Setting Up a Venture Capital Company for Startup Investment in Nigeria

/in , /by

By Seun Timi-Koleolu and Olawale Atanda

Startups require funding for their operations and to scale.[i] This is where venture capital companies (VCs) come in. VCs (as a subset of private equity) provide early or late stage financing to startups. VC funding is booming in Nigeria and has led to startups receiving increased financing year-on-year. Nigeria attracted $747 million in VC funding in 2019 with a majority of investments going to fintech companies. Although, a large number of these VCs are foreign, there is an increasing number of local VCs such as Ventures Platform, EchoVC, and Microtraction which invest in Nigerian startups. In this article, we list important points to consider when setting up a VC fund in Nigeria.

 

Company Structure

In Nigeria, VCs may be registered[ii] as a Limited Liability Partnership or a Limited Liability Company under the Companies and Allied Matters Act 2020.[iii] VCs may also register as limited partnerships under the Partnership Law of Lagos State but would however need to register as business names by the Corporate Affairs Commission to operate outside the state.

 

Regulation

The Securities and Exchange Commission (SEC) mandates private equity funds (such as VCs) to register with the commission where investor funds are above ₦1 billion. Registered VCs are prevented from soliciting funds from the public and may only privately source funds from qualified investors. They may also not invest more than 30% of their assets in a single investment. Under SEC regulations, the fund manager of a registered private equity fund must have a minimum paid-up capital of ₦20,000,000.00.

 

Raising Funds

VCs raise funds from a variety of sources which consist of banks and other financial institutions, insurance companies, pension funds, (“institutional investors”) high net worth individuals, etc. However, regulations that cover institutional investors may restrict the extent to which they may invest in VCs. For example, the Banks and Other Financial Institutions Act limits investments to the extent that such investment does not at any time exceed 10% of the bank’s shareholders funds and not more than 40% of the investee company’s paid up share capital. Foreign VCs who bring in funds into the country are guaranteed the transferability of interests on dividends and repatriation of investments in startups. Funds should be brought in through authorized dealers (usually banks) who then issue a Certificate of Capital Importation (CCI) as proof of the importation of capital. The CCI allows foreign VCs to repatriate funds without restriction.

Taxes

Taxes payable by VCs are dependent on the structure of the fund. Where a VC is registered as a Limited Liability Company, the company will be liable to pay income tax on its profits as provided under the Company Income Tax Act (CITA). Funds registered as business names will not subject to corporate income tax, instead, each partner would be taxed based on its individual income from the business. The investee company is however required by the CITA to withhold 10% of the interest on dividends due to investors. Where a VC is a resident of a country that Nigeria has a double tax agreement with, the withholding tax rate is pegged at 7.5%.

 

Conclusion

Nigeria is a profitable market for VC funds which is evidenced by the impressive growth of startups and tech companies over the years. VCs who intend to set up shop in Nigeria or as foreign VCs, invest in Nigerian startups must be conversant with the rules on investing in Nigeria. This is important to ensure adherence with regulatory rules and conformity to proper business and corporate governance procedures.

[i] You can access our article on startup funding here https://pavestoneslegal.com/startup-funding-raising-capital-as-a-startup-in-nigeria/

[ii] Although, the Companies and Allied Matters Act 2020 has been passed into law, the Corporate Affairs Commission is yet to begin the registration of Limited Liability Partnerships.

[iii] You can read our analysis on the Companies and Allied Matters Act 2020 here    https://pavestoneslegal.com/tag/cama-2020/

REGULATION OF CRYPTOCURRENCIES AND OTHER DIGITAL ASSETS IN NIGERIA

/in /by

By Aderonke Alex-Adedipe and Eustace Aroh

  1. INTRODUCTION

Through Blockchain, digital assets were introduced to the world in 2009 with no central controlling authority. Very quickly, cryptocurrency transactions became popular in various parts of the world including Nigeria and have remained unregulated. Specifically, the Central Bank of Nigeria declared in 2018 that cryptocurrencies are not regarded as legal tender, discouraging Nigerians from participating in cryptocurrency transactions. Recent events however continue to suggest that cryptocurrency is largely embraced as Nigeria remains the largest source of bitcoin trading in Africa.

In recognition of the above, the Nigerian Securities and Exchange Commission (“SEC”) on September 14, 2020 issued its Statement on Digital Assets and Their Classification and Treatment (the “Statement”). The Statement proposes a set of rules which seek to regulate cryptocurrencies and other digital assets classified as securities.  This article highlights some salient provisions in the Statement and their effects on transactions relating to digital assets in Nigeria.

