Issues currently top of mind for tech companies and startups


#1

Hello everyone, my name is Chika. I am a tech & IP lawyer.

I wanted to get a sense of the issues that are currently top of mind for tech companies from a legal perspective. These could be issues that you are facing now or issues that you have dealt with, which you say to yourself “had I known I would have dealt with them differently at the beginning”. The issues may be general or sector-specific e.g. affect companies only in e-health, digital advertising, mobile payments, gaming etc

So I will give an example. Yesterday I was at a gaming meetup and someone engaged me on the lack of tax incentives in Nigeria (unlike other countries) available for game developers to encourage investment in the space and sustain the studio during the development lifecycle.

Please fire away.

Cheers,

Chika


#2

#3

When should you start to worry about taxation?

  1. When you start writing codes? Note that at that moment you may not have decided you want to run a business but just have an idea for a project you want to develop.

  2. When you start getting users? In this case people have started using your product but you’ve not started charging for it.

  3. When you start generating revenue? Imagine you start charging for the product and as a result begin to generate a ridiculously small amount of revenue, let’s say about N42 a month. Should you start worrying about taxation then? And yes, I mean revenue, not profit.

  4. When you start breaking even? That is, you start generating enough revenue to cover the cost of running the project but nothing left over to call profit.

  5. When you start making profit?

  6. When you register the business either as a business name or company.

Finally, if you missed the correct stage to start worrying about taxation, what should you do?


#4

Thanks for being the first to respond to the thread. Startups with a lot of financial support think about taxation from the start and even structure the business in a way to minimise tax. Startups that are bootstrapping simply do not have that luxury. It is only when they are making boatloads of money, their accountants think, “hold up why is all this money going to government”, then they restructure their business. Some tax incentives have deadlines by which you must apply so if you miss the boat you have missed it. For example, to benefit from the 5 year tax holiday that comes with pioneer status, you must apply within 1 year from when you start commercial production. Otherwise, there are no issues with worrying about taxation at a later stage, other than gifting the government more money than you have to.


#5

At what point do you suggest founders have a binding agreement? After launch of MVP or when revenue starts coming in?

Also, what are the emerging trends you think tech founders should look out for?


#6

I would say a founders agreement should be in place as soon as possible before launch of the MVP. It is the roadmap of the startup and sets out the role and responsibilities of each founder including their contribution to the startup, each person’s equity share and any vesting requirements, how you will make decisions - unanimously or by majority vote, and what happens if you need to fire a founder or a founder wants to leave. The agreement will also contain provisions protecting the product that you are building like confidentiality, non-compete and assignment of IP to the company. These are things you should nail down as soon as possible, because it helps avoid messy situations down the line.

Regarding trends, I have noticed a trend in tech startups Nigeria to choose descriptive marks for the name of their product, for example TRADING TECHNOLOGY when the product is software used for trading. This may be good for SEO but it is not good trade mark practice. You end up with a weak trade mark which makes differentiation by customers and enforcement more difficult. Other than that it is only a matter of time before more regulation on data protection and consumer protection is put in place which will affect how all businesses (not just tech) are run.


#7

Hi Chika, I’m the founder and Ceo of Imali, US based company. We are branding our company as a social savings mobile wallet, I will want to launch in Nigeria sometime this year as well but want to be known as a mobile wallet for payments and international money transfer. I want to find out estimated cost to register a fintech company so that I can inform our investors.


#8

Thanks for this informal AMA.
3 questions

  1. How important is it for a startup in Nigeria to register it’s trademark? If it’s so important, when is the right time to do such? Early stage or breakeven stage?

  2. Can an company registered as a business name legally allot shares/equity among co-founders?

  3. What range of equity should be allotted to a co-founder who brings only his skills to the table?

Thank you.


#9

This is not an easy question but I reckon that you will need to factor in the following costs at a minimum:

  1. ₦2 billion Naira share capital paid up. This is a pre-requisite for the mobile money licence
  2. ₦15 million stamp duty on share capital at a rate of 0.75% of the authorised share capital.
  3. ₦15 million fee to the Corporate Affairs Commission at a rate of ₦7,500 for every ₦1 million of share capital.
  4. ₦100,000 application fee for mobile money licence payable to Central Bank of Nigeria (CBN)
  5. ₦1,000,000 application fee for mobile payments services licence to Nigerian Communications Commission
  6. Cost of preparing documents required for the licence such as business plan, IT policy, business continuity framework etc
  7. Fees to legal services provider to assist with registration of company, drafting documents required for licence, and obtaining licence

To provide international mobile money remittance services in Nigeria approval from CBN is required. Unfortunately the conditions of grant of approval are quite stringent and are such that startups will not be able to enter the market, unless they partner with a company well established in the money transfer business. To give an example you need at least 10 years experience in the money transfer business and operate in at least 20 countries to be able to get the approval.


