Introduction
The Nigerian tech ecosystem has experienced remarkable growth over the past decade, attracting significant investment from both local and international investors, positioning itself as a leading hub for innovation in Africa. With a young and dynamic population, increasing internet penetration, and a burgeoning middle class, Nigeria offers a fertile ground for tech startups and investors.
Nigeria is home to numerous tech startups spanning various sectors, including fintech, e-commerce, healthtech, agritech, and edtech. Cities like Lagos, Abuja, and Port Harcourt are the primary hubs where these startups are concentrated. Lagos is the only African city ranked in the Global Top 100 Startup Ecosystems (2023), and of the 7 tech unicorns in Africa, 5 are from Nigeria. The technology industry has made significant contributions to the Nigerian economy, driving economic growth, job creation, innovation, entrepreneurship, and FDI.
Starting up a technology (tech) company in Nigeria is not as difficult as people think it to be. Aside from the important factors of passion and strong interest that must be considered for such a dynamic, yet fast growing field of business, another major consideration for tech startups is the legal aspect. This article contains the key legal considerations that tech startups are to consider before commencement and upon commencement of the tech company. A startup must consider the preliminary compliance of registration, and the various regulations binding them. More so, just as each sector has its unique legal considerations, so also the tech sector.
Below are some legal considerations a tech start-up should consider:
- Preliminary agreements
Before incorporation, the subscribers coming together to incorporate the company are to execute some preliminary agreements among themselves. These documents though not mandatory are very important to the foundation of the startup. Preliminary agreements are particularly important because it makes each party aware of the roles and responsibility, sharing formula, risks, dispute resolution process, and other key clauses in these agreements. These agreements include Founders’ Agreement, Joint venture Agreement, Non-Disclosure Agreement, Invention Assignment Agreement, Vesting Agreement, Intellectual Property Assignment Agreement, among many others that the startup may consider important based on the startup niche.
- Registration with the Corporate Affairs Commission
The Companies and Allied Matters Act 2020 (as amended by the Business Facilitation Act 2023) provides that before any company can carry on business in Nigeria, it has to comply with the mandatory incorporation of company with the Corporate Affairs Commission and obtain the requisite incorporation documents. This process is necessary as the incorporation documents obtained upon registration are essential in getting some other permits and registrations. For instance, before a corporate account can be opened or licenses to operate are granted, the incorporation documents acquired from the Corporate Affairs Commission are part of the important documents to be submitted. This step forms part of the primary step and as such, startups are advised to navigate this part with a lawyer who would assit with drafting the memorandum and articles of association as well as advise on the minimum share capital approved by the CAC base on the niche of the startup.
- Compliance with industry-specific Regulations
Asides the registration with the corporate Affairs Commission, there are other requisite registrations and permits that a tech start up is required to oblige with, and these registrations are dependent on the sector of the tech. Some of these sectors include: Central Bank of Nigeria (CBN), National office for Technology Acquisition and Promotion, National Information Technology Development Agency (NITDA)
- Tax compliance
Upon incorporation with the Corporate Affairs Commission (CAC), a unique Tax Identification Number (TIN) is issued to the company. The company must then register this TIN with the Federal Inland Revenue Service (FIRS), which will validate the TIN by registering it with TaxPro Max, an online platform that assists companies in complying with their tax obligations. The company is also required to apply for a Value Added Tax (VAT) Certificate, enabling it to charge 7.5% VAT on all goods and services sold on behalf of the federal government and remit this tax monthly.
In addition to VAT, the company must file annual company income tax, as well as manage other tax obligations such as withholding tax and PAYE (Pay As You Earn) tax for employees. The company must also file annual tax returns to obtain a Tax Clearance Certificate. Tax compliance is mandatory under Nigerian law, and non-compliance is a serious offence
- Compliance with Data protection and privacy
Data protection and privacy are paramount in today’s digital age, as individuals are increasingly concerned about how their personal information is used. Tech startups in Nigeria must comply with the Nigerian Data Protection Regulation (NDPR) and the National Information Technology Development Agency (NITDA), which oversees the monitoring of electronic data exchanges. The NDPR sets guidelines for the collection, processing, and storage of personal data. Compliance with these regulations not only safeguards users’ privacy but also builds trust and credibility for the startup in a competitive market.
- Employment
It is expected that the company hires staff to work with and so, the startups must comply with the labor law in employee relations and ensure to create the employee handbook containing the regulations guiding the employee, coupled with a detailed offer of employment to be signed by the employee upon employment, enunciating the terms and conditions attached to working in the company.
- Protection of Intellectual Property
The tech startup environment is a unique space that fosters new inventions, ideas, and innovations. To protect these creations, they must be patented. Additionally, the startup’s trade name, slogan, and logo should be trademarked with the Federal Ministry of Interior. The startup can further safeguard its intellectual property through non-disclosure agreements (NDAs), licenses, and intellectual property agreements.
- Legal Documentation
Upon incorporation, there are several key documents that every startup needs to prevent costly mistakes. These agreements include: shareholders’ agreement, operating agreement, employment contracts, non-disclosure agreement (nda), service level agreements, terms of service and privacy policy, vendor or supplier agreements, investment agreements, employee stock option agreement, partnership or collaboration agreements etc.
CONCLUSION
The tech startup is one of the fastest growing sector in Nigeria, offering numerous opportunities and advantages. However, complying with e relevant regulations and legal requirements is extremely important to avoid potential pitfalls and ensure the smooth operation of the business. Non-compliance can lead to serious consequences; thus startups are advised to seek legal advice from professionals before taking any step.