Legal Issues involved in starting an online business in Nigeria
Are you interested in setting up an e-commerce business, a social networking platform? or any other type of digital business that will provide services or goods online? If you are then this article is for you. In this article we will look at some of the legal issues you need to be aware of before starting such a business, and we will point out some steps you should take to ensure you do not fall foul of the law.
The Business Idea
The first step to starting your own online business is of course getting the idea. Now, on a number of occasions, we get asked the question around how to prevent ideas from being ‘stolen’, and so we thought it would be a good place to begin this guide. In summary, this is what you should know:
- An idea can’t be copyrighted/patented
- In the context of our discussion on selling online, an idea to sell a particular product online definitely can’t be copyrighted/patented
- The product to be sold can be patented, if it meets the required criteria
If you have a unique product which isn’t eligible for intellectual property protection but is suﬃciently unique enough to be worthy of protecting, then there are other ways to prevent its exploitation by someone else – documenting communication between potential partners and investors, using contracts like Non-Disclosure Agreements, and Non-Compete Agreements.
Attempting to protect your idea for an online business you want to go into is quite a diﬃcult (potentially impossible) task, and getting appropriate legal advice might be the way to go. You can read our article on How to protect your Business Idea to get some more information about the options open to you.
The next and most important thing to consider is the item(s), which you will be selling online. There’s an unfortunate misconception that the internet is a free for all, and you can sell whatever you want. Nothing could be further from the truth.
Selling online just like selling in person is governed by the laws of the country (ies) which the sale takes place in or where the customers live. You therefore need to ensure that there are no restrictions on the sale of the product that you want to sell.
The following are the restrictions that you need to bear in mind when deciding on your product:
- Restrictions that are contained in the Negative List under Nigerian Law, including sale of arms and ammunitions, narcotics and psychotropic drugs etc.
- Restrictions based on regulatory procedure and licensing i.e. you need a licence to sell the product for example manufacturing and sale of cosmetic products in Nigeria requires a licence.
- Restrictions that are placed on the platform which you intend to sell on, for example, you are not allowed by the Google Content Policy to sell regulated goods and services, such as alcohol, gambling, pharmaceuticals etc. on a blogspot website.
Choosing a Company structure
The next step in setting up your online business is that you have to decide what company structure you want to adopt. The various business structures allowed in Nigeria are – registered business name, company limited by shares, company limited by guarantee, unlimited company (all companies may be private or public), and incorporated trustees.
For the purposes of this guide, we will limit the discussion to a registered business name or a private company limited by shares, as these are the two most likely business structures you would adopt. A business name is simply a name or title under which a person or entity conducts a business. This name has no legal personality and the person and the business are one and the same. A private company limited by shares on the other hand is a business structure where the owners have limited liability and the incorporated company has corporate personality and is a separate entity.
Deciding on what business structure to adopt is a matter for the founders to decide, and all the different structures have their own advantages. However, if you are looking to start an online business, the best business structure would be the limited liability company. You can read the following articles that explain the relative differences and advantages of the limited liability company:
Website Domain Name
Choosing a name is an important aspect of setting up your online business. Ideally, you want your domain name to mirror the name of your business. Some may wonder, what kind of legal issues could you potentially have to deal with when choosing a domain name?! The reality is there are not that many, but they do exist. Specifically, they exist around Intellectual Property rights.
If you choose a domain name which conflicts with a commercial name that already exists, you run the risk of losing it. If a company already has a trademark over a word or phrase, and you attempt to use it as your domain name the law is that the owner of the trademark can stop you from using it.
Disputes with respect to domain name conflicts are dealt with under the Uniform Domain-Name Dispute-Resolution Policy (UDRP). Disputes alleged to arise from abusive registrations of domain names (for example, cybersquatting) are addressed by administrative proceedings that the holder of trademark rights initiates by filing a complaint with an approved dispute-resolution service provider.
To invoke the policy, a trademark owner should either (a) file a complaint in a court of proper jurisdiction against the domain-name holder or (b) in cases of abusive registration submit a complaint to an approved dispute-resolution service provider. Even if the company does not have an existing trademark, there is a potential remedy in the law of torts for the tort of passing oﬀ. Which in very simple terms is when someone trades with a name, which is intended to deceive members of the public into thinking the business, is the same as (or aﬃliated to) another well-known brand.
Finally, it is worth noting here that Section 25 of the Cybercrime Act 2015 provides that any person who uses a name, business name, trademark, domain name or other word or phrase registered, owned or in use by any individual, body corporate or belonging to either the Federal, State or Local Governments in Nigeria on the internet or any other computer network, without authority or right, and for the purpose of interfering with their use by the owner, registrant or legitimate prior user commits a crime and is liable upon conviction to a term of imprisonment of not more than 2 years or a fine of not more than N5m or to both.
- It sets out the payment terms for your product/service
- It sets out any restrictions on use, for e.g. if the product can only be bought by customers in a certain jurisdiction
- It deals with issues of intellectual property in the product and on the website
- It normally sets out limitation of liability and includes disclaimers and warranties
- It deals with the shipping terms and other delivery issue
- It deals with how disputes/complaints will be resolved etc.
- What information is collected
- How the information which is collected is used
- How the information is stored
- Circumstances where the information can be transferred to 3rd parties (e.g. if there is a court order)
- Whether cookies are used on the site and to what extent
When starting your online business, you should seriously consider getting a lawyer to draft these documents to adequately protect your business.
We hope you have found this information helpful. Please note that this information is provided for general informational purposes only and is not intended to be legal advice. No lawyer-client relationship is formed nor should any such relationship be implied. This answer is not intended to substitute for the advice of a qualified lawyer. If you require legal advice, please consult with a qualified lawyer.