Hello , I welcome you to yet another profitable week.

So last night I was in a session hosted by Nelly Agbogu (Naijabrandchick) .

The session was about investments and where to put our money.

One of the speakers said...

" Do not invest in a one-man company or a business without structure"

And the question was asked...

"How do we identify a one-man company?"

So from the legal point of view, I am going to briefly explain how to identify a one-man company or better still explain what it means to be a one-man company.

Here is what it means to be a one-man company...

By legal structure here, I mean how the Company or business was registered.

Is it a business name or a Ltd Liability Company?

A business name or an enterprise is mostly owned by one person.

A business name is not a legal entity and the owner bears all the risks and liabilities and is usually not accountable to anyone.

A limited liability company on the other hand is an actual legal entity.

It is an artificial person (corporate body) with all the powers of a natural person.

Although one person can now set up a Company, it is usually owned by two or more persons.

Now here is how to spot a one-man company before you invest your hard-earned money.

1. Request to see their incorporation documents ( CAC Certificate of registration).

This will let you know whether it's a business name or a Ltd liability Company to start with.

2. If it's a Limited liability Company, request to see the current list of the board members. ( Directors and advisors).

Essentially, what makes a company a one-man company regardless of how it is registered is the decision-making power of the founder/CEO.

The founder is accountable to the board.

If he takes all the decisions by himself and he does not answer to anyone, then chances are that he is a one-man company.

He doesn't need to consult a board for anything, he can decide to wake up one day and change the object clauses or nature of business of the Company and no one will question him, because no one holds him accountable.

This is a red flag, no matter what they do, even if they are an Agritech Company, you should be wary before putting in your money.

3. Look critically at the composition of the board, if they have one.

Sometimes you may request the board list and they may provide one.

Look at the composition of the board very well.

Sometimes the board may comprise of all family members, mother, father, siblings, wife, husband etc.

This is not a functional board and in most cases, those other family members have little or no say in the company.

They just exist as board members on paper, as a matter of fact, some of them are not even aware that they have been made directors in their brother's company.

4. Watch out for the regulatory compliance level of the company.

Most one-man companies hardly comply with the laws that affect their business.

Beyond registering the business with the CAC, they do not take any further step in being on the right side of the law as far as their business is concerned.

They are always hiding from regulatory bodies.

5. In a one-man Company, there are no other shareholders.

He is the sole shareholder, he controls 100% of the shares and so if something goes wrong, there is no one to bail him out.

Eventually, he is still now in the same position as the business name owner.

How do you know if he is a sole shareholder or there are other shareholders?

1. Request for their particulars of shareholders and directors. It is one of the documents attached to the certificate of incorporation.

For a growth company or a startup, you can request their capitalization table ( CAP TABLE).

This is a document that shows all the equity ownership from inception to date.

In simple terms, the cap table contains the names of all shareholders and the number of shares or equity owned by them.

If they don't have the cap table or can't produce the particulars of shareholders in the Company, just know that it is a one-man company and that's already a red flag.

I will stop here for now but I hope this made sense to you?

So, before you invest your money in any company, make sure that you are safe.

Talking about being safe, in a subsequent post, I will talk about active legal steps to take before investing your money with any individual or company.

So, have you lost money or had any legal battle investing in a One-man's Business?

To your #LegalSense

#BarinaadaLegal