A Comparative Analysis Of The Legal Framework For Startups: The Tunisian Startup Act 2018 And The Nigerian Start Up Act 2022

By Rufus Adeoluwa Olodude, Esq.

What is Start Up Company?

A Start-Up Company can simply be defined as a company in it’s early stage with a desire to solve a particular problem with innovative technology, in order to provide a unique product to the market.

What is the Purport of a Start-Up Act?

The Start up Act is a body of legislation enacted by a state to create a legal framework for business start ups within its territory, most especially to regulate the activities of startup companies in diverse sectors of the economy and to also encourage innovations and economic participation of entrepreneurs in the country.

Taking the Tunisian Start Up Act as a case study, the legislation seeks to promote entrepreneurship motivation for startup companies, and to lower barriers for the establishment of businesses, by limiting the risk of entrepreneurs, and creating an enabling environment for empowering entrepreneurs to launch their ventures and bring innovative ideas to the market.

Also, the Nigerian Start Up Act recently passed on 19th October, 2022, in similar vein seeks to create a legal framework that provides an enabling environment for the establishment, development and operation of startups in Nigeria; provide for the development and growth of technology-related talent; and position Nigeria’s startup ecosystem, as one of the leading digital technology center in Africa.

Looking at the importance of Start ups and Start up Acts, Start ups in most countries around the world, contributes a handful measure in quota to the overall economic development of such countries. In fact, Start Ups companies around the world tend to grow in number day by day as new cutting edge innovations are discovered and new solutions vis-a-vis approach are being explored by persons or group of persons to procure solution to real time industrial and social problems. In Nigeria for instance, according to McKinsey & Company, Nigerian startups retained USD1.37 billion of Africa’s USD 4 billion funding in 2021[1], and also Quartz Africa ranked Nigeria to possess the highest volume of startups in Africa[2]. To relatively develop the growing number of start up, promote economic development, and accentuate business innovations, start up bills/Act are therefore one of the conscious ways for countries to annex the importance of these budding aspect of the economy. Over the years for instance, countries have spent a lot in the enactment and implementation of start up Acts in their countries e.g. Italy invested €34,000,000 (thirty-four million Euros) into Italian startups between 2012-2015 following the introduction of a Startup Act, and similarly following the introduction of a Startup Act in 2018(one of the case studies), the Tunisian Government recorded $22,400,000 (twenty-two million four hundred thousand United States Dollars) from investors in 2019 alone. In turn, both countries have in turn equally recorded a rapid development in their startup ecosystem respectively.

Returning back to the Nigerian Start Up Act and the Tunisian Startup Act- the case studies under discussion, both Acts, though the former coming years after the latter, have provided a plausible legal framework for the development of the Start Up Ecosystem in both countries. Also, a brief overview into the formation of both Act exposes some similarity between the duo to be autochthonous and an output of wide individual participations across all level. Just as the Tunisian Start Up did not emanate from the legislative house but rather a legislation that emanated from the properly curated sponsorship of leaders in the ecosystem, in conjunction with the government[3], same goes for the Nigerian Start up Act which in its bill passage processes indulged the participation of Presidential working group comprising of MDA Decision makers and the ecosystem stakeholders at state levels in all geopolitical zones through Presidential Announcements and Town Hall Meetings[4].

Innovations in the Tunisia Start Up Act 2018

On the innovations in the Tunisian Start Up Act 2018, the Act comprises of a plausible number in cheerful packages of incentive and regulatory ease to start ups. In incentive for instance, founders and shareholders of startups can benefit from a one-year grant to cover their living expenses, the amount of the grant depending on the income in the previous year and ranges from 1000 to 5000 Tunisian dinars per month, fully financed by the National Employment Fund (Fonds national de l’emploi).

Also, Startups which achieve the label as such under the Act, are exempted from corporate tax while the government covers the cost of social security contributions. In extension, amounts invested by individuals or legal entities in startups or startup investment organizations are considered allowable income or deductibles from the annual tax assessment basis.

