An NGO is a mission-driven organisation that works independently of government, mainly on social, humanitarian or environmental issues. Most are not-for-profit. The term entered use through the United Nations Charter in 1945.

The World Bank groups NGOs into two main kinds:

• Operational NGOs design and carry out development projects.
• Advocacy NGOs promote a cause through awareness, lobbying and influence on policy.

Funding. NGOs raise money from private donations by individuals, companies and foundations, membership dues, and government grants and contracts. Many combine these with newer methods such as microenterprises and impact investing. Taking government money does not make an NGO a government mouthpiece, and most reputable NGOs keep their operational independence. Funding remains their most persistent challenge.

Public sector organisations

A public sector organisation is owned or controlled by the government and exists to provide services to the public, such as schools, hospitals and the police. It is funded mainly through taxes and government allocations, and it is accountable to government. Most of its services are free or subsidised.

Role

It supplies essential goods and services, supports economic growth through infrastructure and jobs, and sets policies and regulations that promote economic stability.

Types

• Government agencies and departments, funded by federal, state or local government.
• Public programme agencies, which deliver goods, services and programmes and are often run by a commission or board.
• Public enterprises (state-owned enterprises), which supply goods and services, are independent of government and usually have revenue of their own.

Challenges

• Budget constraints. Services depend on annual budgets and can be cut when money is short.
• Lack of efficiency. With no profit motive and little competition, public bodies tend to be less efficient than private ones.
• Cyber attacks. Public bodies hold sensitive data and are targets for ransomware.

Examples include schools and universities, the postal service, public utilities, social services, emergency services, transport infrastructure, public healthcare, social housing, the military, tax collection and refuse collection. Tax bodies in Nigeria include the Nigeria Revenue Service (which replaced the Federal Inland Revenue Service from 1 January 2026), the state boards of internal revenue and local government revenue committees.

Alliances

A business alliance is a strategic partnership between two or more companies that cooperate for shared goals while staying separate. It can take the form of a joint venture, a strategic partnership or a consortium.

Examples: a car maker and a technology firm developing self-driving vehicles, a bank and a fintech company adding new payment services, or a hospital and a drug company running clinical trials.

Cooperative societies

A cooperative society is a voluntary organisation formed to promote the economic interests of its members through business activity. The members own it, run it through leaders they elect, and share the surplus in proportion to how much they use its services.

Principles

• Open membership, with no discrimination by religion, class or politics.
• Democratic control: each member has one vote, whatever the number of shares.
• Limited interest on capital invested.
• Patronage refund: surplus is paid out according to members’ use of the society.
• Cash trading at market prices.
• Continuous education and development of members.

Types

Joint ventures

A joint venture is a business entity created by two or more parties, marked by shared ownership, returns, risks and governance.

• Why firms form one. To reach a new or emerging market, to improve efficiency by combining assets, to share business risk, and to gain skills they lack.
• Advantages. New insight and expertise. Access to specialised technology, staff and resources. A limited life and a short-term commitment. Costs and risks are shared if the project fails.
• Disadvantages. Limited flexibility. Partners who take unequal parts. A clash of cultures and management styles. Unclear or unrealistic objectives.

Worked example: matching the form to the need

Companies, NGOs, alliances and joint ventures in more detail

Why a company is a different kind of organisation

A company is a legal person. That means it can own property, enter contracts, borrow, sue and be sued in its own name. Its members, the shareholders, are separate from it. If it is limited by shares, a shareholder’s loss is capped at what he has paid or agreed to pay for his shares. This protection encourages people to invest, because they know the most they can lose.

In return, a company must register, keep records, file returns and, if it is public, disclose more. Ownership and management are separate: the members own it and the directors run it, which can cause conflicts when directors act in their own interest.

Private and public companies: the practical difference

A private company keeps its shares among a limited circle, restricts the transfer of shares and may not invite the public to subscribe. A public company may offer its shares to the public and have them traded on a stock exchange, so it can raise very large sums, but it faces stricter rules on directors, accounts and capital. Choose a private company for control and privacy.

Choose a public company when large capital from many investors is needed.

Forming and ending a company

Promoters take the steps to form a company. They prepare the constitutional documents, pay the incorporation fee and register with the Corporate Affairs Commission. On registration the company becomes a legal person. A company ends by winding up, either voluntarily by its members or creditors or compulsorily by the court, usually because it cannot pay its debts.

An orderly liquidation sells the assets and pays creditors in the legal order before anything goes to the members.

NGOs and public sector bodies

A non-governmental organisation works for social or charitable goals instead of profit, and is independent of government. Its surplus is reinvested in its mission. It depends on donations, grants and volunteers, so accountability to donors and beneficiaries is vital. Public sector organisations are owned or controlled by government and exist to provide services and meet public policy goals.

They are funded from taxes, borrowing and fees, and are answerable to the public through the legislature. The measure of success is service and value for money, not profit.

Alliances, cooperatives and joint ventures

An alliance is a looser arrangement in which firms cooperate while staying independent, for example sharing distribution or research. A cooperative is owned and run by its members for their mutual benefit on principles such as voluntary and open membership and democratic control, with one member one vote.

A joint venture is an agreement between two or more parties to undertake a specific business together, sharing ownership, risk, profit and control. It lets a firm enter a new market with a local partner and share cost, but it carries risks: conflicting objectives, unequal commitment, and disputes over control. The venture is usually time-bound.

