Introduction

It is no news that on 19 October 2022, the President of the Federal Republic of Nigeria assented to the Nigeria Startup Bill 2021 (the Bill), thereby signing it into law as the Nigeria Startup Act 2022. The Act ushered in a legal and Institutional regime for the operations of Startups in Nigeria.

It is a step in the right direction as the Nigerian Startup ecosystem has witnessed tremendous growth over a short period of time. Accordingly, the research conducted by Statista in 2020, has it that, the Nigeria recorded over 3,300 Start-ups and this has been held to be the highest number in Africa.

The Act served to regulate the Startups and as well as create an enabling environment for their formation, growth and existence in the country. Furthermore, the Act aims to promote the development of tech-related skills and position the Nigerian startup ecosystem as the continent’s leading digital technology hub.

In this article, we would bring out some of the Act’s notable provisions and their implications for key stakeholders in the Nigerian Tech Ecosystem.

Notable Provisions of the Nigeria Startup Act 2022

Establishment of the National Council for Digital Innovation and Entrepreneurship

At the opening chapter of section 3 of the Act is the Establishment of the National Council for Digital Innovation and Entrepreneurship. The composition of the council is made up of the President of the Federal Republic of Nigeria as the chairman of the council and Vice President of the Federal Republic of Nigeria as the Vice-chairman and as well as other members of the council. Among the functions of the council include but not limited to the following:

Formulation and provisions of general guidelines for the realisation of the objectives of the Act,
Given directions for the harmonisation of laws and regulations affecting startups in Nigeria
Monitoring and evaluating the regulatory framework for the encouragement of developing startups in Nigeria,

Supporting digital technological development through grants to persons, research institutions, and universities pursuing postgraduate programmes in the areas of science, technology and innovation.

The Act makes the National Information Development Agency as the Secretariat of the Council headed by the Director- General of the Agency. The Secretariat shall manage the process of labelling startups in the country among its other numerous functions as contained in the Act.

The Application of the Nigeria Startup Act

The Act applies to companies incorporated under the provisions of the Companies and Allied Matters Act, 2020 which have been granted the startup label in accordance with the Act and as well as organisations and establishments whose activities affect the creation, support and incubation of labelled startups in Nigeria. The Companies contemplated by the Act must not be more than 10 years in existence as at the time of applying for the startup label.

Establishment of Startup Support and Engagement Portal

The Act empowers the Secretariat but with the approval of the Council to establish Startup Support and Engagement Portal. The startup portal would serve as a platform through which a startup conducts its registration process. Among the chief purpose of the establishment of the Startup Portals are:

Facilitation of issuance of permit to a labelled startup,
Serving as a platform for interaction between a startup and the Federal Government, private institutions, angel investors, venture capitalists etc,
Creating opportunities for start-up to participate in beneficial challenges and programmes,
Fostering of information exchange between various stakeholders in the Nigerian eco system.

Demystifying The Nigerian Startups Act 2022 and Its Implications For The Nigerian Tech Ecosystem - By Olamide Timothy Olaniyi

Startup Consultative Forum

The Secretariat is also empowered by the Act with the approval of the Council to set up a body to be known as Startup Consultative Forum on the Startup Portal to provide for a platform for dissemination of information. This is to ensure collaboration in the Nigerian Startup ecosystem with respect to the following:

Information on a startup which qualifies to be labelled under the provision of the Act,
Relevant incentives that apply to startups in Nigeria,
Information on available local capabilities, etc

The Act goes further to provide that the forum shall comprise industry stakeholders and representatives registered on the Startup Portal Forum. The industry stakeholders and representatives are as follows as provided by the Act:

Labelled startups,
Venture capitalist,
Angel investors,
Incubators, accelerators, and innovation clubs,
Two civil society organizations involved in the advancement of technology and innovation.

Startup Label and Eligibility for Grant of Startup Label

The Act provides for a startup label which is inform of a certificate issued by the Secretariat to a startup upon the fulfillment of the labeling requirements. A startup is eligible for a startup label where it is a limited liability company registered under the provisions of Companies and Allied Matters Act, as well as not more than 10 years in existence; and its objects are innovation, development, production, improvement and commercialization of a digital technology innovative product or process.

