AN OUTLOOK OF E-HAILING TECH STARTUP IN NIGERIA; A GUIDE

AN OUTLOOK OF E-HAILING TECH STARTUP IN NIGERIA; A GUIDE

1. The business structure that is most suitable for an e-hailing startup tech in Nigeria
2. The legal requirements and regulations the startup should comply with
3. How the startup protects its intellectual property, such as mobile app and business model
4. The potential challenges and risks associated with operating an e-hailing tech in Nigeria.
5. The necessary licenses and permits required to operate an e-hailing tech services in Nigeria.

INTRODUCTION

            Transportation development has revolutionized ride-hailing to e-hailing. This alteration impacts mostly in economics and employment opportunity. However, this triggers competition with the traditional; moreover, the absence of significant regulation and standards for operation raises conflicts and an uneven market. This article concerns the e-hailing tech startup suitable for business in Nigeria, the regulations that should be complied with, how this technology is protected, the challenges and risk associated with operating this technology in Nigeria and the licenses and permits required in the operation of these services in Nigeria.

          An e-hailing technology is a service provided to book public transport services through electronic applications. These services include e-hailing vehicles and taxis. E-hailing vehicle is a private vehicle used to provide public transport services to passengers who book through electronic applications.

          The type of business structure that is most suitable for e-hailing tech startups in Nigeria aiming to scale rapidly and to secure substantial investment for an investor is typically a C corporation due to its robust liability protection and capacity to attract capital. However, a Limited Liability Company can be highly advantageous for those prioritizing flexibility and simplicity in the early stages of their businesses. Choosing the right structure for your tech startup depends on several factors including growth objectives, the level of liability protection needed, tax implications, and investor’s preferences. By this accessing this, the right type of business structure suitable for an e-hailing startup is a limited liability structure.

          Limited Liability Company offers a flexible legal structure that combines the benefits of a corporation and partnerships. For tech startups, LLCs are appealing due to their flexibility and liability protection. Limited Liability protection owners are not personally liable for business debts which are crucial in tech industry where legal challenges can arise. LLCs offer flexibility in management structures and profits distribution and finally, members report profits and losses on their personal tax returns, thereby avoiding the issue of double taxation.

LEGAL REQUIREMENTS AND REGULATIONS THE STARTUP SHOULD COMPLY

          A Limited Liability Company is a legal entity from its owners, providing limited protection to shareholders. The law governing the registration of a company is Company and Allied Matters Act, 2020. The Corporate Affairs Commission (CAC) is saddled with the responsibility of registering companies in Nigeria. Registering a LLC in Nigeria involves the following legal requirements and regulations which must be complied with;

1. The firsts step for an individual to start a company is to get a company name. this name is then registered with the authorities. After choosing your company name. it should be promptly submitted to the CAC website for availability. However, a name can be rejected if it is already taken. Section 31(1) (a) CAMA, 2020 provides that a company may be registered by a name which is not identical to the name of an existing company. The was also the position of the law in Niger Chemist Ltd v Nigeria Chemist Ltd (1961) AllFWLR.
2. The second step is the preparation of a memorandum of association. This is usually done by a legal lawyer. A lawyer is qualified for preparing the memo of association and all related documents based on the objectives of the company you wish to register. It is the lawyer’s responsibility to request the names of the initial subscribers, directors as well as the shareholders. Each directors and subscribers must be above 18 years, of sound mind, and must not have been convicted of any crime. The directors are required to provide a means of identification for inspection by the CAC.
3. Fill a pre-registration form. After preparing the documents, the person is to fill a form by the CAC mentioning all the necessary details and submit it to the CAC again together with all the required documents. This process of documentation includes; all directors must fill the particulars of the directors form, one director must fill the statement of share capital and return of allocation form and a director and the company secretary have to fill the notice/change of registered form. A business accredited by the CAC can fill the declaration of compliance with the requirements of the Company and Allied Matters Act, 2020 via section 40(1).
4. Pay the stamp duty and filling fee. After filling the registration form together with the preparation of memorandum of association then you proceed to pay the stamp duty. Stamp duty is a tax so it will be paid to the Federal Inland Revenue Services. After the payment, the applicant will proceeds to the stamp duty commission, where the memo and articles of association with some of the incorporation forms are stamped. After filling the forms and the stamped documents are submitted to the CAC the certificate of incorporation will be given after or about six weeks from the date of submission.
5. Preparation of the scanned copy of your documents. The next step is to prepare the scan copy of your pre-registration document and must further be uploaded online as follows; (a) memorandum and articles of association (b) recognized form of identification for directors, subscribers and secretary (c) an upload of all these documents for processing.
6. Submission of the original document. This is the final step and it involves the submission of all the original documents which has been scanned.

