A thorough study of business enterprises in Nigeria and elsewhere must be preceded by at least, a simple definition of the term “Business”. However, there is no single generally agreed-upon definition of business.
This implies that there are as several definitions of business as there are business experts. Hence, to start with, let us define business simply as “any venture that leads to exchange of goods and services (or ideas) for a consideration”.
The consideration here maybe in the form of monetary value, goods, services or goodwill. Business may also be defined as the commitment of the source to a productive end or venture, with a view to reaping benefits (financial or otherwise) there from in a determinable future.
This definition considers the term “business” as a productive process or simply as production. It is, however, absolutely important to note that business is an investment and in most cases, it is more often than not, undertaken with profit motive in mind although, in some cases the determinant of the principal objective for which a business venture is undertaken depends on whether the venture is undertaken by private or public sector.
Having defined business. What then is a “Business Enterprise”? Again the definitions of a business enterprise follow the analogy of the definitions of business. In this case a business enterprise is simply a business unit. That is, it is a business organisation. A business organisation is an organisation that does business so as to create value for profit.
It must be noted that there is no limit to the type of business in which Nigerians can lawfully engage themselves. However, restriction had been imposed on foreign businesses by the Indigenous. Enterprises Promotion Decree of 1972.
This Decree, also known as indigenisation Decree of 1972, takes care of the indigenisation of the economy by which the Nigeria ensure that Nigerians own and control their businesses. Under the Decree, Nigerian enterprises have been classified into two schedules. Schedule one contains enterprises that were to be wholly owned by Nigerians by 31 March, 1974 and schedule two those to be owned 40% by Nigerians by the same date.
As it is usual to evaluate the implementation or execution of a policy after some years of operation, the Nigerian government in 1976, set up a panel to study the operations of the Decree; and as a result, the Nigerian Enterprises Promotion Decree of 1977 was passed.
These new Decree replaces the former two schedules with three new schedules. Schedule one spells out the enterprises which are to be owned exclusively by Nigerians as in the previous Decree of 1992, Schedule 11 contains enterprises in which Nigerians; individuals and/or organisations must have 60% or more interests while Schedule III contains all enterprises not included in the first two schedules and which belong to the private sector.
According to the 1977 Decree, Nigerian participation in the Nigeria private sector enterprises must not be less than 40% by the end of 1978.
There are several other laws and legislations which directly or indirectly have bearing on establishment and general operations of business enterprises in Nigeria. These include the Bills of Exchange Act, Bills of Sale Act and the Nigerian Standards Organisation Decree.
Therefore anybody wishing to set up a business enterprise must comply with the appropriate legislations relative to the type of business in mind.
In addition, there are legislations by which the government of Nigeria intends to provide incentives and inducement to Nigerians in order to encourage setting up of business enterprises.
The legislations in this regard include the Customs (Drawback) Regulations of 1959, Industrial Development (income Tax Relief) Act of 1958 as amended by the Decree No. 22 of 1971, the Customs Duties (Dumped and Subsidised Goods) Act 1958 and the Income Tax Amendment Act 1959.
For instance, the Draw back Regulation allows for repayment of duties in full for goods which are exported as they were imported or for goods that were imported for use in production of goods which are later exported.
On the other hand, special duties apply on goods dumped or subsidised from overseas countries under the Customs Duties (Dumped and subsidised Goods Acts) 1958. However, the greatest incentives emanate from the Industrial Development (Income Tax Relief) Act 1958. This Act provides tax relief in the early years to public enterprises that were engaged in pioneer industrial organisations.
Forms of Business Enterprises
The various business organisations responsible for production and distributions of goods and services may be categorised into several groups depending on the interest and orientation of the person making the classification as well as the motive behind such an exercise. However, business enterprises are classified into two: that is, the private sector and the public sector enterprises.
In Nigeria, about 50% of all business transactions take place in the private sector while the rest is undertaken by the government at whatever level. The prime line of demarcation between these two groups of business enterprises in Nigeria, as in other countries, is mainly matters of ownership, capital structure and main objectives.
For instance, while in the private sector, individuals own the business enterprises, business organisations found in the public sector belong to the government.
Private Business Enterprises
Private business enterprises in Nigeria, as elsewhere, are generally classified into sole proprietorship, partnership, limited liability companies and cooperative societies. Sole proprietorship is the earliest and simplest form of business enterprises.
