How to Use Contracts to Protect Your Business Interests in Nigeria

Contacts are pillars of any business relationship, giving clarity and protection under law to all contracting parties. For Nigerian SMEs and startups, properly prepared contacts secure your interests since they specify duties, payment terms, as well as risks. According to Nigerian law (the Sale of Goods Act, Contracts Act, CAMA 2020, etc.), a valid contract must be of offer, acceptance, consideration as well as legal purpose. Through incorporation of important clauses (such as payment terms, dispute resolution, confidentiality and others), your startup avoids misunderstandings as well as can assert its rights in case of difficulties.

Important Contract Clauses to be incorporated

• Terms of Payment: Concisely stipulate what is due, what amount, and when. Indicate payment due schedules or checkpoints, permissible payment methods (bank transfers, etc.), and what down payment is due. Indicate payment for payment after due date penalty or interest rate as a deterrent of payment after due date. For instance, selling products or services, indicate total amount as well as installment schedule. Inaccurate payment clause favors you more easily demand agreed price in event of nonpayment from buyers.

• Dispute Resolution: Specify what you would do in relation to disputes. Arbitration is often a favorite in Nigerian contracts because it is speedy as well as secretive. Litigation or mediation can be agreed on too. Never mention law of dispute applicable (most often “Nigerian law”) without a forum mention (e.g. Lagos or Abuja courts). If you specify in advance a dispute mechanism, you can avert vagueness as well as costly court wrangles thereafter.

• Duration and Termination: Specify what your agreement’s duration is (fixed or continuous) and exit terms. Specify notice terms (e.g., 30 days’ written notice) and what exit penalties there are. Especially specify what each side’s exit grounds are (e.g., a failure to perform a fundamental obligation). Such clauses relieve you of being trapped with a subpar agreement and allow you to exit without undue hardship should a partner not work out.

• Confidentiality Agreement (NDA): Protect your trade secrets and sensitive content with an NDA or a clause of confidentiality. Indicate what information is confidential, what you can do with it (what you cannot do), as well as for what time frame your duty holds. Client listings to software code all qualify here. Reasonable NDA terms will be maintained under Nigerian law, therefore giving you a recourse in case your proprietary information is misused.

• Non-compete (Restrictive Covenant): You might want to prevent a business partner or former contractor from directly competing with your business. Nevertheless, Nigerian law demands non-compete provisions be of reasonable time length as well as extent. A restriction of a 1–2-year time frame for a specific city or industry, for instance, can be used, but very extensive or no-limits covenants are not effective. Bore down tight reasonable: a judge considers time duration, territorial area, as well as business situation, in an effort to determine enforceability. Pay keenly, Competition Act (FCCPA 2018) disapproves of anti-competition agreements, thus be fair with fairness in law in your protection needs.

• Ownership of Intellectual Property: Specify who owns any intellectual property or product of work that’s created as a result of the agreement. For tech or creative startups, it’s absolutely imperative that you specify that all resulting inventions, code, design, or content belongs to your corporation (or relevant entity). That keeps future IP right disagreements at bay and can be included as a clause or under an NDA.

• Liability and Indemnity: Specify how losses will be treated. You can limit your own liability for indirect damages and have indemnify you for some claims (e.g., for breach or third-party litigation). While some of your restrictions will not be enforceable from a court of law, express indemnity terms can allocate risk back to the correct party.

• Governing Law: Repeating that Nigerian law will govern the contract and disputes would be resolved at Nigerian courts of fixed addresses. This eliminates doubt as to what law would be used.

Preparation and Negotiation for Startups Guidance

Negotiation and careful drafting are important. Adhere to the following best practices:

Plan Your Priorities: Before you ever negotiate, decide what you absolutely want (e.g., good payment terms or a short-contract length). Decide what you won’t negotiate at all, what you can negotiate. Putting your priorities into order keeps you fixed in your mind about what’s important to your business.

Know the Other: Understand your competition’s goals as well as limitations. Effective negotiation entails compromise. If you know what they want, you can then offer a compromise you both can live with, building more confidence as well as freely flowing teamwork.

Be Concise: Never be verbose. Conciseness shortens time. Compose short statements. For instance, be explicit about what you intend: rather than using “reasonable efforts,” specify what efforts you desire. Leave no room for doubt about what each of you ought to be doing.

Make It Personal: NEVER use a boilerplate. Compose each agreement for your case. A boilerplate would be incomplete for industry terms or terms of a transaction of fundamental importance.

Consult Lawyers: If you have a chance, let a lawyer review or prepare your agreement. Professional advice makes you bound to your commitments under the Contracts Act, CAMA 2020, Sale of Goods Act, etc. Even for low-cost startups, a consultation with a lawyer can be more profitable for you than a lawsuit.

Checklist Application: Before you commit, make sure you have covered all your necessary terms. Bad for terms of payment, ownership of intellectual properties, obligations of confidence, right of termination, as well as dispute resolution procedures. Such due diligence in advance procures absent or unjust terms.

Keep Written Records: At all times keep signed counterparts of agreements, variations, and connected communications. This will be crucial evidence should enforcement be necessary.

Ratify Pre-Incorporation Agreements: If your new business enters into agreements before its incorporation, be fast to follow up. On a reading of CAMA 2020, your new business can adopt or ratify any of its pre-incorporation agreements entered into before incorporation in its name. If not, its promoters who signed them can still be held personally liable for them.

Enforcing Contracts in Nigeria

A good agreement is a strong defence if trouble erupts:

Damages: In case of a breach of either of the parties, money is normally the remedy. Nigerian Courts will grant damages to place the aggrieved party in a position they would have been if the contract had been performed.

Specific Performance & Injunctions: Very exceptionally, a court can bind a contracting party to its contractual obligation (specific performance) or prevent an act which would be a breach of contract (injunction). Less often awarded, but for genuinely outstanding obligations.

Arbitration and ADR: Since litigation takes long, some contractual agreements stipulate for arbitration. Arbitral awards can be executed soon with Nigeria’s new Arbitration and Mediation Act. Thought-out arbitration clauses enable you to resolve affairs discreetly in a short period of time.

With a step-by-step approach, not only will your agreements be law-compliant, they will be templates of your business transactions as well. That well-negotiated and well-drafted agreement stands high chances of being declared enumerated by Nigerian Courts. Going an extra mile to have your agreements perfect, with payment terms well spelled out, exit mechanism, confidentiality as well as due provisions for dispute resolution, gives your SME due protection under law as well as confidence that your interests are very well protected under Nigerian law of contract.