Undoubtedly, the list of incentives would be incomplete without mentioning the payment of guarantee funds as a guarantee mechanism for investment funds investing in startups. Under this scheme, government pays up to three start up founders steady salary to allow them focus on the long term goal of the start up development, and find freedom to experiment with new products and models, while worrying less about diverting profit for personal expenses. This innovation takes founders above the Maslow’s pyramid, making them able to focus on consideration, rather than survival.[5]

On regulatory ease, and administrative framework for the formation of Startups on the other hand, to start with the Act establishes a new start up portal was established by the body to be a medium for the registration and ratification of startups and a database for the compilation of startup list in the country. The portal also works in conjunction with other government administrative portal for different agencies involved in company formation, taxes and intellectual property registration to create a unified system for start ups activities under the different agencies.

Furthermore on regulatory ease the Act, allows startups to open a special account in foreign currency to allow the free movement of cash and facilitates financial transactions to international markets. In addition amongst others, special conditions for customs and imports are promulgated in conjunction with the relevant implementation bodies of the Act, including the Start Up Capital to apply to startups.

Innovations in the Nigerian Start Up Act

Examining the innovations of the Nigerian Start Up Act in similar fashion to the Tunisian Act also comprises of a plausible package of incentive and regulatory ease, with some little differences from the latter.

To start with, the Nigerian Start Up Act, provides for the Pioneer Status Incentive Scheme for labelled startups under the Act, which provides for tax relief and incentive for Startups in Nigeria.[6] Under this scheme, a  labelled startup with a minimum of ten employees, 60% of which are employees without any form of work experience, and within three years of graduating from school or any vocation within the assessment period, are to enjoy tax relief from income tax of 5% of their assessable profits in a year of assessment for a maximum period of five years.[7] Also, employees of a labelled startup are entitled to personal income tax exemption of 35% on the income of the employee for a period of two years from the date of engagement under considerations to be given by the Secretariat of the National Council for Digital Innovation and Entrepreneurship and the Joint Tax Board[8]

Furthermore, the Act through the secretariat of the National Council for Digital Innovation and Entrepreneurship, establishes a credit guarantee scheme for the development and growth of a labelled start up under the Act. This scheme seeks to grant loans to startups, keep their credit information and provide a framework of credit guarantee for startups among others.[9] The Act also provides for incentives and reliefs for investors investing in a labelled startup by developing and implementing a national policy for startups through the Federal Ministry responsible for finance in regards to individuals, impact investors, angel investors, companies, venture capitalists, private equity funds, accelerators or Incubators which invest in a labelled startup or in the startup ecosystem on tax credits for their investment.[10]

In regards to regulatory ease on the other hand, the Nigerian Act in similar fashion to the Tunisian startup Act, establishes a special start up portal for the registration of startups, and for keeping a database of information on those startup. Also, like the latter, the portal works in conjunction with other government administrative portal for different agencies involved in company formation, taxes and intellectual property registration to create a unified system for start ups activities under the different agencies. For instance, the Portal collaborates with the Nigerian Copyright Commission and the Trademarks, Patent and Design Registries, in ensuring that they designate a separate section on the Startup Portal to ease registration of intellectual property for labelled Startups.[11] The Portal also collaborates with the Corporate Affairs Commission to designate a separate section on the Portal to ease the conduct of transaction between labelled startups and the commission.[12]

Furthermore, the Act permits labelled startups to raise funds through Crowdfunding via crowdfunding intermediaries and commodities investment platforms (“platforms”) duly licensed by the Securities and Exchange Commission (SEC) that would have their platforms available for use by startups on the Startup Portal, under the recommendations and proposals of the SEC.[13] Also, the Act entitles labeled startup involved in the exportation of products and services, to export incentives and financial assistance from designated Export Development Fund, Export Expansion grant and the Export Adjustment Scheme Fund.[14] This is similar to the export regulation ease under the Tunisian Start Up Act 2018.

Differences between the Nigerian Start Up Act and Tunisian Act

It is however important to note, that despite the seeming similarity between the Tunisian Startups Act and the Nigerian Startups Act, certain differences still exist in the innovations, and implementation of both Acts.

