The Tech sector will always be remembered for its major disruption of traditional business models not just in Nigeria, but all over the world, especially within the last 5 years.
Through the ingenious application of Software programming to everyday activities and functions, mankind successfully survived and even thrived during the Covid-19 pandemic and introduced Business models that have been waxing stronger and stronger even till today.
The Tech Sector has more than proved its almost limitless economic benefit, becoming responsible for the first service to qualify as a daily necessity, facilitating daily functions from booking a cab to checking your personal finances to ordering food and medicines to investing your money and even having romantic dates!
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But with this innovation, comes its bad sides. There are many cases of Tech being perverted to carry out illegalities and unethicaly practices from Financial crimes to Privacy violations to Cyber-bullying to Incitements to violence and large-scale theft of Intellectual Property.
This is why the Tech Sector and its subsectors in every country are subject to some of the most rigorous Legal requirements and Statutory compliance requirements. This is also why as a Techpreneur, Tech Start-up or Ongoing Tech business in Nigeria, you need to have a full grasp of the types of contracts and statutory requirements you must have to be in business.
That you might have heard about many or all of these contracts and requirements is a given, but you also need to know WHY they’re necessary and the possible consequences of not having these documentations and requirements, all of which will be explained in this article one by one. They are as follows :-
- 1. Registration as a Company:- This is done with the Corporate Affairs Commission (CAC) which is in charge of the registration and regulaton of businesses and companies in Nigeria. Registering a company as a Techpreneur is advantageous because it guarantees:-
– A structure of perpetual succession that will outlive its founders.
– The creation of Limited liability which separates the personalities of the Techpreneur and that of the company under law.
– The satisfaction of a Statutory requirement governing some subsectors of the Nigerian Tech Sector where operating licenses can only be granted to
Techpreneurs with companies e.g. Digital Moneylending & Digital Banking.
- 2. Shareholders Agreements:- These are agreements entered into between the Shareholders of a company that deal with everything from the ratio-based allocation of shares to the power to transfer, transmit or buy back shares as well as the right of first offer, a major source of recent Business disputes in the Nigerian Tech Sector where stock/share options are a regular method of staff remuneration.
A share is a unit description of ownership interest in a company gotten usually by monetary subscriptions and which entitles the unit holder to payments called dividends.
- 3. Promoter’s Agreements:- A Company promoter is a person appointed usually through a Promoter’s Agreement to act as the representative of a company yet to be formed, usually for the purpose of structure and capital sourcing as well as other services such as sourcing for suitable Directors for the company and preparing the Company prospectus for Capital sourcing purposes.
A promoter is a very important person to have especially as a Tech Start-up because these are usually people that are very experienced in the aspects of business incubation, structure formation and capital round sourcing and funding which is the lifeblood of the Tech Sector. It is also important as a Promoter to insist on this agreement as you might not be able to prove that you are entitled to remuneration especially once the company is formed and operating.
- 4. Non-Disclosure Agreements :- In sourcing for funding as a Techpreneur or Tech Start-up, you will be showing and explaining aspects of your product, business plans and projections to a whole lot of potential investors who may or may not decide to double-cross you, an occurrence that’s all too common in business. The sad part is that proving your Intellectual Property was stolen would be next to impossible because Trade secrets can only be deemed so by virtue of Non-Disclosure Agreements which are simply binding contract under which the party to whom the Trade secrets are revealed promises to treat them as specific information not to be revealed unless with the proper authorization of the owner of those Trade secrets.
- 5. Trademark Registrations :- If you have released a software program, App, Website, a unique Digital coin product or NFT created by you, USSD service or API or slogan, unique logo, Company name or other symbol , it is best to have this registered as a Trademark because it will not be considered as legally and originally yours if you do not register them as such.
A Trademark(usually gotten within 4 weeks – 6months) is a class of Intellectual Property that describes recognizable designs, presentation formats, slogans, catchphrases, or other symbolisms that pointedly and distinctively identifies a product or service.
As a result, you need to be very sure that your App name or Slogan or Logo has not been Trademarked as this could lead to serious liability infringement suits, a very good example being the recent 1Billion Naira lawsuit against a Multinational Company by a popular Nigerian Comedian and Online Skit Maker over the unauthorized use of a the latter’s catchphrase “Something Hooge” that had already been Trademarked.
- 6. Patent Registration :- The Tech Sector relies on Intellectual Property and Inventions as its raw materials, and it is a well-known fact that great minds think alike, which is why history is filled with never-ending arguments about who actually created what regarding many scientific and technological breakthroughs and advancements we enjoy today.
The law has since settled it by legally according the party that succeeds in getting a Patent first with the rightful inventor status.
A Patent is simply a government license(issued via the Trademarks and Patents Registry) granting an exclusive right to a party over an invention while barring other parties from using, producing or transacting in that invention in anyway. Thus, if you’re a Techie or Techpreneur in possession of a new ICT or Digital product, getting a Patent is very advisable.
- 7. Copyrights:- A Copyright is an exclusive, lifelong and transferrable right to publish, perform, print or portray via film or other media original works of authorship concerning literary, musical, artistic, graphic, architectural, audiovisual or computer software programming material.
Getting a Copyright(usually within 60-90days) from the Nigerian Copyright Commission as a Techpreneur or Techie is important especially regarding Software programming architecture and coding information for Apps, APIs, Websites or other Digital or ICT based products, and it should be noted that failing to get this done can result in your Intellectual Property theft and Unauthorized duplication.
- 8. A Web / IT Development (Frontend and Back-end) Service Agreement :-
Developing an App or Website might require the services of a Web or I.T developer for Frontend, Back-end or Turnkey Development services.
