Obtaining a Startup Label Under the Nigeria Startup Act, 2022

A Startup Label under the Nigeria Startup Act, 2022, is a certificate issued by the National Information Technology Development Agency (“NITDA”) acting as the Secretariat for the National Council of Digital Innovation and Entrepreneurship. The certificate recognises a company as a Startup, qualifying it for various benefits such as incentives, funding opportunities, and tax reliefs, upon meeting specific eligibility criteria.

What is a Startup under the Nigeria Startup Act?

The Nigeria Startup Act defines a startup as a company in existence for not more than 10 years, with its objectives being the creation, innovation, production, development, or adoption of a unique digital technology, innovative product, service, or process.

The Nigeria Startup Act makes a distinction between startups based on a startup’s stage of growth. For instance, the Nigerian Startup Act recognises an early-stage start-up as different from a "scale-up". The Nigeria Startup Act defines an "Early-Stage Startup" as a startup that is focused on product development, building a customer base, and establishing a strong cash flow. On the other hand, a “Scale-up” is defined as a company which has already validated its product within the marketplace and has proven that its business model and economics are sustainable.

The distinction between a startup and a scale-up may become critical for for eligibility because a “labelled startup” is defined to mean a startup labelled under this Act and issued a digital certificate. Subject to further clarification from the NITDA, it would appear that the regulatory intent is to exclude scale-ups from obtaining a start-up label under the Nigeria Startup Act.

Requirements for Obtaining a Startup Label

To obtain a Startup Label, the following documents are required for submission under the Nigeria Startup Act:

1. The entity must be registered with the Corporate Affairs Commission as a Limited Liability Company under the Companies and Allied Matters Act, 2020.

2. The entity must have been in existence for not more than ten (10) years from the date of incorporation. This means only entities that have been in existence for ten years or less after incorporation are eligible for startup labelling.

3. The objects of the entity must include innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process.

4. The entity must be a holder or repository of a digital technology product or process, or the owner or author of a registered software product.

5. At least one-third of the entity’s shareholding must be held by one or more Nigerians as founder(s) or co-founder(s).

6. In the case of a sole proprietorship or partnership, it satisfies the conditions set out in 1-5 above.

Pre-label Status

Under the Nigeria Startup Act, a Pre-label status may be granted to entities registered as sole proprietorships or partnerships for a period of six (6) months. This is to allow the entity time to convert to/ re-register as a Limited Liability Company and to meet the other requirements stated above. Upon meeting these conditions, the entity can apply for the Startup label. It is important to note that where an entity granted a Pre-label status fails to meet the requirements within the six months, the Pre-label status will be withdrawn, and the entity will lose that status. The same applies to an entity that has obtained the Startup Label but fails to comply with the obligations of a labelled Startup.

Applying for a Startup Label under the Nigeria Startup Act

A company desirous of obtaining a Startup Label, pursuant to the Nigeria Startup Act, is required to apply on the Startup Portal, and the application is to be supported by the required documents.

Conclusion

Meeting these requirements is a prerequisite to obtaining a Startup Label and accessing the benefits under the Nigeria Startup Act. Once the Startup Label is granted, the certificate is valid for ten (10) years from the date of issuance.