i. Legal Formalities for Business Start up
Legal issues at startup involves dealing with setting up the business entity, business name and trademark registrations, labor and employment issues, intellectual property and vendor contracts among others. It is advisable to run your plans along with an experienced lawyer that can handle the unique startup requirement of your business. It is paramount to set up proprietary rights in the business and avoid infringing on the rights of others. As just earlier mentioned, start up is a vital time to consider certain legal issues. The legal formalities you must meet will depend on the entity you choose and the state in which you live. To learn more, speak with a business formations lawyer near you. However, Four major legal issues that should be attended to are:
i.i. Address legal restrictions/Limits:
There are some Legal restrictions by the Federal and State Governments which have regulations for the establishment of businesses in Nigeria. Business operation permits and licenses are obtained for the establishment of businesses, business name permit, their premises, their operations, their materials and even the quality of their products. You have to fill and file certain forms with the Corporate Affairs Commission (CAC); the autonomous body responsible for regulating the formation and management of companies in Nigeria.
Besides the Corporate Affairs Commission (CAC), some common Government agencies involved in business start up are Standard Organization of Nigeria (SON), Nigerian Copyright Council, National Agency for Food and Drug Control (NAFDAC), Customs and Immigrations, State Licensing Offices, health Departments, fire Department, land use Department, tax offices, liquor licensing offices, professional bodies, and other licensing or permit offices. All these depend on the type of business. It should however be noted that the CAC requires the inclusion of a Lawyer or Accountant as Company Secretary for the registration of business liability companies. Sometimes states determine the formalities peculiar to it for permits and licenses. All these may involve signing agreements that may require the services of lawyers or other professionals.
i.ii. Choose a Business Entity Type
There are several corporate structures in the Nigerian business registration system which includes sole proprietorships, partnerships, Limited Liability Corporation and Corporations. The business structure one chooses depends on some number of factors. These consist of the number of business partners to be accommodated in the business, the number of employees, the amount of personal liability for business debts one can afford and how one would like to be taxed among several others. It is best to contact an experienced business lawyer. Each of these types of business entity has its strengths and weaknesses. Some of them are:
i.ii.i. Sole Proprietorship:
A sole proprietorship lets the entrepreneur/proprietor/business owner to have full control over the business. It is therefore easy and cheap to start and run. For sole proprietorships and partnerships, the core strength is that income is only taxed once – as personal income. The weaknesses are that there is no protection for liability in a sole proprietorship while there is limited ability to raise capital. There is lack of continuity or transferability whenever the proprietor has problem with the venture.
i.ii.ii. Partnership:
Partnerships have few formal requirements making them inexpensive to run in comparison to corporations. In this business entity, not only is there no protection for the corporation, but also the one partner could be liable for the unscrupulous acts of another. It has tax advantages while management flexibility is high. It is also easy and cheap to start. There is also no limit of liability for partners. Just like sole proprietorship, there is Lack of continuity/ or transferability while the ability to raise capital is unlimited.
i.ii.iii. Limited Liability Corporation:
Limited Liability Corporations are created and controlled by an operating agreement which is a complex contract. It is extremely important that the operating agreement be properly written even though it may involve additional charges from the lawyer, especially as this entity seem the most attractive. Limited Liability Corporation is a combination of corporation and partnership entities with a weakness of being a recent conception that still has to evolve. Like corporation, limited liability company entity reduces personal liabilities. It has some tax advantages as well as continuity or transferability. It has greater ability to raise capital while its management flexibility is higher.
i.ii.iv. Corporations:
Corporation is the most common business entity that offers protection for its shareholders. Its disadvantage is that income may be taxed twice, in the corporate and at individual levels. Corporation has an advantage of having a clearly define structure where shareholders who own the corporation, appoint officers to run the corporation and directors that oversee the officers.
The percentage of rights of ownership by all stakeholders is determined by the number of shares. This sometimes attracts different voting rights. It has restricted liability continuity and transferability as well as greater ability to raise capital. Its other weaknesses include more limited tax advantages that require additional filing, more formalities while more expenses are required. It has a very marginal tax management flexibility.
i.iii. Protect Intellectual property.
However, there are several aspects of intellectual property that a start-up needs to put in proper place. People often misconstrue the entire intellectual property for patents only. Patent is just the main type of Intellectual Property for the protection of invention. Others aspects are trademarks for the protection of logo while copyright is for the protection of artistic, dramatic and literary works. Shareholder's Agreement is another aspect of Intellectual property required to regulate the relationship of shareholder in a company that has them. Company trade marks also include trade names and trade dress like its colours. Companies need to register all their Intellectual Property Rights from start up to protect their intellectual property marks and prevent litigations on plagiarism at later stages.
i.iv.Generating and Registering a Business/company name:
Finding a befitting business name could be an interesting aspect of legal issues at start up. It is however required by the Government that this name is registered. Such a registration is to guarantees that no other business can exploit that your trade name. The idea of creating a business name for some people may be easy, while others may have to toil with it for long. A good business plan can be marred with an unbefitting business name or trade mark. To assist you generate business name ideas is mainly by brainstorming and listing. Think about and jot down as many keywords related to your product or service, your mission, add your own name or names of your loved ones’, your hero or heroes, your location etc. You may need to build up on this list from dictionaries. It is advised that the more words, the easier for you to find exciting and interesting words that will fit your dream business name. Consider if you can combine some words or phrase from your list. It is essential to keep these characteristics of a business name at hand while choosing a new one:
· It should be easily and proudly expressible.
· it should be easy to comprehend and spell.
· It has to be creative and imaginative.
· It must clearly advertise your business ideas and represent all you do so that your production line will not be limited.
· it should be distinctive and concise and without ambiguous words.
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It is also advisable that the chosen name be subjected to family and associates’ criticism. Ruminate over it for some days before confirming it the chosen. After generating the business name, it has to undergo registration at the Corporate Affairs Commission (CAC) office. The trade marks like trade names, logo, colours, trade dress, etc which can be obtained from an artist can be carried and registered along.
· It is better to check the proposed company names and trademarks at the same moment once you have decided to have the two. This will ensure you don’t infringe on other peoples’ trademarks.
· At the end of the detailed checking, the CAC’s business checker will report
the availability or otherwise of your proposed business name.
· Detailed checking at the CAC is to confirm the registration of your intellectual property which no other business in Nigeria can ever use again. It becomes the business link and marketing strategies with your customers.
i.vi. Develop Basic Legal Documents
After the registration of the business name and trademarks, the business can now develop its basic legal documents and common forms needed. Purchase and services agreement that have to be signed should be prepared for the customer.
· Apparently, the business has to employ staff to assist run it. Employment legislation should be abided with by ensuring that employees receive their terms and conditions of service document, not too long upon assumption of duty. Company policies and procedure in respect of staff health, safety and general welfare should be documented, and be handed over to them on employment. There should be a general employment manual while agreement forms should also be prepared.
· Business companies are required to file an annual return with the Corporate Affairs Commission (CAC). This may include the company account depending on the type of entity and the annual turnover. There are penalties for not complying every year.
· Where there is the need for capital, directors should consider and declare shareholding for potential investors. The potential type of shares including rights each shares attract in the company should be specified.
All these presumably attest to the fact that a professionally qualified and experienced lawyer and or an accountant be employed to prepare the company documents including forms and agreements.