To start with, the eligibility criteria for a startup in both Acts are quite different. While the Tunisian Start Up Act requires that the company should not have existed for eight years or more with its number of employees also not more than 100, and than two-thirds of its shareholders be founders, angel or hedge fund investors; the Nigerian Startups Act requires that an eligible company must be a limited liability company in existence for not more than 10 years, while not specifically providing for a certain number of employee. It also states that to benefit under this Act, a company must be registered as Limited Liability company and granted a license libel under a sole-proprietorship or partnership business model, such a business must undetake to register as Limited company between 6 months. It also emphasizes the requirement of a Nigerian co-founder among its founders, unlike the former.[15]

Furthermore, on innovations, the Tunisian Start Up Acts saddled the government with payment for the registration of patent by a labelled startup company under its jurisdiction, while the Nigerian Equivalent only provided for a ease of process without waiving the fee under the Patent and Industrial Design Act. Also, the Nigerian Startups Act assist labelled startups that seek to list on the relevant board of the Nigerian Exchange Limited (NGX), or on similar stock and commodity exchanges operating in Nigeria, to meet up with the eligibility requirements for listing[16], while this is absent in its Tunisian Counterpart.

The list of the differences in innovation further extends to the creation of foreign reserve for Labelled startups including exchange in cryptocurrency in the Tunisian Act, which is expressly prohibited by the regulations of the Central Bank of Nigeria sequel to its role in the Nigerian Start Up Act. Even more, the provision for a year leave to public or private employees attempting a startup to minimize risk as well as the payment of guaranteed sums as salaries to up to 3 founders in the Tunisian Start Up Act are not well replicated in the Nigerian Startups Act.

In conclusion, both the Tunisian Start Up Act 2018 and the Nigerian Startup Act 2022 are plausible legislations in the development of the startup ecosystem. While both glory on its own specific peculiarity to the economic practices in the respective regions, it is believed that the implementation of both Act needs to be equally premised on strict adherence to spirit and principles of the legislation, as well as avoiding corrupt practices, to record ample success. In the former, favorable reports have been received the developments recorded from the proper implementation of the Act for the past four years, and especially its importance to economic development of Tunisia as a Nation. It is therefore equally hoped that an equal feat can achieved by the latter in years to come in Nigeria.

Rufus Adeoluwa Olodude, Esq.

Founder, Achievers Law HubE-mail: adeoluwaolodude@gmail.com, achieverslawhub@gmail.com, 07039297390

, [1] McKinsey & Company, “Harnessing Nigeria’s fintech potential” available at https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Middle%20East%20and%20Africa/Harnessing%20Nigerias%20fintech%20potential/Harnessing-nigerias-fintech-potential-vF.pdf accessed 29th October, 2022.

[2] Quartz Africa, “Nigeria has the most Startups in Africa but falls short on other critical metrics” available at https://qz.com/africa/2012780/nigeria-ranks-first-in-african-startups-but-faces-challenges/ accessed 29th October, 2022.

[3] Tunisian Start Ups, The Tunisian Start Up Act: Creating a Legal Framework from Below. https://assets.website-files.com/60e6bc58a4328775758e87d0/61e5721da63df498209669c2_THE%20TUNISIAN%20STARTUP%20ACT%20genesis%20Final%20.pdf accessed 30th October, 2022.

[4] Borg., “On the Journey to the Nigerian Start Up Act”. Available at https://www.borg.re/articles/ideasmemo/on-the-journey-to-nigerias-startup-act accessed 30th October, 2022.

[5] Tech point, “The Tunisian Startup Act: Showing us How to Support Nigerian Startups. Available on https://techpoint.africa/2018/11/06/tunisian-startup-act-overview accessed 30th October, 2022.

[6] S.24, Nigerian Startups Act, 2022.

[7] S.26(1)&(2), Nigerian Startup Act, 2022.

[8] S.31, Nigerian Startup Act, 2022.

[9] S.29, Nigerian Startup Act, 2022.

[10] S.30, Nigerian Startups Act, 2022.

[11] S.34(3), Nigerian Startups Act, 2022.

[12] S.33, Nigerian Startups Act, 2022.

[13] S.35, Nigerian Startups Act, 2022.

[14] S.27, Nigerian Startups Act, 2022.

[15] S.13, Nigerian Startups Act, 2022.

[16] S.39, Nigerian Startups Act, 2022.