Various government agencies and regulators have varying business classifications. Therefore, it is challenging to establish a definitive method for classifying businesses. As a result, this article examines five classifications of enterprises.
1. FIRS business classification
The Federal Inland Revenue Service (Nigeria Revenue Service, NRS) classifies businesses as small, medium, and large. The classification is based on the annual revenue earned by these businesses. This is explained below:
- Small-scale taxpayers are companies with an annual turnover of below NGN 1 billion.
- Medium-scale taxpayers are businesses with annual revenue of 1 billion and 5 billion Naira.
- Large-scale taxpayers are companies with an annual turnover of above NGN 5 billion.
Companies that earn a revenue of below 50 million Naira annually are not expected to pay taxes from 2026. However, they must file their returns with the tax authority.
2. SMEDAN size-based classification
This is similar to the NRS classification. The classification is by size: Nano, Micro, Small, Medium, and Large enterprises. It uses the number of employees and business assets, (excluding land) to classify enterprises.
- Companies with an asset base of less than 3 million Naira and two employees are Nano businesses.
- Enterprises with assets of 3 million or less than 25 million Naira are macro businesses. The manpower should be between 4 and 9.
- A company with assets of NGN 25 to NGN 100 million and a staff of 10 to 49 is classified as a small business.
- Medium-sized entities have assets of 100 million to one billion Naira with 50 to 199 manpower.
- Large-sized companies have a minimum of 200 employees and assets of NGN 1 billion and above, respectively.
The problem with this classification is categorising mismatched companies. For example, a company might have five employees with an asset base of NGN 25 million excluding land.
3. Profit and Non-Profit Classification
Profit entities are established to make a profit. This type of company provides a markup percentage for its sales that will cover all operational costs. Non-profit organizations do not have a profit-making motive. They are created to meet specific needs such as providing essential services like good road networks or taking care of abused children.
4. CAC classification
The Corporate Affairs Commission (CAC) classifies businesses as enterprises and companies. Enterprises are entities that have the owners' names and do not end with the words LTD or PLC. The owners of entities are not separated from the business.
Businesses can be classified as limited or public companies. These companies have their names ending with the abbreviation LTD or PLC, respectively. A company is usually separated from the owners. It also has limited liability. There are unlimited companies. These have unlimited liability. An example is Shell Unlimited, the parent company of Shell Plc.
5. Industry Classification
Businesses are classified based on their industry. Commercial banks are classified within the banking industry. A microfinance bank is a sub-sector of the banking industry. This also applies to other types of companies in their main sector and sub-sectors.
In conclusion, the five classifications explained above are used in Nigeria both in academics and the media. Regulators and government agencies decide on these categories of businesses. However, there are other ways businesses can be classified.