A Simple Review of Nigerian Business Startup Act, 2022
This is an act enacted by the national assembly of Nigeria on the 21st day of October 2022. This act is foreseen as a viable tools for the promotion of startups in Nigeria .
According to the Nigerian Startup Ecosystem Report 2022 from Disrupt Africa, Nigeria has approximately 481 tech startups that employ 19,000 people and between 2017 and 2022, the startup industry attracted around $2,068,709,465 in funding and investment sums into Nigeria. Thus, this act is enacted to facilitate the growth of tech-based startups and those incorporated companies labelled as startups under the Act.
Meaning of a Startup
The Act defines a start-up to mean a company in existence for not more than 10 years with its objectives being the creation, innovation, production, development or adoption of a unique digital innovative product, service, or process.
Thus , to be labelled or considered as a startup under the Act, the business must be a limited liability company that has been in existence for not more than 10 years and has at least one-third of its shareholding owned by a Nigerian as a founder or co-founders with the objective of creating, innovating, producing, developing or adopting a unique digital technology innovative product , etc. Companies with this label are eligible for the incentives provided under the Act, which range from tax relief, access to export facilities, access to government grants and loans, as well as incentives for investors in a labelled startup.
Significance of the Act
Since the enactment of this Act, there is a wide presumption and believe that the act is brought by the national assembly in order to promote startups activities, digital innovations, Develop funding and secure their existence in the Nigerian market ecosystem .
For specifications, a reference should be made to the section 1 of the Act in order to discuss the significance of the Act and its relevance in today’s Nigerian startups businesses.
Section provides thus:
1. 1. The objectives of this Act are to —
(a) provide a legal and institutional framework for the development of startups in Nigeria ;
(b) provide an enabling environment for the establishment, development and operation of startups in Nigeria ;
(c ) provide for the development and growth of technology-related talents ; and
(d) position Nigeria’s startup ecosystem, as the leading digital technology centre in Africa, having excellent innovators with cutting edge skills and exportable capacity.
In summary, the startup Act is a tool for promoting digital innovations, reducing entrepreneurship barriers, and will serve as a catalyst for economic expansion and growth in Nigeria.
According to the World Property International Organization (WIPO), the act will be a game changer in the Nigerian technological and digital landscape of Nigerian economy.
Direct Provisions That Promotes Corporate Investment Under The Act
The Nigerian startup Act has, under numerous sections, made provision for the promotion of corporate investment and startup activities in general. This is, therefore aimed at achieving the designed objectives of the act which were mentioned above .
The provisions are:
- Provision of startup funds under section 19 of the Act
- Provision of credit Guarantee scheme under section 28 of the Act
- Crowd funding under section 30 of the Act
- Tax exemption under section 25 of the Act
- Training and capacity building under section 21 of the Act
- Talent building and development under section 22 of the Act
- Protection of intellectual properties under section 31 of the Act
- Support for academic research institute under section 23 of the act
1. Provision for Start up Seed fund:
The Act introduces a number of provisions generally aimed at providing labelled start-ups with some degree of access to finance as well as to provide relief to tech labs, accelerators, incubators and hubs, one of which is startup seed fund under section 19(1) of the Act. It provides thus:
“There is established the Startup Investment Seed Fund (in this Act referred to as “the Fund”)….”
The Startup Investment Seed Fund can provide startups with much-needed capital ( up to 10,000,000,000.00 million) to help them grow and develop their businesses. This funding can be used to cover a range of expenses including hiring employees, purchasing equipment and materials and developing new products or services and in particular, promote the investment process of the startup companies.
2. Provision of Credit Guarantee scheme:
Another provision made by this Act in order to successfully promote and sustain the development of startups in Nigeria is the provision under section 28(1) of the act which provides for the Credit Guarantee Scheme.
The section reads:
“The Secretariat shall establish a Credit Guarantee Scheme (in this Act referred to as “the Scheme”) for the development and growth of a labelled startup under this Act.”
The scheme is established by the act in order to ensure access to finances by startups, financial management and framework of the start-up financial growth and independence ( subsection 2 of the section.
The scheme will establish a procedure for transparent disbursement of all the finances (or funds) and the operational plans or goals which aligns with the objectives of the Act under subsection 2 of this section.
Thus, this scheme will be particularly beneficial in promoting and sustaining the investment of startup companies in Nigeria. As many startups may not have the credit history or collateral required to secure traditional loans from banks and other financial institutions.
3. Crowd funding :
section 30(1) of the act provides that :
” Startups may raise funds through crowd funding intermediaries and commodities investment platforms (“platforms”) duly licensed by the Securities and Exchange Commission (SEC) that would have their platforms available for use by startups on the Startup Portal”
This funding option will in no small way help in eradicating the time-consuming procedure of getting banks loan and will also help in promoting the investment of the startup, develop its financial capacity, produce energy due to large capital and financial resources .
More so, the section does not stop at providing for the crowd funds , it goes ahead to mandate the council in collaboration with Securities and Exchange Commission to provide a rules that will fast-track the process of crowd funding in Nigeria.
Beautifully , all these funding options provided by the Act (under sections c,19, 28,30 respectively) can help startups in Nigeria to secure the capital they need to launch and grow their businesses. It can act as an incentive to encourage more people to create their own startups which in turn can lead to more jobs, more innovation, and more economic growth and revenue accumulation to the government.
