Agreements are often the bane of serious businesses, from pre-founding, to years down the line in existence. However, many Nigerian startups fail not because the idea was bad or the market was hostile, but because foundational legal arrangements were either ignored, poorly drafted, or copied blindly from the internet either from templates or from agreements used in other jurisdictions that do not align with Nigerian legal realities.
It is not news that in their early stages, founders tend to prioritize speed of execution, product development, fundraising, and customer acquisition, while legal documentation is treated as an afterthought. Unfortunately, legal risk compounds quietly and, when it materialises, it often does so at the worst possible time—during fundraising, acquisition talks, or internal disputes between founding members.
This article highlights some critical agreements that Nigerian startups frequently overlook. When absent or poorly structured, these agreements can expose founders and investors to losses running into millions of naira, stalled growth, or complete business collapse.
Founders’ Agreement
Like the name suggest, a Founders’ Agreement covers the initial legal scope between all founders starting up with their seedling idea. It covers, and should cover, contributions from founders, their roles and responsibilities, equity ownership; equity vesting and vesting schedules; exit mechanisms, non-compete and confidentiality, and post-exit provisions for founders who exit from the company. This is a major foundational agreement startups should not ignore at their commencement stages, and it is one of the foundational legal documents we advise clients on and draft here at Kabbiz Legal. Additionally, Founders’ Agreement is best drafted, negotiated and signed even before incorporation of their corporate vehicle, to ensure that same is incorporated into their articles of association by specific reference.
Without a founders’ agreement, disputes may arise regarding equity control and vesting; decision-making tiers amongst the group, and exit value of founder contributions/equity in the company post-exit.
Shareholders’ Agreement
Equally of vital importance as a foundational contract for a startup in Nigeria is a Shareholders’ Agreement. Even though Nigeria’s Companies and Allied Matters’ Act provides for shareholding, including their rights and voting obligations, the provisions of the law may be insufficient to specifically cover the intentions of startup founders in relation to their shares, particularly on restriction of share transfers, minority protections, tag-along and drag-along rights, among others.
To show investment-readiness during investor due diligence rounds, showing a well-prepared Shareholders’ Agreement that extensively and specifically outlines all rights as it pertains to the shareholding of a startup makes due diligence easier and reduces squabbles during fundraising and shareholder exits from the company.
Intellectual Property Assignment Agreements and IP Assignment Deeds
In recent times, Intellectual Property has grown to become an incredibly invaluable asset to modern companies, some of which are valuated solely or predominantly on the strength of their owned IP. Thus, one of the biggest mistakes founders make is not vesting IP or improperly vesting IP in the company. Oft-times, founders vest their Background IP, foreground IP and Derivative IP in the company through specific IP assignment clauses in their Founders’ Agreement.
While some founders rely on camaradiere to keep their relationship going, we recommend specifically assigning created IP related to company projects to the company completely and without ambiguity. Investors look out for IP ownership during due diligence investigations, as no investor would want to invest in a company where they’ll have to battle with individual members of the group over IP ownership. Thus, all IP must be specifically assigned to the company.
Additionally, in early product development stages where founders tend to hire external technical expertise, many make a mistake of not negotiating IP assignments with these external technical contractors, and this can, and has often, led to seriously avoidable disputes over [IP] ownership of the work product created for the company. So, it’s a non-negotiable for us here at Kabbiz Legal, as we structure contracts that assign IP to the company from their technical contractors…all to avoid IP disputes and expensive IP litigation down the line.
Finally, where there’s a sole founder, it’s not uncommon to hear sentiments like, “But I am the owner of the company, the IP is mine and the company’s.” No. Your IP belongs to you while IP assigned to the company belongs to the company which is a separate legal personality. So, an IP Assignment Deed becomes important here, for sole founders to assign their owned IP to the company so it becomes company asset rather personal asset.
Independent Contractor Agreement
Developers, designers, marketers, and consultants are often engaged as independent contractors to work on specific aspects of a startup’s operations. Thus, you cannot treat these contractors as employees, as they’re not employees. That’s where the independent contractor agreement comes in, but many startups in Nigeria often overlook this or treat it as unimportant…that is, until disputes arise. An independent contractor agreement clarifies the scope of work, IP ownership [of final work product]; liability limitations and caps, payment terms, duration of project, the definition of the contractor within the scope of the agreement for labour and tax purposes, et cetera. The distinctions are particularly vital for startups working with freelancers or offshore talent and we consider this a vital agreement for startup operations in Nigeria.
Confidentiality Agreements/Non-Disclosure Agreements
While at product development phase, investment due diligence phase and even with partners, employees and contractors, startup founders typically disclose very important, confidential and vital information related to their projects with these outside contractors, potential partners, among others. While it sounds absolutely great to hold these important discussions on “trust” while also disclosing trade secrets and highly classified, confidential information, binding the receivers of these confidential information with iron-clad NDAs that carefully defines the confidential information whether narrowly or broadly defined, basis of disclosure, confidentiality obligations, and term of obligation is always a prudent decision to ensure no recipient potentially misuses the confidential information released to them for company purposes.
Website Terms of Service and Privacy Policy
The above is particularly important for startups that have a tech-centric focus and operate predominantly online while providing their services. This is often overlooked, but it is a very vital agreement which outlines the specifics of how users use your platform, interact with same; have their disputes resolved with your platform, among others. Thus, having solid Terms of Service and Privacy Policy that binds users who use your platform is extremely important and cannot be overemphasized.
Partnership Agreements
Sometimes, during the operational life cycle of a startup, they may need to partner with other providers or institutions in order to consolidate their position, penetrate the market, or just perform better overall. Doing so without clear partnership agreements that carefully streamlines the relationship, along with the responsibilities of each party, obligations, among others, provides a recipe that can lead to serious disputes and issues in the future. So, at Kabbiz Legal, we ensure our clients get structured partnership agreements that properly streamlines their relationships with institutional and corporate partners, so all parties are ad idem on what they are doing in the partnership. This way, disputes are better manageable, as clauses in the partnership agreements already address them. This can potentially save a startup millions in dispute resolution fees.
Employment Agreements
Often times, founders run their startups on trust – but unfortunately trust can fail when employees decide they are no longer interested in the vision or actively want/wish to sabotage the startup’s vision. Labour laws exist for a reason – it is as much for the protection of the employee, as it is for the protection of the employer. So, when startups operate without clear employment agreements governing their employer-employee relationships with their staff, that could be recipe for disaster when employees wake up and decide to port their services to other providers, even if such is done at a time when they’re most needed by the company. Thus, employment agreements that streamline the relationship between the parties, notice periods, dismissal policies, sanctions polices, non-compete and non-solicitation, confidentiality provisions, among others, always act as a strong buffer to hold the employment relationship up and ensures that all sides perform their own sides of the bargain.
Conclusion
Legal documentation for startups is not mere bureaucracy—it is infrastructure. For Nigerian startups aiming to scale, raise capital, or attract international partners and investors, these agreements are non-negotiable, as potential investors and partners will look for them during the due diligence phase of their prospective engagement.
At Kabbiz Legal & Advisory, we work with startups at every stage to structure their legal foundations for growth, compliance, and investment readiness. Addressing these agreements early can save founders millions in losses and position the business for sustainable success.
This publication is intended for general informational purposes only and does not constitute legal advice. For tailored assistance, please contact our managing partner Kingsley Ani at kingsley.ani@kabbizlegal.com
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