This implies that the one-man business is the oldest and most numerous of business organisations. The person who enters into business on his own account is called the sole trader or sole proprietor.
Hence, the sole-trader business is owned, managed or controlled by the single owner who takes the full responsibility for his firm. He can make and execute decisions without referring to other people. The fact that, there is only one owner however does not exclude the fact that there could be numerous customers clients or employees.
Sole traders are found in retail trade as peddlers, hawkers stall – holders, shop-keepers, hairdressing, farming, welders, plumbers, etc. This implies that sole trade businesses are common in retailing, services, farming as well as in professions like the medical doctors, accountants, engineer and management consultants.
A sole proprietorship is easy to set up and organise. The sole owner is his own boss and hence quick decision can be arrived at. This is because the owner does not depend on anyone in running his business.
Since he is the sole owner of the business, he is entitled to all the profits of the undertaking. Consequently, it is to his own interest to make the business as efficient, effective and successful as possible.
Again, customers receive personal attention. This is because the proprietor knows them personally can assess their credit worthiness and hence the cases of bad debt are reduced. The fact that employees are personally known and supervised ensures effective organisation and performance.
The sole-trader can go to work anytime he wishes and can decide never to go on holidays. Since he is working under nobody, he has every incentive to work hard and please himself. He can provide after-sales services such as repairs and deliveries. The sole-trader can operate in local areas, and comer-side areas. Finally, the business of a sole trader can be kept private to other individuals groups or organisations.
However, one-man businesses all over the world including Nigeria are faced with some problems. For instance, the sole owner has unlimited liability, the business is not a separate legal entity (not personal at law) and expansion may be difficult.
Since his capital base is too small to that effect. However rich a sole trader might be, he is only one man and his capital is limited to the amount he can provide. Also long hours have to be worked and he rarely take an holiday as this could imply closing down the business.
The sole trader has every incentive to work hard to please himself. This may result in over-stressing himself and hence becomes detrimental to his health. Just as he enjoys all profits, so does he bear all losses alone.
Again, the future of a one-man business is never certain due to illness or death. In sole proprietorship, bulk-buying is impossible for inadequate finance in the form of capital and storage space (warehousing). In addition, customers cannot be provided with variety of products by a sole trader.
Finally, only a few changes can be made. For instance, change partaining to placement of order for new products and maintenance or improvement on the layout and appearance of the shop or office.
The next form of business enterprises in the Nigerian private sector is partnership. When a sole proprietorship grows and expands, the owner may find it convenient to share the risks and management of the business with other people.
Those people who will be willing to cooperate with him and share in the profits, losses and risks of the enterprise are said to be his partners. Consequently, partnership is a form of business enterprises in which two or more individuals make a legal agreement to own and run business together.
In particular, a partnership is defined by the partnership Act, 1890 as “the relation which subsists between persons carrying on business in common with a view of profit”. In partnership, the partners have joint responsibility for the risks, profits or losses of such a business.
That is, they are severally and jointly liable for the misfortune of the business. The number of partners ranges from two (2) to twenty(20). However, in the business of banking, the maximum number of partners is ten(10).
The company Act of 1967 has however, exempted businesses like accountancy, stock-broking and stock-jobbing from such maximum limit. The partners pool and share the required capital and/or skills to, and receive in return an agreed share
In Nigeria as in elsewhere there are usually different types of partners that can run partnership together. These are active or general partners (Partners who take part in the management of the enterprise), sleeping or dormant partners (partners who do not interfere or take active part in the management of the firm) and limited partners (those who have invested capital in the business and have their liability limited to what they have invested).
Partnerships are found mostly in professional business apparently among lawyers, doctors, accountants, engineers, architects and management consultants. However, in some cases, they are also found in retailing and wholesale businesses although they are very rare in manufacturing enterprises.
To form a partnership, the partners usually draw up a form of written agreement known as the partnership deed. This written agreement governs and regulates the activities of the enterprise.
The deed of partnership normally sets out the nature or type of enterprise, ways of winding up or dissolution of the business, admission of new member(s), partnership capital ratio, management and operation of the enterprise, profits and/or losses sharing ratio/formula, and arrangement as to how partner may draw money for personal expenses.