 

  1. WHAT CLASS OF DIGITAL ASSETS WILL BE REGULATED?

According to the Statement, digital assets provide investment opportunities. The SEC, being the primary regulator of investments and securities in Nigeria, assumes jurisdiction over the regulation of digital assets, provided they can be classified as securities.

It is SEC’s position that all virtual crypto assets are deemed as securities, except otherwise proven by the issuer of the asset who is required to make an initial filing with SEC. Where upon assessment, the asset is found to constitute securities, it will have to be registered with SEC. Consequently, all digital assets including Digital Assets Token Offering (DATOs), Initial Coin Offering (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets classified as securities by SEC, will need to be registered.

 

  1. WHO WILL BE REGULATED UNDER THE PROPOSED RULES?

Any person engaging in receiving, dealing, transmitting and executing orders on behalf of people, portfolio management, investment advice, custodian or nominee services as it relates to virtual digital assets services must be registered by SEC. The regulation will cover digital assets within Nigeria, by Nigerian issuers or sponsors and foreign issuers targeting Nigerian investors. Foreign issuers or sponsors will be recognized where a reciprocal agreement exists between Nigeria and the foreign country or where the country is a member of the International Organisation of Securities Commission. Foreign issuers or sponsors may, however, be required to establish a branch office within Nigeria.

 

  1. CONCLUSION

Although countries have continuously stated that cryptocurrencies do not qualify as an official legal tender, the unprecedented growth rate of digital assets have forced countries to issue rules regulating digital asset transactions. In Nigeria, specifically, the SEC has stated that the intention of the proposed rules is to safeguard the interest of participants, rather than stifle the growth of technology. The rules if implemented with these factors in mind, will ensure protection and transparency of digital asset transactions in Nigeria.

REQUIREMENTS FOR IMPORTING PHARMACEUTICAL PRODUCTS INTO NIGERIA

/in /by

According to the UN International Trade Statistics Database, importation of products by Nigerians increased from N132.6 million to N159 million between May to June,2020. This indicates that in spite  of the decrease in economic activities brought on by the Coronavirus pandemic, importation still remains pivotal in Nigeria. One significant group of products that have gained traction, especially in the wake of the pandemic are pharmaceutical products (“Pharma Products”). In our article today, we highlight the stages required to import Pharma Products into Nigeria.

Stage 1- INCORPORATION / REPRESENTATION

Investors seeking to import Pharma Products must either register with the Corporate Affairs Commission as a pharmaceutical company or appoint a duly registered pharmaceutical company in Nigeria using a power of attorney, authorising it to act on their behalf. Registration as a pharmaceutical company must comply with the requirements of the Pharmacists Council of Nigeria (“PCN”).

Stage 2- REGISTRATION OF PREMISES

A suitable warehouse or building has to be secured for the storage of the Pharma Products being imported. Such premises must be registered for inspection in accordance with the provisions of the National Agency for Food and Drug Administration and Control (“NAFDAC”) Act and the Inspection, Location and Structure of Pharmaceutical Premises Regulation.

Stage 3- NAFDAC REGISTRATION

Before any pharmaceutical product can be imported into Nigeria, it must have been registered by NAFDAC. This process comprises of two stages:

  1. an application to bring in samples;
  2. an application for full registration

Once duly registered, the application shall be valid for 5 (five) years. This stage is highly critical as importation of unregistered Pharma Products is a violation of the provisions of the Act guiding NAFDAC.

Stage 4- CLEARING

Once the Pharma Products have arrived at the ports and are ready to be cleared, an application has to be made to the Port Inspectorate Directorate (PID) of NAFDAC and should be accompanied by shipping documentation, required permits and licenses from PCN and other agency permits. Once the payment of  inspection and analysis fees is made, it is to be followed by physical inspection at the port and upon successful vetting, the Pharma Products are released to the warehouse.

Stage 5- ADVERTISING

Finally, it is pertinent for intending importers to know that before the cleared Pharma Products can be advertised, traditionally and via social media, necessary approvals must be gotten from NAFDAC and the Advertising Practitioners Council of Nigeria, via its Advertising Standards Panel Committee. Importers intending to market their Pharma Products should note this stage as NAFDAC may withdraw its certificate of registration from defaulters.

Note

This article  is simply a guide for intending investors and importers and should not be construed as legal advice. You may contact us if you have enquiries with respect to the foregoing at info@pavestoneslegal.com

To read more articles on importation of goods into Nigeria, click here . You can also learn more about NAFDAC requirements to set up a restaurant in Nigeria by clicking here.

