In the last few years, startups have become a major player in the nation’s economy and the Nigerian Startup ecosystem outranked other African nations; dominating the African Startup sector in terms of estimated number of startups and available startup funding. This, however, came with various challenges. YEJIDE GBENGA-OGUNDARE reports that these challenges led to the establishment of the Nigeria Startup Act 2022, which is targeted at fostering the creation and development of an enabling environment for technology-enabled startups in Nigeria, and for related matters.
Like all other businesses in Nigeria, startups are faced with several challenges; high cost of doing business, regulatory bottlenecks, stifling government policies as well as poor physical and digital infrastructure among many others. This is the major reason the Nigeria Startup Act 2022, was signed into law by President Muhammadu Buhari on October 19, 2022, with the aim of addressing some of the challenges by fostering the creation and development of an enabling environment for technology-enabled startups in Nigeria and for related matters.
The Nigeria Startup Act as a project is a joint initiative of Nigeria’s tech startup ecosystem and the Presidency as parts of efforts to harness the potential of Nigeria’s digital economy through co-created regulations with the main objective of ensuring that Nigeria’s laws and regulations are clear, planned and work for the tech ecosystem and ultimately, contribute to the creation of an enabling environment for the growth of the ecosystem in addition to the attraction and protection of investment in tech startups.
The Act enjoyed massive contribution with 30 leaders in Nigeria’s tech ecosystem contributing to its drafting between June and September 2021; the legislative process was between June 2021 and October 2022.
The Bill was first drafted in June 2021 after which existing laws and regulations were input to the legal framework from key ecosystem leaders like MDAs, states and networks, leading to the validation of first draft in July 2021. This was reviewed by ecosystem leaders and representatives including the Presidential Working Group composed of MDA, decision-makers critical to implementing components of the bill.
And in August 2021, a town hall was held after a presidential announcement for town hall meetings for public consultation and validation of the second draft of the bill leading to the production o the final draft on September 2021 with input and revisions to feed into the final bill.
The Bill was submitted to the President on October 2021 and he submitted it as an executive bill to the National Assembly in December 2021 for a public hearing which took place in June 2022 after which the Bill was passed in July 2022 and it became an Act in October 2022 when it received presidential assent.
And in this era where tech companies are the gold in the Nigerian economy, there is a need for people especially those with ideas and business structures in early stages of operation, categorized as Startups, to know the legal provisions that can make their businesses survive.
Often, differentiating between a startup and a small business is confusing for people but a Section 47 of the Nigeria Startup Act 2022, defines startup as a company in existence for not more than 10 years with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process.
Qualification of startups
To be considered a startup under the Act, a company must have at least one-third of its shareholding owned by a Nigerian as a founder or co-founder, it must be registered as a limited liability company with Corporate Affairs Commission (CAC) and the Startup Support and Engagement Portal (SSEP). Also, a sole proprietorship or partnership may qualify if they meet the other requirements above but they will be given a pre-label status which expires after six months to enable them to incorporate as a limited liability company.
Under the Nigeria Startup Act, companies can be officially recognized as startups through a certification process, opening up new opportunities for local entrepreneurs; SMEs can obtain a “Startup Label” which is granted to companies meeting certain criteria from the National Information Technology Development Agency. To be eligible, a company must be a limited liability entity registered under Companies and Allied Matters Act, 2020, operating for no more than ten years, and primarily engaged in developing digital technology products or processes. Additionally, it must have at least one Nigerian founder or co-founder with a stake in the company’s profits or revenue. The application process for this label involves submitting necessary documentation and fees on the startup portal.
Once a company fulfills all the requirements, it receives the startup label, valid for ten years. Companies with this label are eligible for the incentives provided under the Act, which range from tax relief, access to export facilities, access to government grants and loans, as well as incentives for investors in a labelled startup. The Act also establishes a startup portal, serving as a hub for registration, information exchange, and interaction among stakeholders in the startup ecosystem. Maintaining this label requires adherence to all relevant national business laws, regular reporting on various business aspects, and proper financial record-keeping.
The formation of the National Council for Digital Innovation and Entrepreneurship is one of the Act’s standout features.
Things you should know about the Nigeria Startup Act 2022
It established the Startup Support and Engagement Portal (SSEP) which is a central platform for the registration, support and engagement of startups with government agencies and other stakeholders.
It provides tax reliefs for eligible startups such as exemptions from income tax, capital gains tax and withholding tax on certain transactions for a period of three years and an additional two years.
It creates a credit guarantee scheme that provides financial support and credit facilities to startups.
The Act introduces a single licensing system to simplify the regulatory frameworks for startups and to reduce bureaucratic hurdles.