It is very important that a contract of this nature which will outline the terms, payment terms and conditions for the provision of IT Development services along with a Non-Disclosure clause is signed with a developer to prevent your Online or Mobile platform coding informationand architecture being indiscriminately duplicated or any Trade secrets being revealed or converted illegally by the Developer.
- 9. Debenture Agreements :- A debenture in very simple terms is simply a written acknowledgement of its debt by a company, usually secured by an asset of the company.
In terms of seed funding options, going to a bank or a public unit trust offering might not be the best option for a start-up, especially in its first 6months of operations. A debenture offer to individuals and companies might thus be the safest short-term funding route for a Tech start-up because it is usually documented as a deed, comes with no compulsory legal encumbrances and can be convertible into Share options.
Debenture Agreements are thus very necessary to legally secure a bridge route to secondary seed funding for many Tech businesses.
- 10. Data Policy Compliance Certification :- In Nigeria, all Tech businesses are governed by the National Information Technology Development Agency (NITDA) through the Nigerian Data Protection Regulations 2019 pursuant to Section 6 of the NITDA Act.
As a result, all Tech businesses are to tender compulsory Data Protection Compliance returns as at when due to NITDA through a Data Protection Compliance Organization (DPCO), usually a lawfirm, as well maintain strict compliance with all the requirements of the NITDA Act and Data Protection Regulations to avoid legal sanctions.
- 11. Service Level Agreements/Technical Partnership Agreements :- As stated earlier, a lot of Tech businesses, especially in the Fintech subsector, require Regulatory licenses and Minimum Capital requirements that are usually renewable from relevant Government agencies and which for many Tech Start-ups can be very expensive to come up with.
The above thus explains the necessity behind alternative and legitimate methods of getting licensing such as Service Level Agreements & Technical Partnership Agreements which are usually Joint Venture agreements framed as contractual commitments between a Service provider and Client or contractual commitments to implement, optimize and constantly update Technical systems respectively.
So for example, if you’re a Techpreneur with little capital but in possession of a Digital Credit assessment & Loan offer Software program, you can simply engage in a Technical Partnership Agreement or Service Level Agreement with a Company already in possession of Moneylending License, a Microfinance license or a Financial Institution license to render Digital lending services. You can also alternative enter into a license leasing agreement with a licenced Tech business which can be drafted as a Technical Partnership or Joint Venture agreement as well.
There is also a third way of securing alternative licensing – Franchising.
- 12. Franchise Agreements :- A Franchise is a grant by a company or government (the Franchisor) that gives another party (the Franchisee) the right to engage in specifically mentioned business activities such as acting as a sales and service agent for a company’s products and services.
Through this method, Tech Start-ups can leverage on more established licensed Tech companies to provide certain services without necessarily excluding their own service offerings.
For example, a Tech Start-up with little capital seeking to go into International Money Remittance services or Agency Banking or Payment Service Banking can simply seek for a Franchising agreement with a licensed company in the form of Agency Banking agreements for the provision of Bank Account Number Registration and Issuance or Deposit or Transfer or Remittance services .
- 13. IT Policy Documentation :- Every Tech business platform must have a documented IT Policy, especially in a Tech Subsector heavily dependent on licensing such as the Fintech subsector without which a Tech Start-up cannot be granted a license.. This IT Policy must include :
– A Privacy Policy.
– An Information ownership,disclosure and loss policy.
– A Backup & Restore policy.
– A Network Security policy.
– A Confidential Data policy.
– A Password policy.
– An Enterprise Management Framework.
- 14. A User Terms And Conditions Agreement:- This is a must-have for every Tech company and is a binding agreement between a Tech company and its potential customers over the rules and guidelines as well as terms and conditions that must be agreed to by the customers, otherwise they will not be able to use or access the app or website or service.
- 15. Generic Valid Contracts under Nigerian Law :- These are contracts on specific transactions offered by the platforms owned by the Tech companies that must comply with all requirements of Nigerian Contract law, from user download contracts to Moneylending agreements to Refund agreements to Digital Platform service agreements.
- 16. Industry/Tech Subsector Compliance Requirements:- These are Regulatory Compliance requirements that specifically apply to a subsector of the Tech Sector and which all businesses under that subsector MUST comply with. These Compliance requirement frameworks include:-
– The NITDA National Blockchain policy for companies in the Blockchain Subsector .
– Anti-Moneylaundering/Combating the Financing of Terrorism/Know Your Customer(AML/CFT/ KYC) requirements of the Nigerian Financial Intelligence Unit(NFIU) pursuant to the Money-laundering Act and Terrorism (Prevention) Act for all companies in the Fintech subsector and Tech-based Designated Non-Financial Institutions ( DNFIs).
– The Central Bank of Nigeria (CBN) Guidelines For the Regulation and Supervision of Microfinance Banks for Digital Microfinance Banks.
– The Moneylending Laws of Various states for Digital Moneylending Companies.
– The 2021 Securities and Exchange Commission (SEC) rules on Crowdfunding for all Digital Crowdfunding Intermediary portals.
– The Central Bank of Nigeria Regulatory Framework for the use of Unstructured Supplementary Service Data (USSD) for Financial services in Nigeria applicable to Fintech subsector companies.
It is hoped from the above that in whatever capacity you wish to participate in Nigeria’s constantly evolving Tech Sector, you have gotten a clear understanding as to why you need to have a clear understanding of the need to ensure satisfaction of the full spectrum of legal requirements for the smooth operation of your Tech company.