PROTECTION OF THE INTELLECTUAL PROPERTY RIGHTS OF THE STARTUP

          An e-hailing tech startup is designed to help customers perform particular activities. These apps which are usually electronic devices are used to control several things ranging from health, fitness, music, shopping, gaming and mobile money transfers and even household appliances. In today’s rapidly transforming digital world, there is an app for almost everything. However, while these apps exist to satisfy the needs of customers, business owners can make a fortune through the use of these apps. Indeed, most of the profitable apps are the ones that gratify customers and convert them into long term users.

          Consequently, it is worth protecting these technologies against replication in the present marketplace. One of the most effective ways these technologies are protected is by utilizing intellectual property (IP) rights from initial concept to the launch and eventful commercialization of the app. These IP rights include patent, copyright, trade secrets and trademarks and they each protect different component of technology. They are considered below.

1. Patents.

Patents are granted to an investor to own and enforce his invention. A patentee is granted the right to preclude any other person from reproducing or offering the invented product for sale.  However, the invention must be new or constitute an improvement to a previously-patented invention and be capable of industrial application. A patent cannot be granted for an invention that is against public order and morality.

          A patent is registerable and expires 20 years after the date of filling the patent application. Once a patent expires, it can no longer be renewed and enters into the public domain. Although the Nigeria Patent and Design Registry refused to register techs occasionally, it is arguable  that in general, the technological ecosystem of apps is a subject matter for patentability. For instance, the virtual keyboard when introduced in mobile phones for the first time was a patentable subject matter.

           Several front-end elements in apps can also be patentable for their novelty. Furthermore, the ways the apps communicate with a server or other mobile devices may also be a subject matter of patentability. Nevertheless, even though some of the apps may not be protected as patents, they can be protected as trade secrets.

1. Trade secrets.

 Trade secrets are IP rights on confidential information which may be sold or licensed. To qualify as a trade secret, it must have the following characteristics; (a) it is not public information and is only known to a few people, (b) its secrecy provides an economic benefit to their holder; and (c) the secrecy of the information is actively protected.

          As trade secrets are not registerable, the owner of a trade secret would have to execute a non-disclosure and confidentiality agreement (NDCA) with the third parties as this may be the only way to protect his trade secret and prevent the third parties from claiming the invention or ideas. An NCDA is a agreement that creates a confidential relationship between the parties whereby they agree to protect confidential and proprietary information or a trade secret. NCDAs contain clauses that can protect the person receiving the information so that if they lawfully obtained the information through other sources, the receiving party would not be obligated to keep the information secret.

          Some additional ways owners of trade secrets can protect them include executing Non-compete agreements with the employees. This agreement will place an obligation on the employees and prevent them from exposing the secrets even after they have stopped working for the employer. Also, keeping trade secrets in a safe location and granting access to few individuals and finally, ensuring employees are loyal and will not sell the trade secret to competitors.

          A recent high-profile suit involving breach of confidentiality agreement was the case of Waymo LLC v Uber Techs Inc C17-00939 WHA where Waymo was awarded damages of 30% of Uber’s equity.

