If by now you still have not paid any attention to all the Startup buzz going around, it is absolutely time to do that. In fact, it is long overdue. If you are not a Startup or Tech Company, keep reading still. There is gold for you at the end of this .
It is no longer news that the Startup ecosystem in Nigeria has grown in leaps and bounds over the last few years. A good number have risen, and many have failed, with some already embroiled in all kinds of trouble – regulatory scandals home and abroad, sexual harassment and poor labour practices to mention a few.
In all fairness, Startups have had more than their fair share of challenges as well, including but not limited to funding challenges, regulatory uncertainty and the punitive cost of doing business in Nigeria’s unusually tough economic climate. These challenges have since led to a sustained clamor for more certainty as well as official legislative recognition of the unique/peculiar situation of Startups.
Finally, Nigeria’s long coming Startup Act was eventually signed into law on the 19th of October 2022 by our dear President Muhammadu Buhari.
The 10 Questions and Answers below will help you understand this new law in a nutshell, as well as its effects on your business:
1. DOES THE NEW LAW APPLY TO EVERYBODY?
The Law applies to:
a) Registered Organisations who have been granted the “Startup Label”, and
b) Organisations whose activities affect the creation, support and incubation of labelled startups
2. WHAT DOES THIS MEAN?
This means your business is no longer a Startup just because you and your co-founder call it so, but only if the Law says so.
3. SO, WHAT DOES THE LAW SAY?
The law defines a Startup as a Company in existence for 10 years or less, with its objectives being the creation, innovation, production, development, or adoption of a unique digital technology innovative product, service, or process. Anything other than the above is an SME at best, and not a Startup.
4. WHAT ABOUT THIS LABELLING? HOW WILL THIS WORK IN PRACTICAL TERMS?
The Law provides for a checklist for “labelling” as follows:
a) Registered Company of less than 10 years
b) Set up mainly for innovation etc. of digital technology product or process
c) Already has product/process of digital technology or owner/author of registered software
d) At least 1 Nigerian co-founder will share from the Company’s profit or revenue from the sale of shares (Don’t be confused by this, it aims to protect Nigerians)
There will be a Startup Support and Engagement Portal (“Startup Portal”). It will provide assistance, opportunities for growth and also for complaints and recommendations. This is also where you apply to be “labelled” as a Startup. At the end of the application process, you receive your certificate and your name is entered into the register of Startups.
5. WHO IS IN CHARGE OF THIS LAW?
The Law itself provides for a Council to administer it – This Council includes the President, several ministers, the CBN governor and a few stakeholders. The good news is that the stakeholders are a collection of people who are part of the Startup ecosystem. Therefore, they will guide the rest of the Council members whenever they need to take decisions on technical matters. The Council will work through NITDA (National Information Technology Development Agency).
6. ANY GOOD NEWS IN THIS LAW? – YES, PLENTY, LET’S START WITH FUNDING
a) The Law has created an Investment Seed Fund to provide finance to labelled Startups
b) A Credit Guarantee Scheme has been establishedc) Increased opportunities for startups to enjoy CBN and BOI loans
7. SOUNDS NICE, BUT WON’T THEY TAX EVERYTHING AWAY FROM US?
a) You may be exempted from paying income tax or any other tax for up to 5 years starting from the day you get your label.
b) All startups are entitled to the full deduction of any expense on research and development wholly incurred in Nigeria.d) If you qualify for pioneer status, you can apply for tax reliefs and incentives. In fact, there are lots of incentives for various stakeholders. Investors also get incentives, tax credits and waiver on Capital Gains Tax while employees are not left out in the tax exemptions.
8. NOT BAD, WHAT ELSE IS GOOD?
a) The Law provides for a Consultative Forum on the portal. This allows stakeholders interact.
b) Training, Acceleration and Incubation programs. Accelerators and Incubators will also enjoy grants and incentives.
c) Assistance with listing Startups on Stock and Commodity Exchanges
d) Startups involved in export can enjoy further funding assistance from the Export Development Fund among other export specific opportunities
e) Assistance on matters such as technology transfer, obtaining regulatory licences and registration of Intellectual Property
f) Assistance with repatriation of profits at favorable rates
g) Establishment of Clusters, Hubs, Innovation parks and Technology Development zones.
9. WHERE CAN I GET INTO TROUBLE OR MISS THESE BENEFITS?
a) If your organization is a holding company or subsidiary of an existing company that is not registered as a startup, the Act will not apply to you. You may want to revisit your structure so as not to miss out.
b) If you are a sole proprietor or partnership, you need to act fast. There’s a “pre-label” grace period you can take advantage of.
c) There are annual reporting requirements (minimal). In cases of default, your Startup label can actually be withdrawn and you would then have to apply for a re-issuance.These requirements are not overly tedious. They mostly have to do with getting your Compliance and Corporate Governance right, and they help your business with growth and sustainability anyway. Many people already do them, so feel free to reach out if you need help.
10. ANY OTHER THING TO NOTE?All in all, note the following:
a) The Law does not stop you from having foreign co-founders or investors who can still hold majority of shares (for those of you who already have investors and are worried)
b) Like every new law, there will be grey areas, some of which will only be solved by regulations or guidelines explaining the original law or prescribing procedures.
These are loosely referred to as “smaller laws” and they will be enacted slowly over the next few years. They may not get a lot of noise or awareness and your Compliance and Legal teams already know this and should have the responsibility to keep up.
If you are not a tech Company, I promise you all the above are worth that major change. While we watch out for how all of these will play out, you may want to, at your next strategy session, consider the adoption of a unique digital technology in your product, service, or process.
This doesn’t mean change your business completely, but make some adjustments that result in more efficient systems and also provide an additional income stream.
This Law contains so many laudable provisions and we wait with hope that it truly delivers on its promises and revolutionizes the Startup Ecosystem in Nigeria.(required)
Syntax Legal Practitioners 