Nigeria’s President Muhammadu Buhari signed the Startup Bill into law on Wednesday, three months after it was passed by both chambers of the National Assembly.
The Startup Bill, now known as the Nigeria Startup Act 2022, is a collaboration between the executive and stakeholders in the startup ecosystem in Nigeria. Its objective is to create an enabling environment for tech-based startups in Nigeria.
The Startup Act comes with many features. One of the key features is that before a company is recognised as a startup, the owners or founders must obtain a Startup Label Certificate. This certificate will be made available on the website of the Federal Ministry of Communication and Digital Economy. The Act does not, however, specify at what cost this certificate must be obtained.
The company must be a registered liability company of fewer than 10 years in existence, have at least one Nigerian as a founder or co-founder of the startup, provided that the Nigerian founder or co-founder will share from profit or revenue from the sale of shares. Some tech experts are not very comfortable with this particular. Sola Salako Ajulo, a consumer protection rights advocate, said 10 years is too long for a startup to be registered.
“The essence should be to inspire innovation and spontaneity. A two-year registration should suffice. This may discourage young techpreneurs,” Ajulo said.
However, the Act further explains that the objectives of a startup should include innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process.
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The Act also gives rise to the creation of a National Council for Digital Innovation and Entrepreneurship. One of the functions of the council is to formulate and provide general policy guidelines for the realisation of the objectives of the Act and give overall direction for the harmonisation of laws and regulations that affect a startup.
The Startup Act, however, does not recognise holding companies or subsidiaries of an existing company that is not registered as a startup. Experts say this may be a tricky feature for tech companies that are registered abroad as holding companies but operate in Nigeria as subsidiaries.
Rotimi Akapo, a partner at Advocaat Law, said companies that are incorporated abroad as holding companies are considered separate entities, even if fully owned by a foreign entity. The companies are also subject to Nigerian law in all ramifications.
“This includes both the benefits and the obligations,” Akapo said.
Samuel Ireke, founder of Tree &Trees, a legal support services company, told BusinessDay that holding companies not qualifying as startups “makes sense” in view of the enterprise sector definition of a startup. A startup is a new business requiring incubation support and seed fund but which has prospects of enabling investors to withdraw their initial capital after a given period with profits.
“Flutterwave, which is already established, cannot by any means still qualify as a startup. And its choice of the legal device of a holding company indicates clearly it had already passed the stage of incubation and was perhaps well balanced enough to deem itself best served under the umbrella of a holding company,” Ireke said.
Companies can confirm their eligibility for a startup label by submitting an application on the Startup Portal.
The labelled startups are eligible for a Startup Investment Seed Fund that will be managed by the Nigerian Sovereign Investment Authority.
