1. Designate proper business entity.
Choose the proper business entity or structure for your start-up. This is crucial because it affects your personal liability, what you pay in taxes, and your fundraising ability. Possible structures include sole proprietorship, partnership, company limited by shares (Ltd or Plc), company limited by guarantee (Ltd/Gte), unlimited liability (Ultd) and Incorporated Trustees usually for charitable purposes.
Once you decide which structure is best for your company, you need to officially designate it
Most small businesses start out as sole proprietorships or partnerships because these require minimal paperwork and set up time. However, these types of businesses also don’t offer sufficient liability protection for business owners. A corporation is generally a better choice as your business grows, particularly if you’re planning to secure a business loan or raise venture capital.
2. Check which licenses, permits, and registrations your business needs.
Depending on your type of business and where it’s located, you might need specific business licenses and permits from your country, state, or city. Licenses, permits, and registrations come in many variations. Examples include local business licenses, building permits, health safety-related permits, permits for home-based businesses and more.
The possibilities are many, so make sure to do thorough research on what you need to be compliant with the law.
3. Make sure you are paying proper business taxes.
Every business owner is legally required to pay taxes. Make sure you are compliant with all tax laws. Some of the taxes that you should beware of before starting a business in Nigeria are Companies income tax, Value-added tax(Although companies do not pay VAT, they are mandated by the government to collect VAT from consumers, then remit to the relevant tax body. It is a tax imposed on the supply of goods and services. All registered businesses are expected to register and have a VAT registration certificate, with their VAT registration numbers boldly displayed on all invoices), Capital gains tax (This is a 10% tax imposed on Capital Gains(Profit) arising from a sale, exchange or other disposition of properties known as chargeable assets. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price), Personal income tax(This tax is payable by all individuals and registered businesses and partnerships, except those registered under Part A of Companies and Allied Matters Act 1990 (incorporated companies). The State Inland Revenue Service administers the tax), Hotel occupancy and restaurants consumption tax (If you intend to venture into businesses such as hotels, restaurants, nightclubs, fast food outlets, bars, and event centers, you should be aware of this tax. Such business is expected to pay 5% tax on goods and services consumed by customers in addition to a further 10% penalty on the latter unremitted tax and the interest charged)
4. Do proper book-keeping.
In most places, you are obligated by law to record all business transactions according to a specific accounting method. See what’s required of you for your industry and location in terms of record-keeping obligations, and set up a proper filing and bookkeeping system for all documents and transactions. This will greatly help you down the line in doing taxes or if you ever run into other legal troubles.
5. Get a founder’s agreement in writing.
A Founder’s Agreement is a contract that a company’s founder(s) enter into that governs their business relationships. The Agreement lays out the rights, responsibilities, liabilities, and obligations of each founder. Generally speaking, it regulates matters that may not be covered by the company’s operating agreement.If your business operates with multiple business owners, it’s important to make sure that each person knows and understands their rights and responsibilities in relation to the business. How this comes about depends on your business structure. If you form a corporation, you need a proper shareholder agreement and articles of incorporation. You might need a legal counsel to make sure the agreements and articles are sound
6. Set a vesting schedule for all founders and early employees.
This is a practical measure many startups often overlook when they’re just starting out and excited about getting off the ground. But this will protect your business down the line and ensure a certain level of commitment each founder or early employee brings to the table.
Creating a vesting schedule upon incorporation states that stock ownership will vest over time, preventing investors from selling all their stock whenever they please. Note that most investors require this measure before they’ll make any initial investments.
7. Get your employer identification number (EIN).
In order to open a corporate bank account and to properly file your business tax returns, many businesses need an employer identification number (EIN). Only sole proprietorships and single-member startups with no employees are exempt from this requirement.
8. Protect your intellectual property
Intellectual property is the bedrock of many businesses. Intellectual Property includes patents, copyrights, trademarks, and trade secrets as well. Be sure to file any patents as soon as possible. Protecting your intellectual property will be attractive to investors—but it will also help you sleep easier at night. Having exclusive rights to reproduce and display your work will make your life much, much easier down the line and ensure that no one tries to rip any Intellectual Property from you.
Intellectual Property can be vastly complicated from a legal standpoint, so it might be wise to consult an experienced IP attorney who can help you through the process and provide you the greatest protection.
9. Classify your workers properly.
Many startups often misclassify their early employees. It’s important to know what kind of worker you’re hiring—essentially, the difference between an independent contractor vs employee. This is important for tax reasons for both you and the employee and will help clarify what is and isn’t expected from you and the employee. If you misclassify an employee as an independent contractor, you could be on the hook for costly penalties.
10. Follow email regulations.
Email marketing is a huge part of many businesses. When you send emails to your customers or when you are targeting potential customers via email campaigns, you need to find out what the applicable email guidelines are. Aspects covered by these rules generally include opt-in versus opt-out, unsubscribe rules, and minimum information to be included in your emails.
12. Create a company handbook.
Once you have all the legal headaches sorted out and sounded, make sure everyone in the company is aware and understands your company’s legal liabilities just as well as you do—as a business owner, you could be liable for anything your employees do while representing your organization.
Company or employee handbooks are a great way to instil the values and legal boundaries of your company. It can also help to establish what is and isn’t appropriate behaviour internally and externally. Have your legal counsel look this over well or even help you write it, and then get the company together to go over the material.
13. Hire competent legal counsel.
In case this hasn’t been clear throughout, work with lawyers on these complicated legal issues from the start. Startups are often so concerned about expenses that they overlook the importance of sound legal advice that could save them thousands, if not millions, down the line. You really can’t put a price on having the right attorneys on your side.
Ideally, you’ll hire an experienced businesses lawyer on employment law, contract law, securities law, and intellectual property law. The cost is worth avoiding any legal trouble.