There is often a misconception as to the meaning of a Startup. To ensure a better understanding of this discourse, it will be proper to commence with a contextual definition of a startup. Startup is a term used in describing businesses that offer disruptive or unique products or services that are considered irresistible and irreplaceable. The businesses in this context are tech-related businesses.
Hence, startups can be used to contextually describe tech companies and not just any business that starts out new. This position is further amplified by the Nigeria Startup Act which provides that for a company to be named a startup, the object of such company must be inclined towards innovation, development, and commercialization of a digital technology innovative product or process.
Having understood what a startup truly means, let’s get on to discuss certain things that every startup must consider and pay attention to before launching. Come with me.
Founder’s Agreement:
The founder’s agreement is one, which advisably should be in writing, detailing the fundamental terms upon which the founders intend to guide their operations. The agreement is exclusive to the founders of the startup.
The agreement ought to necessarily contain the following:
- Roles and responsibilities
- Equity sharing formula
- Salary structure
- The mode of acquiring shares where one founder opts out
- Asset contributions
- Overall goals and visions
- Decision-making process and daily administration
- Penalties for breach of duty
- Procedures for opting out, etc.
Founding partners will need to draw up a founder’s agreement or engage the services of a lawyer to draw up the same for them. However, where there is only one founder, the need for a founder’s agreement can be dispensed.
Incorporation:
Incorporation means clothing the name of the startup with a legal identity recognizable by law. It is often advisable for tech startups to register as a company. By so doing, the company becomes a separate legal entity different from its founders and the liability of the shareholders will be limited to the capital invested by each individual shareholder. Additionally, incorporation increases the chances of access to funds by startups.
Upon concluding the preliminary stages of drawing up a business plan, founder’s agreement, and any other activity as may be necessary and before proceeding to corporate branding, the tech startup will need to incorporate the business, so as to ensure that the name it intends to carry on business with is not already in use.
Tax Obligations:
Tax is a mandatory contribution levied on individuals or corporations by the government. Shawn Plummer, CEO of Annuity Expert, rightly noted that “many startup entrepreneurs don’t realize how complex taxes can be and the impact of taxes on their businesses”. Upon incorporation, the company becomes a legal entity capable of being taxed hence, certain taxes begin to accrue which ought to be paid. Failure to make these payments will lead to the imposition of penalties.
Upon incorporation, the next step will be for the startup company to register with the Federal Inland Revenue Service (FIRS) or State Inland Revenue Service, as the case may be, within 6 (six) months of its incorporation, and obtain a tax certificate, in order to aid the process of tax remittance. Failure to undertake this registration will result in the inability of the startup to withhold tax, file tax returns, obtain tax clearance certificates, and also make them liable to payment of penalties. There are other sector-related taxes and incentives that tech startups can take advantage of. The Nigeria Startup Act has similarly provided certain benefits to boost the startup ecosystem. (click here to read the summary)
Unanticipated tax liabilities, penalties, and fines are capable of making a startup end up. Hence, it is most advisable for startups to engage the services of professionals (lawyers and accountants) to oversee their tax affairs in order to ensure that it does not default.
Proper Documentation:
Proper documentation is a part not often emphasized for startups. Hence, there is little or no attention to how documents are being managed in the company. Proper documentation will demand that every single activity undertaken during pre and post-incorporation must be recorded and kept safe. The notable documents that ought to be prepared, recorded, and securely kept will include Company Policy and Processes, Job applications and resumes, Employee Offer Letters and Employment Contract or Agreement, Board Meetings and Resolutions, Minute Books, Correspondences, Personal Files of employees, etc.
Lack of proper documentation and record-keeping may, in the long run, have a devastating impact on the growth of the startup.
Protection of Intellectual Property:
The tech ecosystem is vested with several unique concepts and ideas, hence the need to protect the same from infringement (theft). Where a unique product, process, methodology, or brand is to be offered or created, as the case may be, it is advisable to protect such intellectual property from infringement by copyrighting, trademarking, or patenting the same, as the case may be. It is wrong to assume that once a startup has been incorporated, then any concept, product, process, methodology, or brand created enjoys legal protection from infringement. Startups who engage in such creative processes ought to take further steps to protect their intellectual property through the instrumentality of the following:
- Copyright
- Trademark
- Patent
Failure to take the necessary steps to protect its corporate intellectual property will render the company helpless where such concept, product, process, methodology, or brand is being used by another person or entity. Where another party takes steps to register an intellectual property of another, then such party reserves the exclusive right to enjoy and enforce same. (For further details, read the case of Coachella V Afrochella)
Funding:
Funding is a crucial aspect when it comes to startups. To seek and access funding, certain things must be in place. Upon incorporation, the startup company is expected to operate a separate bank account with its corporate name. In opening this account, the bank requires a Special Control Unit Against Money Laundering(SCUML) Certificate which is issued by the Special Control Unit Against Money Laundering of the Economic Financial Crimes Commission (EFCC).
Where the startup company has foreign investors who are interested in holding shares or offering a loan facility, then the startup will be required to register with the Nigeria Investment Promotion Commission (NIPC) and obtain a business permit from the Ministry of Interior, after incorporation, but before it commences operations. Also, the startups are required by the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act to obtain a Certificate of Capital Importation (CCI) from the Central Bank of Nigeria, for the purpose of foreign grants or foreign investors.
Data Protection:
One aspect every startup must pay attention to is that of data privacy and protection. Notably, startup companies thrive on data. Consequently, startup companies need to avert their minds to the data compliance and regulatory processes that they are required to comply with in order to ensure that they do not run into regulatory issues. As a matter of necessity, startup companies require the services of a Data Protection Officer who is vested with the knowledge of data protection laws and technicalities. The role of this officer will be to advice the company on issues of compliance with data protection regulations.
Technology Acquisition and Promotion:
Where a startup company contracts with a foreign investor for the: transfer of technology, use of intellectual property rights or provision of managerial/supervisory assistance, they will be required to register with the National Office for Technology Acquisition and Promotion (NOTAP), in order to ensure that such agreement or contract is in line with the acceptable purposes as provided for in the NOTAP Act.
For further details or information on how to achieve the steps listed above or other services, kindly contact:
Lexivory_lp@gmail.com or call (+234) 08181517437.
