LEGAL ADVICE ON REGULATORY COMPLIANCE IN ESTABLISHING AN E-HAILING TECH START-UP SERVICE

In this legal advice, we shall assume the entrepreneur’s start-up is Ford X. For a proper understanding of the E-hailing service and to be in correlation with our client, let’s briefly examine its meaning. 

INTRODUCTION & BUSINESS STRUCTURE 

E-hailing is a service which allows users to book rides through a smartphone app or website. Unlike traditional taxis which hail from the street, an e-hailing service allows the users to choose their location for pick-up, e.g.; Uber, Bolt. This definition matches the business idea of Ford X. 

Ford X's business plan should be suitably structured and registered as a Private Limited Share Company, considering its start-up as a Tech-Start-Up. Section 22 of the Companies and Allied Matters Act (‘CAMA’); provides for the features of a private company. Ford X can also be classified as a Tech Start-Up in Nigeria. This is pursuant to the requirements provided in the Nigeria Start-Up Act 2022 (‘NSA’), which states any business registered as a private company, and has not exited for more than 10 years shall be classified as a start-up subject to other requirements provided in the act. In other words, Ford X's business structure shall be identified as a tech start-up registered under CAMA as a private company. 

REGULATORY COMPLIANCE REQUIRED FOR FORD X 

Ford X must comply with the following statutes to avoid any regulatory issues. 

• Companies and Allied Matters Act 
• Nigeria Start-Up Act 2022

Companies and Allied Matters Act

Ford X must registered under the Companies and Allied Matters Act as a recognized company in Nigeria. Any business which engages the public on a large scale shall be registered as a company or business organization, to avoid sanctions from Corporate Affairs Commission. As earlier mentioned, Ford X would be suitably registered as a Private Company under the CAMA, for the reason that it must conform to the standard of a Tech Start-Up. The legal requirements provided for Ford X as a private are as follows; 

1. It Must have authorized minimum share capital of not less than N100,000
2. The name must end with the word 'Limited' (Ltd.)
3. It must by its Articles of Association restrict the transfer of its shares.
4. It must have a minimum of two members but its total members must not exceed fifty persons.
5. It is prohibited from offering its shares or debentures to members of the public. 
6. Apart from private companies in the banking business, a private company is prohibited from inviting the public to deposit money, for fixed periods or payable at call whether or not bearing interest.
7. There is no qualification or experience required for the appointment of company secretary.
8. The removal of the company secretary does not require formal procedures.
9. It has no restriction for the appointment of over-aged Directors, i.e. directors who have attained the age of 70 and above.

It should be noted that Ford X may in future intend to make their private company converted to a public company after ensuring it has garnered the financial and organizational capacity required by law to run as a public company. 

Nigeria Start-Up Act 2022

Ford X shall be labelled as a Tech Start-Up provided it complies with the requirements provided in the Nigeria Start-Up Act. As provided in Section 2 of the NSA; This Act applies to 

(a) companies incorporated under the Companies and Allied Matters Act and granted the startup label, in accordance with the provisions of this Act; and

(b) Organisations and establishments, whose activities affect the creation, support and incubation of labelled startups in Nigeria.

In addition, Ford X must ensure to comply with the legal requirement provided in Section 13 – 16 of NSA, to be recognized as a Tech Start-Up. 

 ⁠FORD X PROTECTION OF THEIR INTELLECTUAL PROPERTY, SUCH AS THE MOBILE APP AND BUSINESS MODEL

The protection of Ford X's intellectual Property Rights is paramount to its development and growth as a Tech Start-Up. The Nigeria Startups through its council, acknowledges the need to protect startups' intellectual property rights. The Act provides for structures to be implemented to protect Startups’ Intellectual Property Rights, as stipulated in Section 31 of the Act. The measures for the protection of IP rights are as follows; 

1. The Secretariat shall encourage the exploitation of their rights and shall take steps towards assisting them in internationalising and commercialising their rights. 
2. The Secretariat will work with the Nigerian Copyright Commission and Trademarks, Patent and Design Registries to create a section on the Startup Portal for easier registration of intellectual property for labelled startups. They will also help startups with patent applications, legal action for infringement, and international trademark and patent registration
3. .The Secretariat will collaborate with the Nigeria Copyright Commission and Trademarks, Patent and Design Registries to ensure seamless and expedited registration and protection of intellectual property for labelled startups in accordance with this Act.

We hereby advise that Ford X comply with these protection measures to ensure their Intellectual Property Rights are safeguarded. 

⁠THE POTENTIAL CHALLENGES AND RISKS OF OPERATING AN E-HAILING TECH STARTUP IN NIGERIA?

In every business or company striving to garner weight in the economy, some risks and challenges must be faced. As an e-hailing start-up, we have gathered from our research some practical potential risks that you are likely to encounter in venturing into this business. Also, we look at some potential solutions.  

