Sole Proprietorship Transition and Incorporation to Limited Liability Company in Uyo, Akwa Ibom State

Abstract:

The study sought to investigate why many businesses are not transitioning from sole proprietorship to a limited liability company (LLC) with a focus on Uyo, Akwa Ibom State, Nigeria. Specifically, the study examined the effect of financial constraints and taxation on the transition of businesses from sole proprietorship to a limited liability company in Uyo, Akwa Ibom State. The sample size for the study was 302 out of a population of 1240 sole proprietorships. Survey research design was employed, and Linear Regression analysis was used in testing the hypotheses. Findings revealed that financial constraints had a significant negative effect on the transitioning of businesses from sole proprietorship to limited liability company (Beta = - 0.569; R2 = 0.324, F-value = 60.984, p<0.001). Taxation had a significant negative effect on the transitioning of businesses from sole proprietorship to limited liability company (Beta = - 0.740; R2 = 0.57, F-value = 362.701, p<0.001). The study recommended that the government and financial institutions should design transition-focused funding schemes specifically for sole proprietors intending to incorporate with a transitional tax relief period or reduced compliance requirements during the first few years to encourage formalization.