Last week, we discussed Profiting from Art; today we will be talking about Your Business And The Law.
My name is Damilola Tubi, partner at Creed and Stones SME Legal Support Law Firm.
Your Business And The Law – Important Legal Requirements When Starting Off A Business
First thing is structure; the type of legal structure a business wants to adopt. I have had to talk to startups wanting the cheapest alternatives. The best approach is to first think about the essence of the business. Is one starting a company alone or with partners? Therefore, before starting off, one needs to register a business name under the laws of Nigeria at the Corporate Affairs Commission (CAC), and specify if it is a sole proprietorship or partnership. The business name registration is the most affordable of the legal steps to be taken. A small startup as a partnership has to have not more than 20 partners.
Your Business And The Law – Private Limited Liability Company
Another type of business that can be registered is a private limited liability company. The difference with the sole proprietorship or partnership is that the private limited liability company is a separate personality or entity from its owners. To explain further, if I have a business called The Mango Ventures, I am not different from that business. It is I, Damilola Tubi, doing business as The Mango Ventures. With a limited liability arrangement, the company is a separate legal personality from the owners. It is an individual on its own and can act as such – borrowing money on its own, capable of suing and being sued, etc.
It is more acceptable if one is thinking large scale, with investments expected from different quarters. There has to be at least two shareholders (owners of the company) and at least two directors to manage the limited liability company’s affairs. If one wants a minor (under age 18) to be a shareholder, then at least two other shareholders have to be adults. A minor, however, cannot be a director. It is important to always engage the services of a lawyer to keep giving information on these issues.
Your Business And The Law – Public Limited Liability Company
The public limited liability company is another option. This type of company is also an individual of its own, just like the private limited liability company. However, a public limited liability company can sell shares to the public. A startup might not be thinking of being this just yet, but might have to in the future. At this stage, the business will have to also register with the Securities and Exchange Commission (SEC) and meet its requirements.
A limited liability company’s (private or public) nature is such that the shareholders cannot be held for the debts and liabilities of the company. If the company borrows money from a bank, the shareholders are not liable to pay the debt, apart from exceptional circumstances. The company’s assets instead are held for the repayment of the debt.
There are also unlimited liability company (a partnership-like arrangement on a larger scale). The individual shareholders can be held responsible for the company’s debt.
The incorporated trustee is the fourth type of organisation that I will speak on. The charity organisations and churches fall under this type of set-up. Social entrepreneurship and other non-profits can consider this a good option to go for.
There are peculiarities, pros and cons in these arrangements. It’s always best to engage a lawyer for guidance on the most appropriate options to adopt.
Your Business And The Law – Agreements And Contracts
A second imperative to consider (which really might even come before the first one we discussed) is the preliminary contracts. Examples are partnership agreements, shareholders’ agreement, founders’ agreement for startups and the like. These establish certainty in relationships being partners, owners, shareholders, etc. and lay out individual responsibilities and rights to prevent future disputes.
Your Business And The Law – Taxation In Nigeria
We have a lenient tax structure in Nigeria. I advise to start off as a tax responsible entity when starting a business, and to continue that way.
It is best also to know the different taxes that a business type is liable for. For example, if a business is a sole proprietorship then there it has nothing to do with company income tax. The owner can easily stand his ground armed with this knowledge.
A businessman has to know where to register for each tax. Value Added Tax (VAT), for example, is registered for at the Federal Inland Revenue Services (FIRS). VAT is a tax paid for general goods sold and services rendered (with certain exceptions). A tax, legal or accounting consultant, has to add a VAT amount (5%) to the value of his service charged his client. He has to ensure that the 5% VAT paid by the client is remitted to the FIRS. Therefore, the client is the payer of VAT and the business/consultant is its collector and remitter. During a tax audit, the tax officer can impose penalties for taxes not collected or not remitted.
The Personal Income Tax (PIT) is paid on one’s income – whether one is an employer or employee. If one is under paid employment, a PAYE structure is used to collect tax by the employer from the salary of the worker monthly or yearly.
The Company Income Tax is paid by companies at the rate of 30% of their taxable incomes. Deductions, however, are made from the income in the form of rent, debts, employees’ pay, etc. before the tax amount is computed. This reduces the amount of a company’s finances that is taxed. Therefore, in order to ensure your business is not overtaxed, you have to engage the services of a tax consultant or lawyer.
The Withholding Tax is a tax collected at the point of payment. It is deducted by the business from the amount paid to a vendor and remitted on behalf of the vendor.
Finally, there are state taxes and levies by the local government authorities that business owners have to be aware of. A lawyer or consultant will help ensure compliance and accuracy in complying with these.
Your Business And The Law – Intellectual Property
Even before one starts a business or sells the first product or secures the first client, there is already an existing asset. The name or brand or idea or logo or invention of a business is an asset to that business and can appreciate over time. Therefore, at inception, these assets have to be protected. A lot of business owners neglect this to their detriment. To highlight the importance of brand protection, consider a big brand like Coca-Cola. If it is to sell its name or brand, it will be bought with an enormous amount of money. Likewise, a small business today might have a huge brand name worth huge amounts in the future. Because of this, a business’ name and brand have to be protected.
For a freelance writer or music writer or movie scripts or producer, those works are assets and should be protected from the start. They are copyright materials and have to be registered. In Nigeria it is not easy registering copyrights; the process is cumbersome to register every bit of copyright.
Every copyright can be converted into money. Even if cumbersome to prove or register copyright, there is a process called lodging. So once a copyright is produced, it can be recorded at the Nigerian Copyright Commission (NCC) to reflect the date of lodging. This helps in proving who produced what and when.
The name of a business or product can also be registered to protect it. Valuable names and brands like Apple are sort after to be associated with. To protect this value and to give the business longevity, protection is required. An unregistered logo or brand or name or product that becomes big in the future is vulnerable to copying and financial losses. Having no idea how valuable a brand or product is to be, one needs to use legal protections. Patent registrations are also available to protect designs, original ideas and inventions.
I will reiterate that a lawyer or consultant is always needed to offer advice and guidance when starting and running a business. The cost of not having proper legal advice outweighs that of paying for legal and consulting services.
Join Us Next Week
This was live from Command at ReDahlia Workspaces, 43B Emina Crescent, Off Toyin Street, Ikeja.
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