Delaware incorporation has become a common trend among Nigerian startups in recent years, and for good reason. The state of Delaware has a business-friendly environment that offers many benefits to startups, including strong legal protections, tax advantages, and access to a well-established legal system.
According to a recent report by Crunchbase, over 60% of Nigerian startups that have received funding have been incorporated in Delaware. This trend is a significant shift from a few years ago when most startups in Nigeria were incorporated locally. So, what has caused this shift, and why are more Nigerian startups incorporating in Delaware?
One significant factor contributing to the popularity of Delaware incorporation is its strong legal system, which provides businesses with significant protection. Delaware courts are well-known for their expertise in corporate law and their willingness to rule in favor of businesses. Additionally, Delaware has a well-established legal infrastructure that provides fast, efficient, and consistent court decisions, which is essential for startups looking to establish and grow their business.
Another reason why more Nigerian startups are choosing Delaware incorporation is the tax advantages it provides. Delaware has no sales tax, and its corporate income tax is relatively low compared to other states in the US. This means that startups can save money on taxes, which can be reinvested back into their businesses.
Moreover, Delaware is home to many venture capital firms and investors, which makes it an attractive location for startups looking to raise capital. Many investors prefer investing in Delaware-incorporated companies because of the legal protections and other benefits it provides.
Finally, incorporating in Delaware can also provide a level of credibility to startups. By incorporating in a state known for its business-friendly environment, startups can signal to investors and customers that they are serious about their business and are willing to take the necessary steps to protect their interests.
To illustrate the trend of Nigerian startups incorporating in Delaware, we can look at some examples. Flutterwave, a Nigerian fintech company that raised $170 million in a recent funding round, is incorporated in Delaware. Another example is Paystack, a Nigerian payments startup that was acquired by Stripe in 2020 for over $200 million. Paystack was also incorporated in Delaware.
In conclusion, the trend of Nigerian startups incorporating in Delaware is a significant shift in the country’s startup ecosystem. The benefits of incorporating in Delaware, including strong legal protections, tax advantages, access to venture capital firms, and credibility, are driving more and more Nigerian startups to incorporate there. As Nigeria’s startup ecosystem continues to grow, it is likely that more startups will follow this trend and choose Delaware incorporation as their preferred option.
Regville Associates offers end-to-end legal, tax and compliance service for companies. We assist Companies in becoming and staying regulatory compliant.
1.1 The Nigerian Investment Promotion Commission (NIPC) Act 16 of 1995 established the Nigerian Investment Promotion Commission established by law to encourage, promote, and coordinate all investments in Nigeria. This act also regulates the participation of foreign businesses in the country.
1.2 The NIPC Act allows foreign nationals to own up to 100% equity and invest in any business in Nigeria except those indicated on the negative list as defined by section 31 of the Act such as the production of arms, ammunition, narcotics and related substances.
1.3 Section 20 of the NIPC Act requires all enterprises in which foreign participation is permitted to apply to the Commission for business registration.
2.0 REQUIREMENTS
2.1 To apply for NIPC Business Registration Certificate, the following documents are required:
2.1.1 Duly completed NIPC Form I;
2.1.2 Memorandum & Articles of Association;
2.1.3 Certificate of Incorporation;
2.1.4 CAC Form 1.1 (or CAC Forms CO2 and CO7 for old companies);
2.1.5 Power of Attorney/ Letter of Authority (where applicable);
2.1.6 Approved Remita payment receipt of N15,000.00 only (Non- refundable)
2.1.7 NIPC payment receipt
3.0 PROCEDURE FOR PROCESSING
3.1 The NIPC Business Registration takes 24 hours to process once all required documents are submitted.
3.1.1 Applicant downloads NIPC Form 1 from the website at https://www.nipc.gov.ng;
3.1.2 Applicant pays a non-refundable processing fee of N15,000.00 only, via Remita online portal at www.remita.net;
3.1.3 Applicant submits all required documents (see 1.4 above) at the One Stop Investment Centre in NIPC or scanned copies sent to osicinfodesk@nipc.gov.ng;
3.1.4 NIPC Business Registration Certificate issued to the applicant.
For more inquiries and assistance with NIPC Registration, feel free to contact us.
The idea of launching a franchise in Nigeria might become easy but it is not easy and simple to launch one. The concept of establishing a franchise in Nigeria can be abused in some instances, and this is why it calls for massive cooperation with the franchisor and franchises. As a result, this could be the only way such a franchise could thrive in the Nigerian business industry.
What is the Legal Definition of a Franchise?
It should be noted that there are laws relating to franchises in Nigeria. This also includes the legal definition. However, the franchise is defined by the Nigerian International Franchising Association as a business arrangement or setting where the franchisor grants the franchise operator the right to make distribution of certain products or services in a specific way or sequence, at a particular location and period. As a result of this service, the franchisee pays the franchisor estimated fees and royalties.
As far as Nigeria is concerned, there are several franchises ranging from local and international. These include; Mr. Biggs, Dominoes, Chicken Republic, Pizza Hut, Shoprite, McDonald’s, etc. For the sake of this article, you will be given a brief guide on how to start a franchise in Nigeria, as well as the laws regulating the offer and sale of franchises.