4. Tax Exemption:
In order to promote investment, startup activities and business growth in Nigerian clime , the Act provides for some tax reliefs and incentives for the startups companies. This is , notwithstanding any other restrictions under any law, a great move by the act to Develop economic activities and investment in Nigeria.
Therefore, section 25(1) provides:
” Notwithstanding the provisions of any other law, the Federal Government may, through the Federal Ministry responsible for Finance or any other relevant MDA, simplify the requirements for a startup to benefit from existing fiscal incentives.”
Subsection 2 provides for a for a total Exemption of a startup of paying any income tax payable and chargeable on its revenue for three years ‘ provided that the commencement date of the tax relief shall be the date of the issuance of the startup label’.
More so, subsection 3 provides that:
” A labelled startup shall enjoy full deduction of any expenses on research and development which are wholly incurred in Nigeria and the restrictions placed by the Companies Income Tax Act shall not apply to a labelled startup”.
All these provisions are to the effect that startups labelled business should not be hindered because of finance incapacity, and tax burden that may hinder their progress, growth and successful operation in Nigeria.
Thus, the provision aims at promoting investment and startups growth in Nigerian business landscape.
5. Training and Capacity Building
Section 21(1)(2) of the Act provides for the capacity building program for the startups. This can be achieved and facilitated by the Industrial Training
Fund and any organization, which partners with the Secretariat, for the training of entrepreneurs and their employees.
6. Talent Building
A similar provision can be seen under section 22 of the Act that provides for talent development of startups members .
The two provisions ( i.e section 21 and 22) combined aimed at developing the skills, and performance of the startups practitioners in Nigeria .The Act provides for the establishment of digital technology acquisition centers across the six geopolitical zones in Nigeria to assist with talent development through collaboration with relevant agencies, the private sector, and supporting the activities of related academic research institution.
Undeniably, skills and knowledge are the two keys to innovative ideas which startup Act wants to develop. Thus, these duo provision aim at developing the talents and skill of the startups members, Forster innovations and productive adventure and to provide a skilled-based workforce and skilled-centered companies in Nigeria in order to promote investment and economic maturity and growth.
7. Protection of Intellectual Property Law
Startups are usually a creation of a product that is unique in market or has a rare production attributable to a particular company. So, for a successful development of startup in Nigeria, Intellectual property right must be unreservedly guarded and protected by the act.
Hence, under section 31 of the Act,the protection of intellectual rights is considered paramount and a-must-do exercise in order to achieve the objectives.
Protecting intellectual property will help startups to maintain their competitive advantage, generate revenue, attract investors, expand into new markets and promote innovation and creativity.
Thus ,under subsection 2 (a)(b)(c) of the section it provides that: the Secretariat should …
(a) designate a separate section on the Startup Portal to ease registration of intellectual property for labelled startups ;
(b) provide assistance to labelled startups for facilitating the application for grant or revocation of patents and institution of legal action for infringement of any intellectual property rights ; and
(c) facilitate assistance to labelled startups for the filing and registration of their trademarks and patents at the international level.
The above provision is to help startups register their parents And intellectual properties easily , seamlessly and expeditiously.
This will, in no small way, help in advancing startup activities and promoting investment capacity in Nigeria due to confidence given by the Act in protecting companies Patent or intellectual rights property .
8. Support for Academic Research Institution
There will be no growth without human resources development in every sector. Thus, having recognized unique role of human resources in facilitating the success of the startup in Nigeria, the under section 23 provides that, the Secretariat should support the activities of research institute for the development of startup.
Notably, for this Act to achieve the items under section 21 and 22 ,this section must be properly supported and function unhindered. This because, talent can only be developed through learning process which the researchers compile and share with public or through workshops or seminars organized by them.
Thus, paragraph (e) of the section provides:
” funding the co-operation and sharing of research information and knowledge, including supporting conferences, workshops, seminars, meetings and other synopsis”
Also, in order to attract Foreign Direct Investors (FDI) into Nigeria, there must a proper research data base published by the researchers on the economic conditions of Nigeria and the progresses been made. Thus, supporting research is vital for the promotion of investment and startup growth and production in Nigeria.
Lastly, there are many provisions under the Act that tends or aims at supporting and promoting startups activities and Investment in Nigeria apart from the above-mentioned. Such as accelerators and incubators provision under section 38 due to the roles they play in collaboration and exchange of startups’ ideas, also, provision of incentives and reliefs for investors and angel companies , etc.
Conclusion
Startup Act is one of the best Act Nigeria ever enacted for the development of digital innovations, and startups businesses in the county. It is, as highlighted above, aiming at improving the business clime of Nigeria; promote economic growth, corporate investment and entrepreneurial development in Nigeria.
Although, the act is a game changer for startup business in Nigeria but, still, there is need for further regulations to ensure a proper execution and fidelity with the wordings and provisions contained under the Act. As Nigerians has an innate habits of disowning laws for selfish purposes.
References
- The Nigeria Startup Act, 2022.
- Understanding the provisions of the Nigerian Startup Act and its impact on Business; a publication of Africa Law Practice NG& Company.
- The new startup Act at a Glance; 10 key takeaways; a publication by Templars.
About Author
Akilu Saadu is a 300 level law student of the faculty of law Ahmadu Bello University Zaria. He is a writer, essayist and a co-founder of Hausa law. He can be reached via his email address: [email protected]
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