Building Shared Services That Actually Work: A Startup Guide

Introduction

Shared services arrangements have become an increasingly common strategy for startups and corporate groups looking to streamline operations, reduce costs, and leverage in-house expertise. By consolidating functions such as HR, finance, legal, compliance, internal control, and other back-office operations, startups can redirect time and resources toward their core products and growth priorities.

Within the tech space, shared services models are particularly attractive because they offer speed, efficiency, and access to specialised capabilities without the burden of building each function from scratch. But while the benefits can be significant, shared services can quickly become complex and even problematic when clear structure, governance, and expectations are not established from the onset.

In this edition of TechBrief by TALP, we break down the key considerations and best practices in the adoption of shared services arrangements.

Key Considerations

1. Identifying Required Services

Before adopting a shared services model, your first step is to clearly identify the functions your startup actually needs support with and assess whether shared services is the most suitable delivery method. In some cases, building an in-house team may offer better control, confidentiality, or responsiveness. Shared services typically work best for standardised, repeatable, and process-driven functions (i.e., payroll processing or procurement) as well as non-core but specialised roles that would otherwise be too expensive to fill in-house (i.e., legal or tax specialist). However, this structure may not be ideal for sensitive or highly strategic functions.

2. Clear Structure

One of the biggest determinants of whether a shared services arrangement becomes a powerhouse of efficiency or a constant source of internal friction is the structure behind it. A well-designed structure keeps each participating entity independent and protects their interests. The simplest way to get this right is by adopting a standardised Shared Services Agreement ("SSA") and accompanying policies to govern the arrangement. Think of these documents as the operating manual of the entire arrangement. If they are vague, poorly structured, or implemented, the entire system wobbles.

So what should a solid SSA look like? Here are the Essentials

• Clearly Defined Services: It should clearly spell out exactly what services will be delivered, whether it is payroll processing, internal audit, or procurement.
• Roles and Responsibilities: Each party should know exactly what they are responsible for. No overlaps. No ambiguity. No "I thought you were handling that".
• Standards of Service and KPIs: The SSA should set measurable service expectations; response timelines, resolution windows, reporting cycles, and penalties for failure to meet agreed standards, to ensure efficiency.
• Pricing Methodology and Payment Terms: Even if the service provider is your "sister startup," pricing should not feel like a family favour. Services must be priced at arm's length, just as they would be with an external vendor. Your SSA should clearly spell out how costs of services will be determined and when, and how payments will be made.
• Intellectual Property ("IP") Ownership: If the service provider will create work output such as software features, reports, content, designs, or internal tools, the SSA must clarify who owns the resulting IP. It should also protect each party's existing IP in any materials shared for service delivery.
• Data Protection and Confidentiality: If personal data is processed in service delivery, your SSA must reflect applicable data protection requirements. Confidentiality clauses should also guard proprietary or sensitive business information, trade secrets, and internal documents shared in connection with the arrangement.
• Insurance: It is also best practice to ensure that adequate insurance policies are maintained by the service provider to manage risks associated with service delivery, such as professional negligence, which may result in significant damage.
• Decision Making: The SSA should define who makes what decisions, the approval workflow, and escalation channels.
• Reporting and Routine Review: The SSA should establish how performance will be monitored, how often reports will be issued, and when the arrangement and agreement will be reviewed for improvements.
• Liabilities and Indemnities: If things go wrong, the last thing you want is confusion over who is responsible. A strong SSA should clearly spell out how liabilities are shared and who indemnifies whom. Spelling this out upfront protects relationships, reduces finger-pointing, and ensures everyone understands the risks they are signing up for.
• Scalability and Exit: The arrangement should make room for growth and allow a smooth exit if circumstances change.
• Dispute Resolution: The SSA should outline a practical process for resolving disagreements before they disrupt operations.

3. Strong Governance

You can have the most detailed SSA in the world, but without strong governance, the entire structure will fail. Governance is what turns a well-designed shared services model into a well-executed one.

Every party must remain committed to implementing the SSA. When a party defaults, penalties should not be optional. Enforcing agreed consequences keeps accountability high and ensures efficiency.

Good governance also means tight documentation. Every service delivered, every invoice raised, every approval issued, and every payment made should be tracked and recorded. Clear records not only reduce disputes, they make compliance and performance easy to evaluate and improvements easier to implement.

4. Compliance

This is the element most often overlooked by many startups until regulators come knocking. Below are key compliance touch points to consider when entering into a shared services arrangement.

1. Tax and Transfer Pricing: As with many other jurisdictions, under Nigerian tax laws, shared services arrangements must be conducted at arm's length and properly documented. Annual transfer pricing returns are also required to be filed with the Federal Inland Revenue Service.
2. Sector Specific Regulations: For startups operating in regulated sectors, especially fintechs licensed by the Central Bank of Nigeria ("CBN") and the National Pension Commission, the bar is even higher. CBN's Guidelines for Shared Services Arrangements for Banks and other Financial Institutions, for example, prescribes minimum contents of SSAs; prior CBN approval of the arrangement; annual review and CBN approval of reviewed SSAs; annual review of shared services and fee structure by an independent consultant and submission of a report of such review to CBN. Failure to comply with these requirements will trigger the levying of sanctions and penalties on your startup.
3. Data Privacy: Startups must ensure that personal data processed by a shared services provider is handled in full compliance with the Nigerian Data Protection Agreement ("NDPA"). This includes obtaining consent from data subjects that specifically allows processing by the provider. Where data is transferred within the group or across borders, appropriate safeguards should be implemented, such as an Intra-Group Data Transfer Agreement ("IGA"), Binding Corporate Rules ("BCR"), or Standard Contractual Clauses ("SCCs"). Cross-border transfers must also comply with NDPA requirements to ensure that personal data is adequately protected at all times.

Conclusion

Shared services can supercharge a startup's efficiency, but only when backed by clear structures, strong governance, and strict compliance with applicable law. Before diving in, ensure you seek proper legal guidance.

To view original Tope Adebayo article, please click here.

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.