BASIC LEGAL COMPLIANCE FOR TECH START-UPS
Formal compliance of companies with legal regulations is important to avoid defaults or penalties in the hands of authorities. This means Tech startups must check with their compliance advisors to confirm whether their businesses fall under a regulated industry that has a minimum share capital requirement before incorporation with the Corporate Affairs Commission (CAC), so as to be able to meet up with legal compliance expected of them.
Here are some compliance requirements under some legislations for Tech Startups in Nigeria:
A. COMPANIES AND ALLIED MATTERS ACT (CAMA) 2020:
The Corporate Affairs Commission (CAC) is a regulatory body, established to regulate the incorporation, running and winding up of companies, business names and incorporated trustees, in accordance with the provisions of CAMA, 2020. Companies are required to make and file annual returns and audited financial statements with the Corporate Affairs Commission. However, a newly registered company is not required to file annual returns in the year of its incorporation or the following year if it’s first annual general meeting (AGM) is held within 18 months of its incorporation and subsequently on a yearly basis. Failure to comply with this would leave the company open to penalties and the possibility of it being struck off the CAC database or register.
B. TAX REGULATIONS:
A start-up is required to register with the Federal Inland Revenue Service (FIRS) or the State Inland Revenue Service, as the case may be, for the remittance of its Companies Income Tax and Value Added Tax (VAT) within 6 months of incorporation. The company will also be issued a tax identification number (TIN) which is a unique identification for all registered taxpayers in Nigeria. This TIN must be inserted on all company invoices and used at the point of filing tax returns
Where the company fails to register with the FIRS or the State Tax Service for tax purposes, it will not be able to withhold tax from its foreign partners, investors and clients; it will not be able to file tax returns and obtain Tax Clearance Certificates (TCC) and; will be liable to pay penalty for its failure to register with the tax collection authorities and for non-compliance with filing requirements within the stipulated timeline.
Under the Startup Act, start-ups like tech startups are provided various tax incentives upon registration such as pioneer status, incentives for employees etc.
C. DATA PROTECTION REGULATION; NIGERIA DATA PROTECTION REGULATION 2019 AND THE CYBERCRIMES (PROHIBITION, PREVENTION, ETC.) ACT:
A major tool of operation for all tech companies is data. It is the source that the company builds on in developing its customer database and facilitates its publicity, to name but a few. A few regulations are prescribed below:
1. The National Information and Technology Agency Act empowers the National Information and Technology Agency (NITDA) to issue guidelines to cater to electronic governance and monitoring of the use of electronic data exchange. This necessitated the development of the Nigeria Data Protection Regulation 2019 issued by the NITDA.
2. The Cybercrimes (Prohibition, Prevention, etc.) Act also criminalizes data privacy breaches. It prescribes that anyone or service provider in possession of any person’s personal data shall take appropriate measures to safeguard such data. It imposes an obligation on tech companies, particularly mobile networks; computer and communications service providers, to store and retain subscriber information for a period of two years.
Tech companies need to stay abreast with the developments of the various agencies and regulations to remain in compliance and avoid their licenses being revoked.
D. NATIONAL OFFICE FOR TECHNOLOGY ACQUISITION AND PROMOTION (NOTAP) ACT:
National Office for Technology Acquisition and Promotion (NOTAP) is tasked with the responsibility of ensuring that all contracts and agreements entered into for the transfer of foreign technology to Nigerians are registered and in line with the acceptable purposes provided for in the National Office for Technology Acquisition and Promotion Act.
Where the company fails to register an agreement for technology transfer or fails to make or makes false returns in contravention of the NOTAP Act, every director, manager, secretary, or other similar officers of the company, or person concerned in the management of the affairs of the company, or person purporting to act in such capacity will be severally guilty of an offence and liable to be prosecuted against personally, except it is proven that the act or omission constituting the offence took place without due knowledge.
E. NIPC Registration:
The Nigeria Investment Promotion Commission (NIPC) is a government agency established to encourage, promote and coordinate investments in Nigeria. In Nigeria, obtaining a certificate of registration from the (NIPC) is a requirement for every tech startup with foreign participation (foreign investors).