Nigeria: START UPS: Dos And Don'ts.

Last Updated: 5 March 2018
Article by Babatunde Ogala

In 2016, Nigeria fell into deep recession due to a number of factors; including the global fall in oil price. The recession however gave rise to the incorporation and registration of many more small to medium scale businesses, as Nigerians began to diversify from oil, and explore other business opportunities. Start-ups however, more often than not, were eager to reduce their expenditure by cutting costs, and shirking compliance with the necessary regulations governing their businesses. In the long run, many start-ups either ended up short-changed, or embroiled in legal disputes that could have easily been avoided. Below are some of the essential dos and don'ts every start up should abide by in any economy – declining or booming:

1. DO HIRE A LAWYER FROM THE START OF THE BUSINESS.

The biggest misconception entrepreneurs and start-ups have in Nigeria, is thinking that a lawyer is only useful when their business is in trouble or requires some bailing out. It is imperative that every start-up have a lawyer, who should guide and ease the company through its registration/incorporation, and ensuring compliance with the different laws applicable in the everyday running of the business.

A note of caution. Start-ups need to do their due diligence and ensure that they pick a good lawyer, and not just 'any' lawyer, as their lawyer at inception could help to set the trajectory of the business. A major slip at the beginning of the business, could lead to repercussions that follow the business well into the future.

2. DON'T CHOOSE THE WRONG LEGAL STRUCTURE.

Choosing the right structure and form for your business, is as important as choosing your business partner. The structure of the business, plays a vital role in the way the business is run, and determines the liabilities and responsibilities the owner/s of the business take on.

It is also essential that the registration/incorporation of that entity or structure, is completed within the required time frame. Where it is a company being incorporated, the incorporation is to be completed before the start of the business. With business names, whilst business can commence without registration, the Nigerian Companies and Allied Matters Act requires that the business must be registered within 28 days of the commencement of business.

The need to seek proper legal advice as to the appropriate legal structure for your start-up, cannot be overstated.

3. DO PAY YOUR TAXES.

Tax is an issue that dredges up varied reactions from young businesses. Dread, ignorance, and aversion are just a few reactions start-ups exhibit to the question of tax compliance. It is however imperative, that businesses; including start-ups, pay their taxes from the very beginning of operations, and establish a culture of transparency and accountability. Whilst it may be attractive to view tax evasion as simply re-investing a company's income into growth 'because it is still small', this could have dire legal consequences. Tax is simply a cost every modern business should get used to from the start. Other than the fact that it is the law (and that should be reason enough), without a stellar tax profile, it becomes nearly impossible to attract outside investors, and engage in business with certain types of multi-national and even local organisations. The Convention on Business Integrity (CBI) for instance, is a Nigerian organisation that promotes ethical business practices, and transparency. Companies which voluntarily subscribe to the organisation's standard of business integrity, go through a rigorous screening and accreditation to demonstrate their compliance with extant laws and regulations. In turn, the companies enjoy international recognition from actual and potential business partners, as companies with an unassailable code of integrity.

When all is said, tax is a legal obligation and default is criminal under both Federal and State laws. The Federal Inland Revenue Service Act (FIRS Act), gives the tax authority the power to seize the assets of any defaulting business, and auction them to recover back-taxes.

Still on the very important subject of tax, the Federal Government in recent times; largely due to the steady and systematic decline in oil price, has become much more aggressive with pursuing tax defaulters. As a show of 'good faith' or a final act of leniency on its part, the Federal Government authorized the Ministry of Finance to set up a Voluntary Assets and Income Declaration Scheme (VAIDS), for all categories of taxpayers in default of taxes. The Scheme provides a 9-month window, which commenced on July 1, 2017, within which affected taxpayers can declare their assets and income from all sources within and outside Nigeria for the preceding 6 years (i.e. 2011 – 2016). It gives businesses the opportunity to regularize their tax status, and ensure their full compliance with the law. As the window is all but closed, there is no time like the present to take advantage of any government concessions that relate to payment of back-taxes.

4. DON'T INFRINGE INTELLECTUAL PROPERTY.

Many start-ups have been forced to change their identity, give up some product lines, and/or face endless litigation due to infringement of intellectual property rights.

It is essential that start-ups conduct relevant searches at the Trademarks, and Patent and Designs Registries, as well as searching for any possible copyright infringements, before starting a particular line of business/products.

Particular care must be taken when developing and building ideas. When a part-time entrepreneur is still bound by his contract of employment, this can have an impact on ownership of intellectual property developed during that period. This is more so, when the ideas and business are similar to the business of his employer. Some employers are quite shrewd and include such terms in the employment contract.

Start-ups would do well to register their own intellectual property from the beginning. This is the only way that their ideas and brand can stay secure. The cost of registration of intellectual property, is nothing when compared to potential future cost of litigation for intellectual property infringement, and loss of sales.

5. DO COMPLY WITH ALL REGULATIONS.

Compliance with the regulations and rules that govern the industry in which you operate, is very important. In addition, there are laws that govern the doing of business in Nigeria as a whole. Non-compliance with these regulations and laws, have different degrees of consequences. Alternatively, new regulations and laws are enacted, which portend great benefit for young businesses. Whether through an in-house compliance officer, or an external lawyer, a start-up must always keep its eye on regulatory compliance.

The Government has recently ramped up efforts towards enhancing the ease of doing business in Nigeria. Recently, the National Assembly enacted the Secured Transactions in Movable Assets Act. This Act creates a framework for creating security interests in movable assets. Simply put, it creates a means of using movable assets (generator sets, office equipment, vehicles, etc) as security for accessing finance from commercial banks. With this exponential increase in access to credit by small and medium scale enterprises, what's stopping you from starting up that new business? Talk to a lawyer today.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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