1. Copyright

Since copyright allows protection of the original work of authorship for literacy and creative works, it is beneficial for securing computing codes, software and presentation of apps during its workflow on different screens. Other features of apps that can be secured under copyright protection include images, videos, sounds; more complex apps may in addition include live streaming and allow user-generated content. 

          Generally, copyright comes into effect as soon as one creates something new and unique, and there is no legal requirement for copyright registration. However, one can file an application with the Nigerian Copyright Commission and obtain a certificate of notification which could be advantageous in Copyright Infringement case. The decision to file a combined application for multiple subject matters including user interface, layouts, images, etc or separate copyright applications for each depends on the issues under consideration and can vary from case to case.

1. Trademarks 

A trademark is a sign, logo or word that is used to identify certain goods and services as those produced or provided by a person or a business. It works in different ways in favor of the owner of such proposed technology. Apps operate following a particular process. For instance, each online platform then gets downloaded by users on their devices and is then continuously used by the users on their devices.

          It therefore serves as an identifier and makes the app easily identifiable. Be it during online promotions, downloading, or after downloading, the name and logo of the application are crucial assets as these are what make the customer identify a particular app. Furthermore, where the app becomes successful, competitors may want to imitate the name and logo to mislead customers. Having a registered trademark would mean that competitors are less likely to imitate it. Thus, registering the name and logo as a trademark is important as it may not only prevent others from infringing the name or logo but could attract the users to download and use the app.

          Apps can be regarded as fast-moving technological products that often start off as a small part of a business that can potentially become very valuable. A prime example is WhatsApp, an instant messaging app where the app has become the entire business. This is why it is important to always appropriate IP protection strategy that allows the business owner extract maximum profits from the app without being bothered about infringers. Nevertheless, although the protection of IP rights are important, it is the effective execution of a business strategy that really makes an idea or app valuable.

CHALLENGES AND RISKS ASSOCIATED WITH OPERATING AN E-HAILING TECH STARTUP IN NIGERIA.

          The advent of globalization and rapid technological advancements has resulted to significant global transformations including the transport industry. In recent years, the e-hailing ride-sharing industry has faced significant challenges due to government regulations that pose a substantial risk to the survival and elimination of market participants. These challenges are discussed below;

1. Regulatory Quagmire

The presence of ambiguities in regulatory frameworks has caused confusion, hampering the seamless progression of the industry. However, recent efforts have been made to establish a more transparent and collaborative relationship between ride-hailing platforms and regulatory bodies. Open dialogues and consultations are helping to clarify regulations, ensuring that both innovation and compliance can coexist harmoniously. 

1. Economic Dynamics

Fluctuations in economic dynamics conditions have a direct impact to ridership trends, often leading to reduced utilization of rider-hailing services. To tackle this challenge, some platforms are exploring creative solutions such as offering bundled services that combine rides with other amenities like food delivery or entertainment options. By diversifying their offerings, platforms can remain relevant during economic downturns.

1. Infrastructural Constraints

 Nigeria road infrastructure, riddled with potholes and plagued by traffic congestion contributes to a suboptimal riding experience for users. However, this challenge has spurred innovation within the industry. Some ride-hailing platforms have partnered with local governments to explore ways to improve road conditions and alleviate congestion. Additionally, companies are investing in technology that provides real-time traffic updates and suggests alternative routes, ultimately enhancing the efficiency and comfort of rides.

1. Prioritizing Safety and Security

Safety concerns have taken the center stage in recent times due to reports of outward incidents during rides. These concerns directly impact user trust, particularly when it comes to nighttime travel. To address this, e-hailing platforms are now implementing cutting-edge safety fractures such as real-time driver tracking, emergency buttons, and enhanced background checks for drivers. These measures not only enhance user safety but also contribute to rebuilding the trust that is viral for the industry’s growth. 

Finally, competitive landscape is also another challenge. The proliferation of competitors has led to battles for market dominance, resulting in pricing wars and potential challenges related to fair compensation for drivers.

