Despite infrastructural and regulatory challenges, Nigeria remains one of Africa’s most attractive destinations for innovation.
The market size, creative energy, and resilience of its people make it impossible to ignore. From fintech to logistics, health tech to e-commerce — the potential is massive.
However, many startups are trapped from the beginning. For example, look at Mr. Jude who had a brilliant startup idea — a logistics app designed to connect small traders to dispatch riders across Nigeria. There was only one problem: no money.
A close friend offered to fund the early costs — registration, app development, and a few marketing expenses — on what Jude believed was a friendly gesture. No contract. No formal agreement. Just “understanding.”
Fast forward a year later: the app gained traction, investors were showing interest, and suddenly the “friend” wanted 50% ownership of the company — claiming there was a verbal understanding that the funds were an investment, not a loan.
Now Jude’s startup is in limbo, legal letters are flying back and forth, and potential investors have backed out pending resolution.
A promising dream — now stalled — because of what could have been fixed by a simple agreement.
Here’s the truth: great ideas alone don’t build lasting companies. In Nigeria’s evolving business environment, the wrong legal step at the beginning could destroy what passion, innovation, and hard work have built.
Below are three common legal traps that could quietly end your startup before it even begins.
- No Proper Incorporation or Ownership Structure
Like Jude’s case, many founders start without defining ownership. Some use friends’ names during registration, others use personal bank accounts for business, or fail to issue shares properly.
Why it’s this a problem? When money starts coming in, ownership disputes erupt. Without formal incorporation and share documentation, anyone can claim a stake — and you’ll have little legal protection.
The solution is from day one, incorporate under the Companies and Allied Matters Act (CAMA 2020). Prepare a Founders’ Agreement clearly spelling out each person’s contribution, percentage ownership, and exit terms. Avoid “gentleman’s agreements.” The law respects what is written, not what is remembered.
- Ignoring Regulatory Compliance
Many Nigerian startups dive into business before understanding sector regulations. A health app processing patient data, a fintech app handling funds, or a media startup collecting user data — all are regulated.
The problem is Regulators such as NITDA, CBN, SEC, and NCC can impose sanctions, freeze accounts, or even shut down operations. For example, a startup collecting user data without meeting the standards of the Nigeria Data Protection Act 2023 could face heavy fines and loss of investor confidence.
The solution is Know your regulatory terrain early. Even if full compliance takes time, have a compliance roadmap and engage legal counsel to guide your filings, licensing, and data policies.
- Informal Fundraising and Investor Misalignment
This is perhaps the most peculiar Nigerian startup hurdle — taking “soft money” from friends, family, or early believers without formal terms.
The problem is later, those friendly funders morph into “investors” claiming equity or repayment. We have repeatedly seen such cases where founders lose partial or total control of their startups because the verbal funding was deemed a valid investment arrangement or have the startup derailed due to disputes arising there from.
The solution is treat every inflow of money as a legal transaction. Use proper instruments — Convertible Notes, Share Subscription Agreements, or Loan Agreements — that clearly define what the money represents. This one step could save you years of litigation and heartbreak.
Final Thought
Building a startup in Nigeria is a thrilling but treacherous journey. The market rewards innovation — but it punishes carelessness. Success isn’t just about having the best product; it’s about protecting your idea, your structure, and your future.
