Oct 9, 2017

Why Start-ups need to hire a lawyer or fail | Damilola Oyebayo and Dayo Dauda

The Nigerian start-up ecosystem has evolved in the past few years, many startups have emerged, some have won while some have lost, regardless of the industry or the nature of the product or services being offered by a start-up, there are some common success factors shared by companies that have grown in the past few years. For instance, issues like; traction, leadership, funding and legal structure are a few of the differentiating factors of start-ups in Nigeria and even globally.

Often times, when we interact with many founders, it is often discovered that product development does not qualify as entrepreneurship, as many founders even find it hard to understand the business aspect of the technology they have invented, thus, it is no surprise that they usually overlook the importance of having a serious legal backing while embarking on their entrepreneurial journey. While some do not right this wrong until they encounter a serious legal problem like Privacy or Intellectual property or employee or shareholders agreement, others do not even get a second chance and this latent defect literally kills the business before it even takes off.

Interestingly, in the new global business ecosystem, a start-up surely does not need a lawyer for the sake of hiring one, there is no point hiring a lawyer that hinders innovation, start-ups should pay attention to lawyers that understand business and are ready to add value to the company by providing business friendly legal solutions, in essence, if your lawyer is not adding any real value to the business objectives of your start-up, definitely, there is no point engaging such lawyer any further.

At the recently concluded Paystack event tagged “Y Combinator Lagos meet up”, held at the Paystack Headquarters, we had the opportunity to talk to some Tech Founders and ask them about the role a lawyer plays in ensuring the growth and success of start-ups. They could not over-emphasize the importance of Lawyers and from our interaction with them, we observed that the type of value a lawyer provides, usually depends on the growth stage of the start-up, at the early stage, the lawyer is involved in the following;

Incorporating the start-up – this requires drafting and filing the incorporation documents at the Corporate Affairs Commission. This is very paramount given how the lawyer would from the information provided by the founder/promoter of the startup and the needs of the startup advise on the best type of company to register and to also (where necessary) obtain all relevant permits and licenses. More importantly, the lawyer would advise on the best time to register the startup in line with the provisions of the Companies and Allied Matters Act, 2004 which expressly provides for the timeline for commencing business whether before or after incorporation (depending on the nature of business)

Product development- One would find this rather shocking, after all, the lawyer is not expected to be a technical developer of the product. However, the unique nature of start-ups always require interaction with users, thus, startups need documents like Terms and Conditions, Privacy Policy, etc. to regulate the manner of using the products by customers. These documents are like the undertakings of the start-up to the customers and vice-versa, of course, it is drafted according to the business model of the start-up. Therefore, the lawyer handles this in order to ensure compliance with all relevant domestic and international laws
Creating the legal and ownership framework- there are certain must haves for start-ups at the early days, to begin with, a lawyer can help determine the structure and ownership of the company, this will eventually influence the drafting of Co-founders agreement (where they are more than one) and deciding stock options among co-founders (this information must be included in the incorporation documents) and Employees Stock Options (ESOP)

Determining and protecting Intellectual Property created by start-ups- expectedly, start-ups will create a number of Intellectual Property Rights (IPRs) like Patents, Trademarks, Designs, Copyrights, Trade Secrets, Domain names, etc. it is the responsibility of the lawyer to protect all these IPRs by registering same at the Trademark, Patent and Design Registry and ensure the ownership of these rights by the start-up by drafting documents like IP Assignment Agreements, Employment Contracts, External Vendor (Consultant) Agreements, Product Development Agreements etc.

Raising Funds- this is by far the most important need of a start-up, and although, it is a non-legal role, however, in the global start-up ecosystem, lawyers have been the nexus between founders and investors and they have consistently helped founders raise funds. Lawyers facilitate interactions that eventually lead to funding between founders and investors/venture capitalists, mentors and accountants.

A seasoned start-up lawyer can handle these responsibilities in order to promote the business objectives of the start-up at the early stage. At the scaling stage, the lawyer plays a host of different roles like sitting on the board to advise, company secretarial functions, advisory services during mergers and acquisitions, these and many more will be discussed in the subsequent series of this publication.

Damilola Oyebayo and Dayo Dauda
Management Consulting and ICT Law Enthusiast

Source: Linkedin