With the drastic shift from agrarian and industrial ages, the future is now tied to providing knowledge-based solutions to practical problems. Without building factories, young entrepreneurs are deploying IT and basic engineering to create wealth with less manual efforts while at the same time improving lives on a universal scale. Remarkably, Nigeria is not left out of this global revolution.
Therefore, if you a founder of a tech startup or you are looking to set up a tech-driven business or company then you have to take into consideration these fundamental issues viz:
BUSINESS FORMATION:
A. Equity: Where the start-up has more than one founder, the sharing ratio of the equity of the start-up should be agreed among the founders. This decision could be based on metrics including cash/assets contributed, risks taken and technical know-how that is being contributed by each founder.
B. Role of the Founder(s): The founders should be clear on their respective roles within the startup. This will include deciding who will be executive or non-executive directors and those that will take up roles as employees.
C. Founder’s compensation: A founder’s compensation will typically depend on the role of the founder in the company. This could take the form of salary or deferred equity. It is important to decide on the value of compensation and terms for the review of compensation packages.
D. Founder’s exit: It is essential that the founders agree on the procedure for exiting the start-up. This ensures that institutional and technical knowledge is retained and equity value is protected.
E. Start-Up Sale: To avoid future disagreements and friction, it is important, at business inception, to agree on the procedure for making decisions on selling the start-up.
F. Intellectual Property (IP) Protection: Secure IP registrations in the name of the start-up before going to market with any product, and transfer IP rights that existed before incorporating the start-up
INCORPORATION CONSIDERATIONS:
Business Structure: A business in Nigeria may operate as a Business Name (Sole Proprietor or Partnership) or a Company. It is advisable for tech start-ups to operate as a limited liability company in order to easily secure funding, facilitate expansion and limit the liability of shareholders and also win the trust of investors.
Name of the Tech Start-Up: In selecting a name for a start-up, the founder(s) should ensure that the name does not conflict with an existing name or trademark and has no domain nameproblems.
Business Activities/Scope: Some businessobjects may require that the start-up acquiresan approval or license from the relevant regulatory body during the incorporation of the company. If the sector of the economy which the tech start-up intends to operate is highly regulated, e.gfintech, insurance it is important to comply with the requisite regulations and monitor regulatory updates within that sector.
Share Capital: For the share capital of the start-up, founders should consider the amount of capital needed to commence business operations in the techstart-up; regulatory requirements on mandatory minimum share capital based on the business activities of the start-up; and whether the tech startup intends to raise funds in the future through sharesand intends to have foreign investors in the future or at the time of incorporation.
NOTE:
In the subsequent parts (2,3 & 4) of this article, we shall be considering the issues of Funding Models, Regulatory Framework & Compliance and Documentation.
Abiodun O. Endurance
Corporate Lawyer | Data Privacy | Corporate Finance| Fintech & IP.