Everything the syllabus says: NGOs, cooperatives and joint ventures

Non-governmental organisations in full

Non-governmental organisations (NGOs) are crucial in addressing humanitarian challenges. They are mission-driven entities that operate independently of government control, focusing mainly on social, humanitarian and environmental issues. The syllabus notes that there are about 1.5 million NGOs in the United States alone.

Although the name suggests complete independence from government, many NGOs receive some government funding alongside private donations and other income, which creates shifting dynamics depending on the level of state support and the wishes of major donors. Most are non-profit.

The term ‘NGO’ was introduced in the United Nations Charter in 1945, to describe voluntary citizen groups working for the public good, and since then NGOs have become influential in international development, advocacy and humanitarian aid.

Two main categories (World Bank)

• Operational NGOs design and carry out development projects.
• Advocacy NGOs promote causes by raising awareness, lobbying and influencing policy.

NGO types at a glance

Funding

Financial sustainability is a persistent challenge, so NGOs mix conventional funding (bilateral and multilateral aid) with unconventional methods such as microenterprises and impact investing. Private donations from individuals, corporations and foundations are often the backbone, from small gifts to large grants from funders like the Gates and Ford Foundations. Membership dues are a reliable source for bodies with a strong membership base or professional ties.

Many NGOs also receive government grants and contracts, and large international ones may be funded by several government donors, such as USAID. Scale varies from small community groups to international giants with billions of dollars.

Government support and independence

Some NGOs keep strict independence from governments, and Amnesty International stands out. Others work closely with government while keeping their non-governmental status. Government donors may have self-interested motives such as improving diplomatic relations, projecting soft power or improving their image through humanitarian work. Yet accepting government grants does not automatically turn an NGO into a government mouthpiece, and most reputable NGOs keep strict operational independence whatever their funding.

Cooperative societies in full

A co-operative is a farm, business or other organisation owned and run jointly by its members, who share the profits or benefits. In Nigeria the Nigerian Co-operative Societies Act sets minimum membership:

• agricultural societies need 50 or more members
• savings and credit co-operatives need 20 or more
• other types need 10 or more. In a co-operative all members are actively involved in its activities and share in its benefits

Co-operatives may be commercial businesses, sharing profits among members, or not-for-profit organisations that share other benefits, such as their output.

Types of co-operative in Nigeria

• Consumer co-operatives: provide affordable essential goods and services to most people.
• Credit co-operatives: provide savings and affordable loans to members.
• Agricultural and farmers’ co-operatives: the most popular type, since agriculture involves over 40% of the population.
• Housing co-operatives: help members buy land, take part in building houses and invest in real estate.
• Fishing co-operatives: supply fresh or processed fish and discounts on nets and equipment.
• Multipurpose co-operatives: cover a broad range of needs and sectors. Examples in the syllabus: the GreenLife Multipurpose Co-operative Society (agri-technology solutions), the Nasara Agricultural Co-operative Society (agri-based entrepreneurship, empowerment and education), the Happy Homes Multipurpose Co-operative Society (affordable housing for members) and the Rehabilitation Village Farms Co-operative Society, a 30-member farmers’ co-operative in Akwa Ibom State that develops oil palm plantations, mills palm oil and trains and assists small farmers.

Benefits and drawbacks

Joint ventures in the syllabus

A joint venture is a business entity created by two or more parties, typified by mutual ownership, returns, risks and governance. The syllabus’s reasons for entering one:

• access to a new or emerging market
• improved efficiency from combining assets and operations
• the chance to share business risk
• access to competence and skills

Advantages: new insights and expertise; access to specialised technology, staff and other resources; a limited lifespan and short-term commitment, with risks and costs shared if the project fails; and it removes the risk of discrimination. Disadvantages: flexibility can be restricted; the partners’ involvement may be unequal; a clash of cultures and management styles may hurt success; and its objectives may be unclear and unrealistic.

Questions that could be asked on this topic, and how to answer them

Common mistakes in the exam

• Defining a private company only by a number of members. Its defining rule is that it cannot offer shares to the public.
• Mixing the memorandum and the articles. The memorandum faces outward. The articles govern the inside.
• Saying that a company limited by guarantee pays dividends. It is non-profit.
• Treating NGOs as part of government. They are independent, even when government funds them.
• Forgetting that a cooperative votes by member, not by shareholding.
• Naming a joint venture’s advantages without its disadvantages.

Quick revision

• A company: separate legal person, limited liability, ownership by shares, separation of ownership from control.
• Private companies cannot offer shares to the public. Public companies can, by prospectus.
• Limited by shares, limited by guarantee (non-profit, no shares) and unlimited.
• Formation documents: memorandum, articles, statutory declaration, prospectus (public), certificate of incorporation, and the certificate of trading the syllabus lists for public companies.
• NGOs: operational and advocacy, with the labels BINGO to TANGO.
• Public sector: agencies, programme agencies and public enterprises. Challenges: budgets, efficiency and cyber attacks.
• Cooperatives: one member one vote, patronage refund. Alliances and joint ventures share risk and resources.

Practice questions

These are original questions written in the style of the ICAN exam. Try each one before you open the answer.

Section A style: multiple choice

Section B style: written questions

A further written question

Model answers

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