Nigeria, securing funding is a critical step for any startup, and understanding the legal aspects of venture capital (VC) and angel investments is essential for Nigerian entrepreneurs.

Here are the legal processes you must understand to secure funding for your startup in Nigeria:

1. Understanding the Legal Framework

Companies and Allied Matters Act (CAMA)

The Companies and Allied Matters Act (CAMA) is the cornerstone of corporate law in Nigeria. It governs the formation, operation, and dissolution of companies. For startups seeking VC or angel investment, compliance with CAMA is non-negotiable. This includes proper registration, maintaining statutory books, and adhering to corporate governance standards.

Investment and Securities Act (ISA)

The Investment and Securities Act (ISA) regulates securities transactions and provides the legal framework for investments. It ensures investor protection and market integrity. Startups must understand the provisions of ISA, especially when issuing shares or convertible notes to investors.

Securities and Exchange Commission (SEC) Rules

The SEC oversees the Nigerian capital market and enforces compliance with ISA. Startups seeking to raise capital must be aware of SEC rules, including registration requirements for capital market operators and disclosure obligations.

2. Structuring Investment Deals

Equity vs. Convertible Notes

Choosing between equity and convertible notes is a crucial decision. Equity involves issuing shares to investors, giving them ownership stakes. Convertible notes, on the other hand, are debt instruments that convert into equity under specific conditions. Understanding the legal implications of each option is vital for startups.

Valuation and Dilution

Valuation determines the worth of a startup and influences the equity stake investors receive. Startups must be prepared for potential dilution of ownership. Legal agreements should clearly outline how future funding rounds will affect existing shareholders.

Shareholders’ Agreements

A Shareholders’ Agreement defines the rights and obligations of shareholders. It covers aspects like voting rights, transfer of shares, and exit strategies. This agreement is crucial for maintaining harmony among stakeholders and protecting minority shareholders.

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