LICENCES AND PERMITS REQUIRED TO OPERATE AN E-HAILING TECH IN NIGERIA.

To operate an e-hailing tech company in Nigeria, the following licenses and permits are required to be obtained;

1. Company Registration

The company is expected to register with the Corporate Affairs Commission (CAC), the minimum issued share capital are;

1. ₦1,000,000 for a local company.
2. ₦100,000,000 if a foreigner is a shareholder or director.
3. Licensing

Licenses are expected to be obtained according to the guidelines for an e-hailing business operation.

1. Service Entry Permit: for app owners or platform providers.
2. Operator’s Provisional License: for those who own and operate both the vehicles and the app.
3. Driver and Vehicle Documentation

All drivers must ensure their vehicles are properly documented to meet safety standards. They must also ensure that;

1. Have a valid driver’s license.
2. Must have a State Registration Agency card.
3. Must possess Driver’s institute Certificate and card.

The vehicles must have the following;

1. Must have a title or manufacturer’s certificate of origin.
2. Must have a bill of vehicle sale or vehicle license agreement.
3. Must have e taxicab license (hard card), special plate number, proof of ownership, pre-registration inspection certificate, road worthiness certificate, comprehensive insurance policy, vehicle license, hackney permit, approved route document (body tag) and driver’s  badge.
4. Data Sharing and Compliance

All date must be shared with the state government of the state in question and must comply with API integration for security and safety. The procedure for this includes;

1. Obtain a Service Entity Permit. 
2. Apply for the permit before starting operations.
3. Attend quarterly meetings with the ministry of transportations for updates.
4. Allow ministry access to the company’s database.
5. Operate under franchise, as no single operator will be licensed.
6. Obtain Operator’s Provisional License
7. Apply before starting operations.
8. Pay the relevant fee
9. Follow the same renewal process as the Service Entity Permit.

Applicable fees

For Service Entities;

Initial Licensing:

1. Up to 1000 units: ₦10,000,000
2. More than 1000 units: ₦25,000,000

Annual renewal:

1. Up to 1000 units: ₦5,000,000
2. More than 1000 units: ₦10,000,000
3. Transaction fee: 10% of each ride.
4. Compliance Check

Enforced by the Vehicle Inspection Service (VIC), Nigeria Police, Lagos State Traffic Management Authority (LASTMA), and Federal Road Safety Corps (FRSC).

Penalties for Non-Compliance

1. Initial Query: Non-compliance results in a query.
2. Suspension: Continued non-compliance leads to a 14-day suspension and a ₦100,000 fine.
3. Revocation: Persistent non-compliance can result to license revocation.
4. Driver’s Penalties: Fines for individual driver non-compliance range from ₦20,000 for first offenders to ₦30,000 or three months imprisonment for subsequent offenders.
5. Additional Requirements

All drivers must be literate and must have a valid documentation, driver’s license, LASRRA card, and LASDRI certificate.

          In conclusion, e-hailing tech startups are well-suited for business in Nigeria, offering innovative solutions for the country’s transportation needs. However, to operate successfully, these startups must comply with regulations such as obtaining necessary licenses and permits, registering with relevant authorities, adhering to safety and security standards. 

          Intellectual property rights and data protection laws provide a level of protection for e-hailing startups in Nigeria. Nevertheless, they must still navigate risks and challenges like regulatory uncertainties, infrastructure constraints and competitions. To mitigate risks, e-hailing startups should conduct thorough market research, engage with local experts, and develop robust business plans.

          By doing so, they can capitalize on Nigeria’s vast market potential and contribute to the country’s economic growth. Ultimately, the success of e-hailing tech startups in Nigeria depends on their ability to adapt to local conditions, innovate, and prioritize customer satisfaction while ensuring compliance with regulatory requirements. With the right approach, e-hailing startups can thrive in Nigeria, transforming the transportation landscape and creating new opportunities for entrepreneurs, drivers and passengers alike.