It established the National Council for Digital Innovation and Entrepreneurship, which is responsible for overseeing the implementation of the Act and formulating policies.
Legal considerations
There are legal considerations every business owner must consider while building a startup, these considerations go a long way in how successful such businesses will be. These include:
Legal structure: This involves the determination of the form that you want your startup to be registered as; Business Name, Partnership or Limited Liability Company. Each of these structures has their strengths and weaknesses but generally, it is more advisable to register as a Limited Liability Company.
The reason for this is that it allows you to become a separate entity from your company; you are not personally liable for the encumbrances of your company; it is easier access to grants, investments and other opportunities; the company has perpetual succession, this ensures that it outlives the owner.
After a format is decided, the next legal step is to register the business at the Corporate Affairs Commission. It is important to note that there are various kinds of startups that operate in different sectors of business; e-commerce, finance, education, logistics, transportation, etc.
Each of these sectors has regulatory bodies and agencies that oversee the businesses that operate in the sector like the Central Bank of Nigeria oversees the operation of all financial institutions including fintech companies.
Contracts and Agreements are another consideration. Contracts are important to define relationships, manage collaborative work and most importantly, to protect one’s self or company. When setting up your startup, you may engage in agreements with co-founders, employees, independent contractors and consultants, etc, and there are different kinds of agreements for each of these relationships.
And in situations where there are co-founders, a Founders Agreement that spells out the rights and limitations of each founder with respect to matters such as intellectual property, control of the business and distribution of shares is a necessity.
And for employees, there should be employment agreements. This also goes for independent contractors and consultants, service agreements; all of which must contain clearly defined clauses that reflect the intentions of both parties.
Intellectual Property is also a major consideration. Once a business is registered with licenses and permits obtained and signed in addition to the necessary contracts and agreements, the next step is to protect the startup idea from being stolen. One major way to do this is through trademark registration, patent registration and copyright protection.
Taxation is another important consideration for a startup founder, you must be aware of the taxes that your company is obligated to pay.
Game changer
The Nigeria Startup Act has been described as an impactful and innovative instrument. The World Intellectual Property Organisation (WIPO) has stated that the Nigeria Startup Act can be a game-changer for Africa’s most populous country’s digital landscape as it aims to position Nigeria as a key player in Africa’s innovation and technology industry.
It added that “at its core, the Act is about creating the right incentives and eco-system for startups to innovate and grow. The Startup Act also places a strategic focus on intellectual property (IP) rights, as set out in Section 31 of the Act, underscoring its critical role in the entrepreneurial landscape. A concerted effort is being made to not only encourage startups to harness and commercialize their IP assets but also to facilitate their expansion into global markets. This initiative is marked by a collaborative effort with key institutions like the Nigerian Copyright Commission and the Trademarks, Patent, and Design Registries.
“A notable development is the integration of a dedicated IP registration section on the Startup Portal, tailored specifically for startups that have achieved the requisite labeling. The Secretariat’s involvement will be instrumental in helping these startups enter global markets, as it simplifies and streamlines the process for international trademark and patent registrations. This streamlined approach not only bolsters the framework for IP registration and protection but also amplifies the operational effectiveness and global market presence of Nigeria’s emerging startup sector. This progress is important considering Nigeria’s shift away from its economy’s dependence on oil, with the Information and Communication Technology (ICT) sector now contributing nearly 20% to the country’s GDP (in the second quarter of 2023),” WIPO said.
Kemisola Bolarinwa, the founder and CEO of Nextwear Technologies, is a trailblazer in Nigeria’s fem-tech scene during an interview with. WIPO’s Global Challenges Division as part of the WIPO Mission Imagination Series, expresses overall optimism that the Nigeria Startup Act can inspire startup initiatives across the country, potentially leading to a broader wave of technological and entrepreneurial growth in Africa.
She notes that the law seems to have potential to attract investments and nurture startups. According to her, the widespread awareness of the Act is testament to the government’s successful efforts in promoting the law’s reach. “We’re not really exposed to it,” she observes about IP awareness. “Only a few innovators are aware of the need to protect their ideas. This lack of knowledge around intellectual property is significant. So, this bill is going to be a game-changer. It will support innovators who might have heard about IP but don’t fully understand it, or those who haven’t considered it at all.”
She however points out some of the gaps in the Act to include limited inclusion of startups in the health sector, suggesting this as a potential oversight in an otherwise comprehensive bill. She nonetheless notes that the view of Nigerian technology firms was taken into consideration while shaping the bill, adding that “This collaboration between the government and key players in the tech sector underscores a partnership that’s vital for fostering a thriving tech ecosystem. It shows a symbiotic relationship where industry insights are integral to legislative processes.”
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