1. Competition

We believe you’re familiar with the competition of other e-hailing tech startups in Nigeria such as Uber, Bolt, In-Drive etc. The Ford X Startup is not the first company to emerge in the e-hailing service space, as other startups are recognized in this space. This would be a risk to your business in the long term, as it would be difficult to engage customers in utilising the Ford X. The potential solution to this issue is redefining the company's target audience to luxuries. Unlike the other e-hailing startups that are focused on Nigerians generally, we can target wealthy men, who prefer luxurious rides over the use of plain car rides. In other words, Ford X would connect Luxurious Car Owners with persons who prefer luxurious rides. This would not only redefine your target audience but also increase the price financial target over your competitors.   

2. Data Protection & Firm Cyber Security. 

The Ford X Tech Start-Up would function through its app, which involves saving the Data and information of the Drivers and the Drivers' Passengers. The common risk involved in this kind of operation is data breach or data hacks, whereby information from Ford X clients is used against them. This is a potential challenge as the tech startups may be shut down by the government if there’s no exclusive protection of the data of the clients. All protection must be in alignment with the Nigeria Data Protection Act 2023.

3. Potential Kidnappers as Drivers

Nigeria is globally recognized as being insecure from various criminals and terrorists who roam around as patriotic citizens. Ford X may encounter in its operation kidnappers who register under the start-up as drivers, whereas it’s a scheme for ulterior motives, such as kidnapping etc. This is a potential challenge that Ford X must endeavour to thwart, as it may result in the shutdown of the agency by law enforcement agencies due to breaching the duty of care of the riders. To avoid such a predicament, the startups must ensure to provide a strict requirement policy for employing drivers for proper scrutinization. 

LICENSES AND PERMITS REQUIRED TO OPERATE AN E-HAILING SERVICE IN NIGERIA

To operate in Lagos State, Ford X must recognise the recent guidelines enacted by the Lagos State Ministry of Transportation. The guideline issued is known as “The Guidelines for Online Hailing Business Operation of Taxi in Lagos State, 2020” (the Guidelines).  The Guidelines primarily seek to enhance the safety standards of the E-Hailing Taxi Platform through the introduction of various safety protocols. For proper understanding, the Lagos government identifies the E-Hailing Taxi Platform as any platform or business model that relies primarily on technology to provide their services with little or no interest in the actual ownership of the vehicles or engagement in activities that establish physical presence. This definition applies to the purview and visions of Ford X's business plans.  

According to the guidelines, the e-taxi platform requires a license to operate. As provided in Section 4 of the Guidelines; a Service Entity Permit Provisional Licence must be obtained by any business or company involved in the E-Hailing Taxi Platform, without which such business will not be allowed to operate within Lagos State. 

Under the Guidelines, Service Entities with less than 1,000 drivers are expected to pay a ₦10 million (approx. US$27,341) license fee, while those with more than 1,000 drivers are to pay ₦25 million (approx. US$54,682). Subsequent renewals are pegged at ₦10 million for those with more than 1,000 drivers and ₦5 million (approx. $13,670) for those with less. Taxi and App Operators with 50 cabs or less are expected to pay a ₦5 million licence fee, while those with more than 50 cabs are to pay ₦10 million. The former will pay an annual renewal of ₦1.5 million (approx. US$3,870), while the latter will renew at ₦3 million (approx. US$7,700). Further, all operators of EHTP were also required to pay the LASG a 10% service tax on each transaction paid by the passengers to the operators. However, following a very public backlash and engagement between the LASG and the EHTPs, reports have emerged that the proposed 10% service charge per ride/trip will now be charged at a flat fee of N20 (approx. US$0.058) deemed to be attributable to the Road Improvement Fund. Additionally, the LASG has also agreed to reduce the operational licensing fees by 20%.

In addendum, the guideline provides for Data Protection and Privacy Concerns which is stipulated in Paragraph 4.1(A) (x) of the guidelines. The paragraph provides that all operators must give the Lagos Ministry of Transportation access to their database including the personal data of the ETHP such as the customers’ names, debit or credit card details phone numbers, and visited destinations (home address and work address). 

Without compliance with these regulations, Ford X will be denied the licence required by law to operate its business. The scope of this licence was limited to Lagos, due to the potential consumers that may be achieved from the State. We advise that your business is focused on Lagos State, before delving into other parts of Nigeria. The reason for this is that the startup needs to gain organizational capacity in a zone that has a plethora of potential customers. 

Reference

1. Companies Allied Matters 2022
2. Nigeria Startup Act
3. The Guidelines for Online Hailing Business Operation of Taxi in Lagos State, 2020
4. Templars “Lagos Commence Regulations of E-hailing Taxi Platforms” https://www.templars-law.com/app/uploads/2020/08/Templars-Newsletter-Lagos-commences-regulation-of-E-Hailing-Taxi-Platforms.pdf. <accessed 13th September 2024>