Updated: Apr 4
In Nigeria, startup agreements are crucial components of launching a successful business. These agreements typically cover matters such as equity sharing, intellectual property protection, ownership distribution, and investment terms.
One of the most common startup agreements in Nigeria is the shareholder's agreement. A shareholders' agreement is a legal agreement that defines the rights, responsibilities, and obligations of the shareholders in your company. This agreement helps to ensure that all shareholders are on the same page in terms of their investment, their role in the company, and their expectations for the future.
Your startup needs a shareholders' agreement for several reasons. Firstly, it would clarify how the business will be managed and operated. This includes defining the responsibilities and authority of the board of directors, the process for decision-making, and the role of shareholders in the day-to-day management of the business.
Shareholders' agreements also help protect the interests of minority shareholders. The agreement can include provisions such as tag-along rights, drag-along rights, or anti-dilution clauses that aim to prevent majority shareholders from unfairly disadvantaging minority shareholders.
Another reason why your startup needs a shareholders' agreement is that it provides a framework for resolving disputes. The agreement can include clauses that outline the process for resolving disputes, including mediation or arbitration. By providing a clear and agreed-upon process for resolving disputes, shareholders' agreements can help prevent costly and time-consuming legal battles.
The agreement can also help manage risks and provide stability. It can include provisions such as restrictions on transfer and pre-emptive rights, which aim to prevent investors from selling their shares to competitors or unknown third parties.
A Shareholders' agreement is an essential legal document for your startup as it provides clarity, protects the interests of shareholders, provides a framework for dispute resolution, helps manage risk, and provides stability in the management of the company.
Other common startup agreements in Nigeria include:
1. NON-DISCLOSURE AGREEMENT
Non-disclosure agreements (NDAs) can help your startup protect its trade secrets, proprietary information, and other confidential data.
An NDA is a legal contract between two or more parties to protect confidential and sensitive information from being disclosed to third parties. This is also known as a confidentiality agreement.
NDAs are particularly relevant for startups because they often operate in environments of uncertainty and frequent change. These changes make it harder for an organization to establish and maintain confidentiality. NDAs can help your startup control the distribution of sensitive information, such as product launch plans, business strategies, customer lists, and financial data. This is particularly relevant when partnering with other businesses, vendors, consultants, or employees.
Furthermore, NDAs may serve as a significant deterrent against IP theft and can provide your startup with legal recourse if confidential information is revealed. They are essential tools to protect your startup's confidential information and intellectual property, establish trust with investors, partners, vendors, and customers, as well as justify the value of their IP.
2. EMPLOYMENT AGREEMENT
An employment agreement is a legally binding document that lays out the terms and conditions of employment between an employer and an employee. It provides a structure for the employment relationship by defining the responsibilities, duties, rights, and obligations of both parties.
For your startup, employment agreements are essential because, they ensure that both the employer and the employee are on the same page in terms of expectations and obligations. This includes details such as compensation, benefits, work hours, job description, performance evaluation, termination, and confidentiality policies.
Secondly, an employment agreement can help your startup protect its intellectual property rights. These agreements contain clauses such as non-compete and non-disclosure agreements that aim to safeguard a company's intellectual property.
Also, employment agreements can help your startup reduce liability and risk. They provide a clear framework for resolving conflicts and settling disputes, making it easier for employers to enforce discipline and maintain order.
In summary, employment agreements are important for your startup as they provide a legal framework that establishes clear expectations and boundaries in the employment relationship. By doing so, employment agreements help foster a positive and productive work environment.
3. SERVICE AGREEMENT
A service agreement is a legally binding document that outlines the terms and conditions of a particular service that one party will provide to another. It is a written contract that defines the expectations, responsibilities, and obligations of both parties involved in the agreed-upon service.
For startups, having a service agreement ensures that both parties clearly understand their roles and responsibilities. This helps to prevent any misunderstandings or disputes that may arise during the project's course. This agreement also provides protection for your startup against liability or damages caused by the service provider. It sets out the parameters for compensation if one party fails to meet its obligations.
Furthermore, service agreements help to establish a framework for communication and problem-solving, laying out a clear path for the resolution of conflicts.
4. PARTNERSHIP AGREEMENT
A partnership agreement, also known as a joint venture agreement is a legal document that outlines the terms and conditions of a cooperative business venture between two or more businesses. This agreement sets out the specifics of the partnership, including the purpose of the venture, the responsibilities of each party, the expected outcomes, and the financial and legal obligations of each party.
A joint venture can enable your startup share resources, expertise, and technology with another company. By collaborating on a shared goal, your startup can leverage each other’s strengths to achieve its objectives more effectively. Joint venture agreements can help your startup access new markets, customer bases, and distribution channels. By partnering with a larger and more established company, your startup can tap into existing networks and scale it's business faster.
With a joint venture agreements your startup can easily access capital and funding from investors, banks or other financial institutions, or attract external sources of capital.
Joint venture agreements can help your startup manage risks by sharing it with its partners. By sharing the risks and rewards of the venture, your startups can take on bigger and more ambitious projects that they might not be able to undertake on their own.
In a nutshell, joint venture agreements are important legal documents that can help your startup build strategic partnerships and competitive advantages. They provide startups with access to critical resources, expertise, and technology while reducing risk and increasing the chances of success.
5. INVESTMENT AGREEMENT
An investment agreement outlines the terms and conditions of a transaction between a startup and an investor. This type of agreement is also known as a term sheet or venture capital agreement.
An investment agreement can help your startup to secure funding for its business. This funding can be used to drive growth, support research and development, hire talent, or pursue expansion plans.
This agreement also helps to establish a framework for the investment relationship. It sets out the roles and responsibilities of both parties, including the expectations for returns, timelines, exit strategies, and decision-making processes.
Thirdly, investment agreements help to minimize risk and liability for all parties. It outlines protections for the startup, such as anti-dilution, liquidation preferences, and stock conversion rights. Similarly, it provides protections for the investor, including the right to participate in future rounds of funding and the ability to sell or transfer their stake in the startup.
Investment agreements also help foster trust and transparency between the startup and the investor. By laying out clear expectations and responsibilities upfront, both parties can work together towards a common goal.