The major advantages of partnership business abound. For instance, it is possible to raise more capital by just asking each partner to contribute large sums of money. This, unlike the sole proprietorship, mitigates or alleviates the problems associated with capital shortage.
There is also the possibility of growth and expansion by making use of the additional capital from the partners. In actual fact, in the case of ordinary partnership, the amount of capital can be varied at will This makes more capital available.
Partnership allows the injection of new blood into the business which brings about specialisation in the management of the enterprise as each partner may have a special skill. There is cordial and close relationship between customers or clients and partners which may also be extended to the employees of the enterprise.
Partnership also allows privacy as the partners are not legally required to publish the annual account of their business except to the Inland Revenue Office.
Again, partners may take holidays or rest due to illness without harming the enterprise contrary to what obtains in the case of the sole proprietorship. Furthermore, decisions and responsibilities are taken by up to 10, 20, etc members as the case may be.
Hence the partners are able to take better decisions than in the case of the sole-trader. Partnership is able to raise money quickly. Apart from contribution by members, a lender may have more confidence in a group of people compared to one person. Finally, greater continuity is achieved because the death of one partner may not automatically lead to the dissolution of the business.
On the other hand, business enterprises that are run as partnerships also have their own demerits. For instance, like the sole-trader, partners (especially ordinary partners) have unlimited liability and as such they are personally liable to all the debts and obligations of the enterprises as the firm is not a separate legal entity.
The number of partners is limited to 10 in the banking industry and 20 in others .except in enterprises formed by Accountants, Solicitors, Stock-brokers, etc, where the number of partners is not specified.
Again, the manner in which profits or losses will be shared may not be favourable to all partners. Arguments could occur between partners, and this may have to be taken to a court of law for settlement if they fail to agree among themselves.
For instance, there maybe difficulty in securing agreement on the admission of a new partner. Furthermore, petty quarrels or misunderstanding among the partners could cause the dissolution of the partnership.
Each partner has the power to bind the other partners by all contracts concluded by him. This implies that partners are jointly and severally liable for contracts by any partner. Hence, every partner has to be consulted. So decisions may take longer to arrive at contrary to what obtains in the case of limited liability companies.
Also, inadequate capital may spell doom for the enterprise. This is because the amount of capital available for the partnership may not be as large as may be required for possible expansion. As the success of the enterprise largely depends on the degree of unity and responsiveness of the partners, the failure of any of them would lead to the failure or collapse of the total system.
The fragmentation of profit is another demerit of partnership enterprise. Each year, the partners expect some share of the annual profits. The continuity of the partnership business may not be completely guaranteed. This is because the death, retirement or otherwise withdrawal of a partner may spell doom for the enterprise (e.g the death or retirement of an active partner may wreck the enterprise).
Also, the high death duties which the enterprise has to pay on the death of each partner may affect the business adversely. More so, limited partners do not have adequate opportunities to share in the management of the business. He cannot also withdraw his capital easily.
Finally, enterprises that are run as partnership do not command high favour from investors and contracts awarding firms because they prefer joint-stock companies to this level of business organisation.
The next class of private sector enterprises in Nigeria which we have to discuss is the Joint Stock Companies. A joint-stock company, also known as limited liability company, may be defined as a group of individuals who associate themselves for the exclusive purpose of undertaking some form of business activity.
According to Teriba, joint stock means “the total assets of a company; machines, equipment, goods in stock, buildings and money in the bank. The total value of these assets is divided into a number of equal shares which are owned by shareholder”
The major differences between private limited liability companies and their public counterparts may be clarified, experts in Limited Liability Enterprise have classified them into two categories. These are private and public limited liability companies.
The limited liability companies can be established by Royal charter in United Kingdom, Acts of Parliament in a Parliamentary System like Nigeria or even simply by registration under the companies Act 1948 as amended by the Companies Act 1968.
The major merits of the limited liability companies include the fact that their shareholders enjoy limited liability, the companies are separate legal entities (personale at law), and it is always possible for people who have not got enough money to start their own businesses to invest their small sums in a company and earn profits.
They can also raise more capital compared to the cases of the sole proprietorship and partnership. Due to their bigger sizes, they can do businesses more economically. A company is an on-going concern. It has a continuous existence beyond the life of its founders. The death or retirement of a member may not necessarily bring the business to an end.