REVIEW OF THE NIGERIA BROADCASTING CODE – THE 2020 AMENDMENT

/in /by

By Aderonke Alex-Adedipe and Eustace Aroh

Introduction

The National Broadcasting Commission (“NBC”), the apex regulator of broadcasting in Nigeria, is authorized by its enabling Act (the National Broadcast Commission Act 1992) to create a code setting the standards of the contents and quality of materials for broadcast in Nigeria. In 2016, the NBC issued the sixth edition of the Nigeria Broadcasting Code (the “Code”). Subsequently, on June 11, 2020, the NBC released the amendment to the Code (the “Amendment”). As a result of some of the changes perceived as unfavourable by stakeholders, the Amendment has remained subject of controversy.

 

Anti-Competition and Sub-licensing

Under the Amendment, broadcasters and licensees are prohibited from entering into agreements with the intent of preventing or restricting competition. Furthermore, broadcasters and licensees are not permitted to acquire broadcasting rights in Nigeria or anywhere in the world, which may prevent broadcasters, licensees and persons in Nigeria from sub-licensing to third parties.

The Amendment further provides guidelines for sub-licensing with a view to preventing anti-competition. For instance, broadcasters are required to grant access to its premium content in the sport and news genre to all pay TV platforms. Broadcasters are also required to offer sports and news program to other broadcasters for retail in Nigeria on a non-exclusivity basis.

 

Sporting Rights

The Amendment generally prohibits the exclusivity of sporting rights in Nigeria. It further states that bids for sporting rights in Nigeria must be reasonable and subject to verification by the NBC. Where a broadcaster acquires a right to broadcast live foreign sports events, the broadcaster must make the right available to other broadcasters. Furthermore, to transmit prime foreign sports content, the content owner must have acquired prime local sports content with at least 30% of the entire cost of acquiring the foreign content. Where an advertiser intends to advertise any product during a foreign sport event, the advertiser must also advertise during a prime local sports event.

 

Web/Online Broadcast

According to the Amendment, all operators, web and online broadcasters are now required to register with the NBC. The owners of the platform shall be responsible for their content and must comply with all laws and regulations including those relating to fake news and hate speech. In effect, online platforms like Netflix and IrokoTV are now required to be registered with the NBC.

 

Unpaid Advertising Rates

Where a broadcaster’s advertising rate has remained outstanding and unpaid for 45 days, the broadcaster is expected to notify the NBC. The NBC will then issue a notice of default to all its licensees. After a period of 60 days from the issuance of the notice of default, no broadcaster shall broadcast any advert, sponsored programmes or events of the advertiser in default or any of its agents.

Conclusion

Although the intention of the NBC is to promote broadcasting of local content and competition in the market, some of the provisions in the Amendment have been widely criticized as hampering the general principle of freedom of parties to contract, mandating parties to sublicense their broadcasting rights to third parties and generally stifling investment within the entertainment sector.

Data Protection Update: Insights on the Data Protection Bill 2020

/in /by

By Seun Timi-Koleolu and Olawale Atanda

The National Information and Technology Development Agency (“NITDA”) recently published the Draft Data Protection Bill 2020 (the “Bill”) for the input of stakeholders. The Bill, if enacted, will be an addition to the laws that govern the use and protection of the data in Nigeria.

The Bill seeks to establish a framework for the protection of personal data particularly to protect data subjects’ data vis-à-vis the use of such data by organisations and security agencies; establish a regulatory authority that will coordinate data protection and privacy issues and have oversight on data controllers and data processors; and ensure that personal data is processed in accordance with NITDA’s data protection principles.

The protections offered in the Bill are similar to those stated in the Nigeria Data Protection Regulation, 2019 (“NDPR”) issued by NITDA which regulate the collection and processing of data. However, the bill includes novel additions and expands on existing data protection rules which we have highlighted below.

 

Key Changes and Improvements in the Bill

  1. Scope of the Bill – The Bill builds on the scope of the NDPR by expressly listing the persons and bodies that will be subject to its provisions. These are: persons resident in Nigeria and Nigerian nationals irrespective of residence; public and private companies in Nigeria; unincorporated joint ventures or associations operating in Nigeria; any institution or body which maintains an office, branch or agency through which business activities are carried out in Nigeria; and foreign entities targeting persons resident in Nigeria.

 

  1. Categories of Data – The categories of data to be protected are expanded and include personal information such as religious affiliation, sexual orientation, and even trade union memberships. The Bill goes further to protect other personal information such as banking records, academic transcripts, health records, and personal subscription data. It should be noted that what constitutes personal data is not exhaustive under the Bill as it makes a provision for definitions to be included in guidelines to be made by the Data Protection Commission.