#10

What does 2 billion Naira share capital paid up mean? That I have to deposit 2 Billion Naira in some bank account? Can you send me your contact at ugo@Imali.io
Thanks


#11

You really want to count the cost before setting up shop here in Nigeria. @Chika is absolutely helpful with the info provided as these are the requirements.

However, it doesn’t mean you have to fulfil all the requirements at once. Instead start your business from a point where it required little or no regulations by starting out from where they are not “putting their eyes” yet before going into more regulated space.

I can give you an intro to ePPAN. …that’s electronic payment providers association of Nigeria AND also to the guy (currently in the Predidency) who assisted most of the people playing in the mobile money space in Nigeria.

You can also pick the brains of @Chika @philiprohv @TheRealSimeon @iaboyeji @Light @xolubi @somtoifezue @Chiwete @oviosu and others. They all play leading roles in fintech space in Nigeria.

It looks counter intuitive to do all this for you since you will be in the same market with them and me :smile:

_ … but really, it’s a blue ocean_.


#12

@ informal AMA, this was not the intention but I am happy to provide information where I can. But I need to stress that this is information and NOT legal advice. On to your questions.

  1. The law actually protects unregistered trade marks (UTM). However UTMs are generally more difficult to enforce. For example registered trade marks (RTM) will give you the right throughout Nigeria to prevent a third party using an identical/similar trade mark to market a product or service that is the same as any product or service for which your RTM is registered. Whereas if you are using a UTM in Lagos and Abuja, you may find it difficult to prevent a third party using an identical/similar trademark, say in PH, unless you have evidence that people in PH also associate the UTM with your business.

So, if you can afford registration, you should do it. If you cannot, it can wait but you run the risk of a third party applying to register an identical/similar trade mark for the same product/service, and you will not be able to oppose the registration on the basis that you are using a UTM.

Investors usually check that you own all the IP to your product before they invest. Registration of your trademark may not be so important to angels, as they usually invest at idea stage, and maybe seed investors because at this stage, it is not expected that you have your house completely in order. If you have not registered the trade mark before subsequent investors come on board, it will become a point to address.

  1. I presume that you meant can founders who have simply registered a business name and not a company “allot equity” among themselves. The answer is yes. The founders can sign an agreement setting out the proportions in which they will share the profits of the business. If there is no such agreement and the business is operating as a partnership, the profits will be shared equally and each founder must contribute equally to all losses. It is very risky especially from an IP perspective to operate as a partnership without an agreement. Things could get real messy and it is not recommended.

  2. I have no expertise in valuing equity because accounting firms do this, not lawyers. However, I understand that in reality it is generally whatever you can negotiate with the financing co-founder is what you will get. It is likely that the financier will want the majority stake in the company, as he is taking the financial risk. You will have to accept this because unless you have a very special set of skills, finance is harder to come by. You will have to justify why you should have a higher stake. You could value sweat equity by looking at how much you would make as an employee or a service provider if you had done the work somewhere else. There are sweat equity calculators available online (like this one http://www.planprojections.com/calculators/startup-equity-calculator/) which you can use to give you an idea.


#13

Can i/we get your contact details for private service? Concern about privacy, DM me the info.

Website/phone number/office address are all welcome.


#14

I’m building an app to collect payments for clients leveraging on licenced 3rd party service providers infrastructure. basically payment gateway & USSD.

  1. Do I still require a CBN or NCC licence to operate my services?
  2. If yes, what licences would I require?

#15

@givin you will need to provide more information about what you are developing for me to answer that question.


#16

We are building something like paystack, but only receives payment (ussd) and remits to merchants. we have a backend web app where merchants can manage their accounts. our services are customized only for merchants in a particular sector. we don’t do bank transfers or any other service.


#17

My co-founder and I will be working soon on an e-wallet payment system that would facilitate P2P payments and other things. The fintech startup will be corporated in the US. We will be expanding to other countries, non African(most likely), but will be launching first in Nigeria.

Considering the regulations ruling the fintech space in Nigeria, we decided not to be dealing with the funds, as in processing payments ourselves. Now we are thinking about making use of flutterwave.

So I wish to ask, how would it help? What are still some regulations and dues around when we partner with a payment company like flutterwave.

We will be partnering with a bank too.

And any other suggestion is welcomed.