In the case of public limited liability companies, more capital can be raised by issuing more shares money can be borrowed more easily because of large assets and more people of timber and calibre in terms of skills and abilities can be attracted. Finally, due to the transferability of shares, public companies can carry on doing business smoothly without interruption unless they go bankrupt. On the other hand, companies also have their own disadvantages.
For instance, the shares of a private company cannot be sold directly to the public. Also, a shareholder will be unable to transfer his shares without the consent of the other shareholders. In many countries like Nigeria, Ghana and United Kingdom, etc, company affairs cannot be kept private since annual accounts have to be rendered.
In the case of the public companies, they require very costly expenses to be met before they can be formed. Also, shareholders do not normally have any real say in the running of the enterprises.
In the large army of shareholders, there may be delay in decision making. Again, employees may not be able to enjoy adequate personal contact with the employers. Finally, because of the fact that their affairs are made public, another rivalry company may decide to buy up the majority of shares in the companies. In this case, the new management may introduce changes which could cost some employees their jobs.
A typical example of this occurred in the Savannah Bank (Nig) Plc, when Jim Nwobodo and his foreign partners took over the over-riding (majority) shares of the bank in the early year 2000. As a result 900 employees of the bank lost their jobs while some favourable and unfavourable transfers were made among the remaining senior staff.
However, the majoity ot the staff relieved of their employment were non-graduates although some of them were still kept for sometimes on contract basis.
In addition, there is bureaucracy in very large enterprises. This implies that there may be too much adherence to rules and regulations and as such employees cannot show their initiatives. In most cam, shareholders are more concerned with dividends than with long-term growth and survival policies and strategies.
Finally, minority share holders are sometimes suppressed by their majority counterparts as occurred in the cited case of the Savannah, Plc.
According to Teriba “The private company is ideal for firms which cannot be too small(partnership) or too large (public company). Some wholesale and retail firms are private companies and in advanced countries, travel and advertising firms and large-scale farming”.
On the other hand, most public companies are large-scale enterprises like ail, gas, mining and manufacturing enterprises.
Mention must however be made as to how a limited company may be formed. In West Africa in particular, all limited liability companies, whether private or public are governed by Acts of parliament.
To form a limited company the promoters (the organizers who happen to be the original members) must first prepare and submit four important documents with the Registrar of Companies.
These are Articles of Association, Memorandum of Association, a list of original members and a declaration that all the requirements for incorporation have been met.
The Memorandum of Association defines the company’s constitution and the scope of its powers in relation to the community The document states the name of the company with “limited” as the last word, the country where the registered office is to be situated, the object of the company, a declaration that the liability of the members is limited and the amount and type of share capital to be issued.
On the other hand, the Articles of Association are the regulations governing the internal operations (management) of the company. These include the duties and responsibilities of director, and the way in which the business is to be run.
Limited liability companies may be dissolved or wound-up in three ways. The first approach is voluntary winding-up initiated by shareholders or debenture holders. The second approach is winding-up under the supervision of the court.
The last way by which companies may be dissolved is compulsory winding-up which is also by the court.
The last form of private business enterprises which we must mention is known as the Cooperative Societies. A cooperative society may be defined as a voluntary, non-profit making organisations engaged mostly in retail trade and controlled by the members who are also, in most cases, customers.
A cooperative society is a self-help enterprise formed either by consumers or producers to provide services to its members.
The idea of forming cooperative societies started in Great Britain in 1844 by the Roachdale Pioneers which was made up of 28 flannel weavers at a time when the price of goods was so high that ordinary workers could not make ends meet.
Since then many cooperative societies have been formed in many parts of the world including they countries of West Africa.
Three major types of cooperative societies have been identified. These include consumers cooperatives which buy consumer goods in bulk and at wholesale prices and resell them to their members. The second type is the producers’ cooperatives which are formed when producers of related products join together to market their products.
Finally, the credit and thrift cooperatives are formed to make it easy for their members with low income to save, thereby increasing the amount of money available for lending to members.
To Teriba membership of a cooperative society is voluntary and opens to all willing persons. Members are at liberty to leave at Will. They bear the full risks and enjoy all the benefits of the enterprise A cooperative society is a democratic organisation.
Hence, members elect a management committee to govern the affairs of their society, but they retain the ultimate control of the association.
The major advantages of cooperative societies in Nigeria are numerous. For instance, there is a high degree of democracy as all members have equal rights in the management of the society.