Laws Regulating The Offer and Sale of Franchises?
As mentioned previously, there is no Nigerian law that regulates the offer and sale of franchises. However, some enabling statutes seem to play a crucial role in regulating the transfer of foreign technology to Nigeria. Therefore, this includes the National Office for Technology Acquisition and Promotion Act, stated in Chapter N62, Laws of the Federation of Nigeria, 2004. Note that where there is the involvement of the transfer of technology, then there is a franchise arrangement, which is regulated by the provisions of the NOTAP Act.
A Step-By-Step Guide on How To Start A Franchise in Nigeria
Firstly, to start a franchise in Nigeria, business registration with the Corporate Affairs Commission must be compulsory. As a result of this The Companies and Allied Matters Act, 2020 Provides that whoever wants to create or establish a business in Nigeria must first register their entity for whatever purpose they would want to run and operate such business.
In a similar vein, there are circumstances where the business owners are not nationals but foreigners. As a result of this, the Immigration Act 2015 and the Nigeria Investment Promotion Commission Act provide that every foreigner must register their business with the Nigeria Investment Promotion Commission and must also obtain a business permit to effectively run their business within Nigeria under the supervision of the municipal laws.
On the other hand, if the new business seeks to employ foreigners, then the such business must apply for an Expatriate Quota which is stated in Section 34 of the Immigration Act.
Secondly, when it comes to starting a franchise in Nigeria, every business owner must register such a franchise agreement with the National Office for Technology Acquisition and Promotion (NOTAP).
However, according to the provisions of the NOTAP Act, every agreement intended for the transfer of technology between a foreign transferor and a Nigerian transferee must be registered by the NOTAP. This is the policy since the agreement involves technology transfer if necessitates the NOTAP registration as a franchise agreement. It should be noted that agreements for foreign technology transfer shall be registrable if its purpose or zeal conforms with the NOTAP wholly or partially which is based in connection with any of the following;
Trademark Usage
Basic or Detailed Engineering Supply
Patented Inventions Usage Act
Machinery and Plant Supply
Operating Staff or Managerial Assistance and Personnel Training Provision
Technical Expertise Supply
Importantly, every business owner should note that when registering a franchise agreement, the Federal Competition and Consumer Act (FCCPA) states that any provision based on an agreement for the sale of certain goods that seems to establish minimum prices for the resale of goods in Nigeria shall be void.
Additionally, trademarks are very essential when it comes to business recognition and management. As a result, every franchise must have one registered in Nigeria. As far as Nigeria is concerned, it will be the first to file jurisdiction for the protection of any trademark. This is why the franchise has to be registered in Nigeria even if the trademark is being registered in other jurisdictions.
Conclusion
Securing a lease agreement for the franchise store in a suitable location is very important for every franchisee. Other actions required to be taken include; employing local staff, registering the franchise company with Federal Inland Revenue Service for sake of taxing, and registering for some industry-specific permits. Take for instance how a franchise intends to operate in the Oil and gas sector. One of the actions such businesses must undertake to get involved is to obtain a license from the Department of Petroleum Resources (DPR.)
Frequently Asked Questions
What Forms of Business Entities are Typically Used By Franchisors?
It should be noted that as far as Nigeria is concerned, the business entities which are mostly used by franchisors are limited liability companies. These companies may either be private or public.
Are there any Registration requirements Or Other Formalities Applicable to a New Business Entity As A Pre-condition to Being Able To Trade in Your Jurisdiction?
Trading is common in Nigeria, and to begin such an operation, a new business entity must meet the following requirements;
The company must be registered with the Nigerian Investment Promotion Commission. This registration applies only to companies with foreign participation.
Must be registered with the Federal Inland Revenue Service for tax-related purposes.
A corporate bank account must be opened in a commercial bank in Nigeria, which supports capital.
Must have a business permit and expatriate quota from the Ministry of Interior. Only companies with foreign participation and in cases where other foreigners are employed are entitled to this feature.
Are There Restrictions on the ability of the Franchisor to Impose Minimum Resale Prices?
Yes, NOTAP has the authority to deny the registration of a franchise agreement if it contains resale price clauses that are against the Price Control Act or any other law governing prices imposed for internal use or export.
Additionally, any clause or condition in a contract for the sale of commodities that purports to set minimum prices for the resale of products in Nigeria is invalid under the FCCPA.
Is There a Maximum Permitted Term For Any Related Product Supply Agreement?
Yes, the NOTAP Act specifies that a technology transfer agreement’s duration does not exceed ten years. In reality, however, NOTAP typically accepts a franchise agreement for a term of three years, after which it may be extended for additional three-year periods.
Is Membership in Any National Franchise Association Mandatory or Commercially Advisable?
No, it is not necessary to be a member of a national franchise group. Belonging to a national franchise group has no commercial benefit either.
Is There A Requirement for Franchise Documents or Disclosure Documents To Be Translated Into The Local Language?
The necessity that documents be translated into the local language is not mandated by law. However, because English is Nigeria’s official language, all documents must be written in English.