Furthermore on the eligibility for grant of startup is that the company must as well be a holder or repository of a product or process of digital technology; must has at least one-third local shareholding by one or more Nigerians as founder or co-founder of the startup. A sole proprietorship or partnership in business structure must also satisfy some certain requirements as contained in the Act. The procedure for labeling a startup and as well as issuance of a labeling certificate is detailed in the Act.

A labeled startup under the act has numerous obligations to perform. Chief among the obligations as contained in the Act are:

Compliance with all extant laws governing business in Nigeria,
Providing information annually on the number of human resources, total assets and turnover achieved from the period the startup label was granted,
Maintain proper book of accounts in accordance with reporting obligations provided under the extant laws and regulations,
Provide an annual report on incentives received and advancement made by the virtue of the incentives, etc.

Establishment of Startup Investment Seed Fund

The Act establishes Startup Investment Seed Fund. The Fund is to be managed by Nigerian Sovereign Investment Authority and as well as nothing less than the sum of 10 Billion Naira to be paid into the Fund from sources to be approved by the Council. The fund is to be solely applied to:

Provide a labelled startup with finance,
Provide early stage finance for labeled startups on the recommendation of the Fund Manager subject to the approval of the Council subject,
Provide relief to technology laboratories, accelerators, incubators and hubs.

Training, Capacity Building and Talent Development

The Act also empowers the Secretariat to design and implement a training and capacity building programme for startup. The Secretariat shall also collaborate with the National Universities Commissions, National Board for Technical Education and other tertiary institutions regulatory bodies within the country to develop modus operandi, programs aiming at impacting knowledge for the establishment and running of Startups in the Country.

The Secretariat is also mandated to support the activities of an academic research institution to the development of a start-up . In carrying this, the secretariat is expected to create linkages between a research institution, the private sector, the federal government and other stakeholders in the ecosystem among others.

It is our humble submission that this is a laudable provision of the Act as this would see to the exponential increase in the number of startups in the Country. Also, with the proper implementation of this provision, the country would be a point of attraction for foreign investors.

Tax and Fiscal Incentives

The Act as well has laudable tax and fiscal incentives provisions for the startups registered in accordance with the provisions of the law. It provides that a labeled startup which falls within industries captured under the pioneer status incentives Scheme may receive speedy approval from the National Investment Promotion Commission for the grant of tax reliefs and incentives. However, application can be made through the Secretariat. Chief among the laudable provisions of the Act on the Tax and Incentives is the simplification of the requirements for a start up to benefit from the existing fiscal incentives. It provides further that a labeled startup may be entitled to exemption from the payment of income tax for a period of three years and additional two years where such a startup is still within the period of a labeled startup.

Also non- resident companies providing technical, consulting, and professional or management services to a labeled startup would be subject to a five percent withholding tax on income derived from the provisions of such services. In the main, a labeled startup shall enjoy full deduction of any expenses on research and development which are wholly incurred in Nigeria.

The secretariat is mandated to ensure that startups engaged in the exportation of products and services and deemed eligible under the Export( Incentives and Miscellaneous Provisions Act, are entitled to export incentives and financial assistance from Export Development Fund, Export Expansion Grant and the Export Adjustment Scheme Fund.

It is also the duty of the Secretariat to ensure that labelled startups have access to grants and loans facilities by the Central Bank of Nigeria, Bank of Industry and bodies created statutorily to assist the Small and Medium Enterprises and entrepreneur. It is our humble advised that the Secretariat see to formidable and robust relationship with the Central Bank of Nigeria and other stakeholders in that regard in order for it to perform this obligation optimally.

The Secretariat is as well empowered to establish a scheme known as Credit Guarantee Scheme for the development and growth of the labelled startup under the Act. The objectives of the credit scheme are as follows:

The provision of accessible financial support to a labelled startup,
Creation of framework for credit guarantee for a labelled startup,
Provision of financial and credit information to a startup,
Provision of financial management capacity building program to a startup.

The Act also make provisions for tax reliefs and incentives for Startup Investors. The Act mandates the Federal Government through the Ministry of Finance and other MDAS to develop and implement a national policy for incentives for individual investors, angel investors, venture capitalists who invest in startup. However, before an investor can enjoy this tax reliefs and incentives, such asset of an investor must have been held in Nigeria not below 24 Months.

