Start Up businesses like every other business, exist and operate within a legal context. Ranging from the manner in which a business is set up, to the operation of its people and processes, a startup ought to be aware of its rights and obligations within the said context.
Forms of Business Organisation
The Nigerian legal framework provides for different forms of organisations on how to carry on their businesses. The operations of business organisations are governed by the Companies and Allied Matters Act 2004 (“CAMA”), which provides for, Incorporated Companies, Business Names and Incorporated Trustees, types of business organisations.
The CAMA provides that all companies desirous of doing business in Nigeria must first be registered in accordance with its provisions.
A start-up company must be minded to build and protect its Intellectual Property (IP) and other aspects of its brand like; copyright, trademarks, trade secrets and other confidential information.
Also, the flow of sensitive information and data crucial to the business should be closely monitored. This can be achieved by placing confidentiality obligations on employees (in their employment contract) or granting access to such information to a select number of employees on a ‘need to know’ basis.
Another aspect of IP protection can occur where the start-up intends to enter into agreements relating to the transfer of technology such as; engineering services and technical service agreements. Such agreements are required to be registered with National Office of Technology Acquisition and Promotion (“NOTAP”).
It is important for organizations to be aware of the applicable taxes. The principal statute governing corporate taxation in Nigeria is the Companies Income Tax Act (CITA) 2004. The CITA provides for the imposition of tax on companies which should be payable for each year of assessment, at specified rates on the profits of any company in Nigeria. The CITA requires every registered company to file tax returns made up of audited accounts and completed self-assessment forms within six months of its financial year-end with the Federal Inland Revenue Service (FIRS).
Newly incorporated companies have up to eighteen months to file their tax returns. The rate of corporate income tax is currently 30% of taxable profit and the basis of assessment is the profit for the preceding year.
The Finance Act of 2020, however, provides that small businesses with a turnover less than N25 million are exempted from paying companies income tax, while the income tax rate of 20% will apply to medium-sized companies with turnover between N25m and N100m per annum.
The Value Added Tax Act (VAT) requires companies to pay taxes on goods and services consumed by individuals, corporate organizations and other institutions.
There is also the Personal Income Tax applicable to company staff and expatriates who stay for a period exceeding 183 days in any one-year period.
Another tax obligation for corporate organizations is the payment of withholding tax. It is worthy of note that non-resident companies are subject to withholding tax deductions on the income they earn from Nigeria.
Notwithstanding the forgoing, Nigerian law has provided for the issuance of tax incentives to various businesses in certain sectors to encourage players in such sectors and as a tool for attracting other investors. These investment incentives include:
a. Export incentives
b. Pioneer Status
c. Export free zone exemption profit
d. Foreign tax credits
e. Rural location incentives
The start-up must position itself in a manner which enables it be abreast with the regulations of the regulatory entities which apply to its business. Failure to effectively comply with laid down regulations can be fatal or otherwise debilitating to the bottom-line of the business.
Generally, a start-up is subject to the provisions of CAMA; applicable tax legislations, pensions and other contributory regimes imposed on companies generally as well as companies with employees. Other than the foregoing, where a start-up operates in a regulated sector such as banking, insurance, telecommunications among others, it must be apprised of the regulatory framework which applies to its business sector.
Another important aspect start-ups should consider is corporate governance. Corporate governance provides the framework for attaining any organization’s objective, and makes those in the management of companies more accountable.
The CAMA is the main regulation for corporate governance. It makes provisions for the appointment and removal of directors, appointment of company secretary, provides for auditors and audit committees and the mandatory involvement of shareholders in the corporate decision-making process of any company. However, for public companies, the Securities and Exchange Commission constantly regulates and enacts rules for corporate governance.
In conclusion, a start-up must be minded to take cognisance of these matters in its daily operations because failure to do so could have dire consequences.
Michelle Akpaka is a lawyer at Streamsowers & Kohn and is actively involved in the Energy and Natural Resources Practice of the Firm. She obtained her law degree from Madonna University and has a Masters degree in Oil and Gas Law from the University of Aberdeen, Scotland. She volunteers as a legal advisor to beneficiaries of the Lagos State Employment Trust Fund (LSETF). She also enjoys travelling, learning about cultures and tasting new food.