Secondly, marketing post is reduced because of bulk sales of output. This is due to the fact that many cooperative societies’ undertake joint transportation and distribution of members’ products.
Thirdly, the quantity of output tends to improve because members tend to market their products through careful grading and storage. The cooperative societies also provide education and encouragement to members to improve the quality of their products.
Next, improved standard of living is provided for members through higher and stable income. The Cooperative societies also encourage thrift by providing facilities for savings. There are many cooperative thrift societies in Nigeria and other West African Countries today. They are able to raise loans easily and quickly.
Cooperative banks have been established in many part of West Africa, of which Nigeria is a part, to assist cooperative unions in raising loans.
Furthermore, a cooperative society protects its members against the exploitation by middlemen. In such A society, the customer is at the same time the profit receiver, The more one buys, the more profit he earns.
For instance, by eliminating the middlemen, profits are passed on to members and this helps to improve their standard of living. Finally, members of a cooperative society have a sense of loyalty to their associations, thereby enhancing stability of business.
For more clarification, the major differences in membership of the various forms of private business enterprises may be demonstrated as contained.
Public Business Enterprises
Public enterprises or corporations are the types of business organisation which are socially owned, controlled and operated with the principal intention of benefiting the whole community.
This business enterprises are established by special Acts (or ordinances) of parliament under a civilian administration or by Decree under a military regime. Some activities of the enterprises are managed by government departments while others are run within the local or state governments.
Public enterprises therefore represent direct involvement of the state in productive and commercial activities of the economy of a country through creation of statutory authorities by special Acts of parliament.
Public enterprises providing such services as electricity, airways, railways, water supply and broadcasting are usually organised as independent enterprises and called public corporations. On the other hand, marketing boards and some financial establishments are often classified as part of the public sector.
In Nigeria, typical examples of public corporations are Ogun State Water Corporation, OGWC, Lagos State Broadcasting Corporation (LSBC), Nigerian Television Authority (NTA), Nigerian Railway Corporation (NRC), and National Electric Power Authority (NEPA). In Britain, the public Corporations will include the British Broadcasting Corporation (BBC), British European Airways(BEA), British Overseas Airways (BOA) and the Port of London Authority (PLA).
Besides public corporations, there are enterprises established as limited liability corporations in which the government is either the sole owner or has A majority (or controlling) shares. By this the government is able to own and operate enterprises along purely commercial lines.
Government may also decide to establish joint ventures with private individuals on manufacturing, agriculture, transport and communication, mining and commerce and to benefit from private capital and management.
Public enterprises are therefore all the enterprises which are owned or operated directly or otherwise by the state or regional authorities. Usually, a manager or administrator is put in charge of the business under the supervision of a Board of Directors who in turn is accountable to a Minister, Commissioner or Supervisory Counsellor, as the case maybe, of the government, and finally to the parliament.
The main features of public enterprises in Nigeria include the fact that they are usually set up and funded by government, commercial viability as obtained in private establishments is not a necessity in them, they are not set up to maximise profit and they do not distribute or share profit.
However, they may have to meet interest charges at fixed rates on stock issued to previous owners of the industries conc ned and those who have purchased stock. Other features include ‘the fact that public enterprises are usually engaged in economic activities that are of great importance to the community but which offer little chance of profit to the private businessmen.
Again, the market for the commodity supplied by public enterprises is restricted or monopolised locally and the enterprises often operate below their full or optimum capacity (or efficiency).
However, there are several rationales behind establishment of public enterprises by government in Nigeria as in other countries. The most important reasons include their high cost of establishment, the danger of monopoly by private investors and low level of profit margin by these enterprises.
Again, government establishes public enterprises because there are some projects in which private competition may not ensure fair and even distribution.
To sum up, government may set up public enterprises to provide public utilities, take care of essential industries and services, take Care of heavy capital involvement, provide for foreign monopoly control, economic development and employment opportunities.
However, some of the demerits of the public enterprises in Nigeria presently include the fact that they are run in such ways that there could be dis-economies, decisions take long to make and cost of production could be high because se they do not normally produce for profit making.
Also, the owners of Public enterprises (the tax-payers may not have equal opportunities for criticising their operations. Again, some of the enterprises tend to be too slow in improvement and some produce poor quality products. Finally, there is the danger of undue political interference on the part of the government.