 

  1. Establishment of Data Protection Commission – The Bill seeks to establish a Data Protection Commission (the “Commission”) to enforce its provisions by regulating the processing of personal information; having oversight over data processors and controllers, amongst others. The powers of the Commission are similar to that of NITDA. It is important that there is a clear delineation of powers between the Commission and NITDA before the Bill is passed into law.

 

  1. Rights of a Data Subject – The Bill provides for persons to be notified within 48 hours after a data breach affecting them has been reported by the individual or body in possession of their data (“data controller”) to the Commission. The Bill, however, does not state when or how the data controller is to report to the Commission upon being aware of the breach of the data it controls.

 

  1. Penalties for Breach of Data Bill – The Bill strictly penalizes breaches of data by individuals/bodies, data controllers/processors, and staff of the Commission. The Bill provides for fines of up to ₦10,000,000.00 (Ten Million Naira) and imprisonment terms of up to 5 (five) years for persons or bodies convicted under the Bill. The Bill also provides for the forfeiture of assets by convicted persons under the Bill and allows for the compensation of victims of data breaches.

 

Conclusion.

The Bill, on its face, seems to repeat provisions already in the NDPR. It sheds light, however, on protections provided in the NDPR. There are also novel inclusions such as the Data Protection Commission and the significant expansion of penalties for data breaches. The Bill is in draft form and it is expected that NITDA would provide clarity on the questions that arise from the review of the Bill before it is passed into law.

Data Protection Update: Insights on the Data Protection Bill 2020

/in /by

The National Information and Technology Development Agency (“NITDA”) recently published the Draft Data Protection Bill 2020 (the “Bill”) for the input of stakeholders. The Bill, if enacted, will be an addition to the laws that govern the use and protection of the data in Nigeria.

The Bill seeks to establish a framework for the protection of personal data particularly to protect data subjects’ data vis-à-vis the use of such data by organisations and security agencies; establish a regulatory authority that will coordinate data protection and privacy issues and have oversight on data controllers and data processors; and ensure that personal data is processed in accordance with NITDA’s data protection principles.

The protections offered in the Bill are similar to those stated in the Nigeria Data Protection Regulation, 2019 (“NDPR”) issued by NITDA which regulate the collection and processing of data. However, the bill includes novel additions and expands on existing data protection rules which we have highlighted below.

 

Key Changes and Improvements in the Bill

  1. Scope of the Bill – The Bill builds on the scope of the NDPR by expressly listing the persons and bodies that will be subject to its provisions. These are: persons resident in Nigeria and Nigerian nationals irrespective of residence; public and private companies in Nigeria; unincorporated joint ventures or associations operating in Nigeria; any institution or body which maintains an office, branch or agency through which business activities are carried out in Nigeria; and foreign entities targeting persons resident in Nigeria.

 

  1. Categories of Data – The categories of data to be protected are expanded and include personal information such as religious affiliation, sexual orientation, and even trade union memberships. The Bill goes further to protect other personal information such as banking records, academic transcripts, health records, and personal subscription data. It should be noted that what constitutes personal data is not exhaustive under the Bill as it makes a provision for definitions to be included in guidelines to be made by the Data Protection Commission.

 

  1. Establishment of Data Protection Commission – The Bill seeks to establish a Data Protection Commission (the “Commission”) to enforce its provisions by regulating the processing of personal information; having oversight over data processors and controllers, amongst others. The powers of the Commission are similar to that of NITDA. It is important that there is a clear delineation of powers between the Commission and NITDA before the Bill is passed into law.

 

  1. Rights of a Data Subject – The Bill provides for persons to be notified within 48 hours after a data breach affecting them has been reported by the individual or body in possession of their data (“data controller”) to the Commission. The Bill, however, does not state when or how the data controller is to report to the Commission upon being aware of the breach of the data it controls.

 

  1. Penalties for Breach of Data Bill – The Bill strictly penalizes breaches of data by individuals/bodies, data controllers/processors, and staff of the Commission. The Bill provides for fines of up to ₦10,000,000.00 (Ten Million Naira) and imprisonment terms of up to 5 (five) years for persons or bodies convicted under the Bill. The Bill also provides for the forfeiture of assets by convicted persons under the Bill and allows for the compensation of victims of data breaches.

 

Conclusion.

The Bill, on its face, seems to repeat provisions already in the NDPR. It sheds light, however, on protections provided in the NDPR. There are also novel inclusions such as the Data Protection Commission and the significant expansion of penalties for data breaches. The Bill is in draft form and it is expected that NITDA would provide clarity on the questions that arise from the review of the Bill before it is passed into law.