Legal Documents to Protect New BusinessesNew businesses in Nigeria need extra documentation because they are a source of protection

Legal Documents to Protect New Businesses

New businesses in Nigeria need extra documentation because they are a source of protection, confidence and authenticity for any business outfit. A wis

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New businesses in Nigeria need extra documentation because they are a source of protection, confidence and authenticity for any business outfit. A wise business owner or entrepreneur needs to get the first principles of business right first before embarking on anything else.

Now, understand that some business documents are absolutely mandatory like the Certificate of Incorporation documents from the Corporate Affairs Commission (CAC), Taxpayer Identification Number (TIN), National Agency for Food and Drugs Administration and Control (NAFDAC) and Standard Organization of Nigeria (SON) documents (if you are in the food and manufacturing business), export license etc – and some are not.

We suggest you be wise and be on the side of caution by considering the following documents as you start up your business.

 

Shareholders’/Owners’/Founders’ Agreement

This document is an agreement that guarantees that the running of the company and the founders’ duties and obligations are clearly spelt out to prevent potential conflicts between owners and founders and facilitates the proper and profitable running of the business concern.

These are some important clauses that must be in the shareholders Agreement:

  • Business Organizational or Management Structure
  • Share or stock Transfer Restrictions
  • Succession or Appointment Procedure i.e. How new parties will be added to the Shareholders Agreement, and additional shareholders to the start-up
  • Dividend Sharing and the allowance for additional funding by the shareholders

 

No-competition Agreement

This states that directors of the company and major shareholders may not found or set up or be a shareholder in companies – now or later – which are direct competitors with the company

 

Pre-emptive Rights regarding transferring existing shares and issuing new ones

This will guarantee that existing shareholders can participate in issuance of new share without being diluted.

 

Share Vesting

These clauses ensure that shareholders don’t get the full benefit of the shares they own until they have met certain conditions like remaining with the business for a minimum number of years or achieving a defined milestone. It is after these conditions have been met satisfactorily, that the shares/stocks or a pre-determined percentage of the shares/stock will “vest” in the shareholder. If not, the company will have an automatic right to repurchase the shares/stocks.

 

‘Drag along’ and ‘tag along rights’

Drag-Along clauses makes sure that if a given percentage of shareholders desire to sell their shareholdings to a third party, they can force the remaining minority shareholders to also sell under the same terms so as to ensure that the third party can receive 100% of the shares. Conversely, Tag-Along rights require a shareholder selling their shares to include other minority shareholders under the same terms. This ensures such minority shareholders are not at a disadvantage by being left out of the deal.

 

Blog or Website Terms of Use

New businesses and start-ups must ensure that their blog or website has a Terms of Use – particularly if it is an e-commerce website. The Terms of Use acts as the contractual agreement between your business and visitors that come to your website. Here are some important things to include in a website’s Terms of Use:

  • Restrictions on use of the information on your website
  • Issues of intellectual property of the content of the website
  • Setting of limitations of liability including disclaimers and warranties

 

Blog or Website Privacy Policy

The Privacy Policy is an agreement between you and your customers and visitors that states how you will deal with their information and what they will be used to do etc. This important agreement informs the customer of the level of security and protection accorded to their data and the measure of information they are lawfully and willingly parting with when on your website. Standard privacy policy includes:

  • Type of information collected
  • Cookies used on the site and to the extent of use
  • How the information will be used
  • How the information will be stored
  • Conditions and scenarios that warrant information disclosure to third parties

From a liability perspective, the nature of the service or the product offering is only licensed or applicable in certain jurisdictions. So, you must make sure that you put in place age limits, “geo-fencing” and exemptions so that only eligible visitors can access your content. This prevents any unnecessary threat of lawsuits from government, agencies and regulators.

 

Non-Disclosure Agreement (NDA)

As entrepreneurs, one of our biggest concerns is the fear of presenting our business ideas to prospective investors or business partners and then seeing them later executing the idea without us – the classic case of a stolen idea that has passed planning and reached execution stage.

This is so rampant in Nigeria where no protection of intellectual property is certain.

The NDA safe guards your brainchild by committing whoever you present your idea to confidentiality. It may be a joint agreement between two parties saying that they will not disseminate information to third parties or a one-way agreement saying they won’t share your idea with outsiders.

From experience NDAs are a bit dicey because many experienced investors dislike the idea of signing an NDA prior to initial discussions.

The reason is because they believe that there are abundant ideas many of which never even succeed so why limit themselves before they hear you pitch your idea which may be nothing new after all!

There are clauses within the NDA that deal with who owns the confidential idea being shared, and under what scenarios it can be shared with third parties.

 

Work for Hire Agreements

Many starts ups have to hire people to execute do tasks or even outsource many tasks ranging from graphic design of logos, layout of corporate communications documents and creation of digital real estate like blogs, websites and social media accounts as well as accounting and book keeping services.

The wisest way to manage these relationships is by using Work for Hire Agreements or Independent Contractor Agreements. Here are some important things to be covered in this agreement:

  • The scope of the project
  • Cost of executing the project and payment milestones
  • How to deal and end the arrangement if project fails
  • Intellectual property ownership of the completed project if it is of that nature

 

Other Agreements

  • Internship/Volunteer Agreements at the early stages when they cannot hire full time employees
  • Employment Agreements for when they begin to start hire full time employees
  • Terms Sheets and Equity Investment Agreement for when it is time seek investment from family, friends, venture capitalists (VCs), angel investors and institutional investors
  • End User License Agreements if your company develops and licenses software

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