Protection of Intellectual Property

The importance of intellectual property to the growth and development of startup cannot be overemphasized and as such the Act recognises and as well makes laudable provisions for its protection. The Act mandates the Secretariat to ensure that the holders of intellectual property rights are always encouraged to exploit the rights and as well taking steps in internalizing and commercialising them.

In the main, the Act also enjoins the Secretariat to collaborate with the Nigeria Copyright Commission and as well as the Trademarks, Patent and Design Registries to ensure the seamless registration and protection of the Intellectual Property of the labelled startups in Nigeria .

Startups may also raise funds through crowd funding intermediaries and commodities investments platforms duly licensed by the Securities and Exchange Commission. The Act as well recognizes and makes provisions on Transfer of Foreign Technology. It is also incumbent on the Secretariat but in conjunction with the Central Bank of Nigeria and Securities and Exchange Commission to setup a separate section on the Startup Portal to ease the licensing procedures of Fintech Startups.

Accelerators and Incubators

The Secretariat in seeing to the realisation of the objectives of the Act is mandated to establish accelerator and Incubator programmes for startups in Nigeria. The National Council for Digital Innovation and Entrepreneurship, the council is as well obligated to establish a national accelerator and Incubator policy for the establishment and development of accelerators and Incubators. The Secretariat to develop standards and guidelines to regulate the relationships between accelerators, incubators and startups among other things. A register of Accelerators and Incubators shall be maintained by the Secretariat and as well as entitled to incentives to be granted by the Federal Government.

Clusters Hubs, Innovation Parks and Technology Development Zones

The Act also mandates the Council to issue a framework for the establishment and operation of startup innovation clusters, hubs, physical and virtual innovation parks in all the states of the Federation. The role of the innovation clusters, hubs and parks include but not limited to the following:

connecting, fostering collaboration and generating businesses between a startup and a large company,
collating expertise, ideas, and perspectives,
Providing a startup with access to resources and professional services.

Furthermore, functions of the clusters, hubs and innovation parks are as well outline in the Act which includes but not limited to the following:

provide dedicated team, help desk and contact to provide support to a startup,
assistance for a startup to understand the regulatory framework,
assistance in registration, and application for authorization,
assistance and facilitation for the expansion of a startup into foreign markets.

The Secretariat is to also collaborate with the Nigeria Export Processing Zones Authority to establish a Technology Development Zone in Nigeria to spur the growth and development of startups, accelerators and incubators.

Data protection

The Act recognises data as one of the most important factors responsible for the growth of technology. Hence, its protection in accordance with the existing data protection law and regulations in Nigeria.

Conclusion

Startup Acts have proven to be a veritable tools for the growth and development of Startups eco system in many jurisdictions. [43] Nigeria Startup Act would not be different. This as result of laudable provisions of the Act strategically put in place to see to the development and continuous growth of Startups in the Country. It is in no doubt that the Nigerian tech eco system would be greatly impacted as result of the enactment of the Act. We therefore, hope there would be proper implementation of the Act by all the stakeholder in startup eco system for acceleration of growth of the Startups in the Country.

References

_{[1] Abosede Adeboye and Nnamdi Obinwa ‘The Nigeria Startup Act 2022: The Implications For Technology Start Ups in Nigeria’ available at https://www.mondaq.com/nigeria/new-technology/1249936/the-nigeria-startup-act-2022-implications-for-technology-startups-in-nigeria accessed on Thursday, December 15 2022 at 06: 07am.}

^{[2] Damilola Salawu, Hopewell Nwachukwu,Tayo Fabunwa, Abasi Akara Edet and Blessing Olutoye,”The Nigeria Strat Up Act 2022: Highlights of its Framework and Notes on its Prospects” available at https://www.mondaq.com/nigeria/corporate-and-company-law/1246288/the-nigeria-startup-act-2022-highlights-of-its-framework-and-notes-on-its-prospects accessed on Thursday, December 15, 2022 at 05:54am. [3] Section 4 Nigeria Startup Act.}

^{[43] Davidson Oturu and Agboola Mubarak Dosunmu ‘The Startup Act: What it is and why it matters available at < https://www.google.com/amp/s/businessday.ng/amp/news/legal-business/article/the-startup-act-what-it-is-and-why-it-matters/ accessed on Thursday 15, 2022 at 03:08 pm}