We have established that starting a new business is tough and in addition to the economic and operational risks that every business faces, there are a number of legal and general mistakes made by small businesses which can and do have significant effects on their success or failure.
Mixing personal and business expenses
Money and time are the biggest investments in a startup, and often business and personal expenses become indistinguishable. This can be one of the major sources of confusion when taxes are filed and, in some cases, can lead to income authorities cancelling various deductions on an ad hoc basis and, as a result, higher tax expenditures are levied. Therefore, startups must have a financial account from the beginning and separate records as well.
Not registering your name
If you intend to be a sole proprietor or a corporation, you must ensure that no one else is using the name you have selected for your firm. Make sure the name is available before making a logo, designing a web app, or printing business cards.
Not having a nondisclosure agreement
While exploring how to start your business, you are most probably talking to many people in the industry you wish to operate in—talking to professionals and sharing a lot of information about your business idea while trying to hire people, get advice, get estimates and retain professionals. A confidentiality agreement, or non-disclosure agreement, will help ensure that the information you share with others remains private. Also, stipulate consequences for violation of rights stated therein.
Accepting handshake deals
Never, ever work without a written contract. Too often, entrepreneurs value speed over accuracy when it comes to detailing relationships with partners, vendors, customers and even employees. They might accept “handshake deals” or verbal agreements. In theory, an oral contract may be enforceable in court if it’s a short-term contract. In practice, however, you’re going to end up in he said/she said fight and there’s no guarantee you’ll get a good outcome. A written contract, on the other hand, forces both parties to consider every aspect of the deal and helps make sure everyone understands what they’re signing on for. A clear contract can help you avoid the kind of disputes that turn into legal troubles in the first place. And if you do end up in court, a clear contract will help make sure that the deal is enforced.
Unfortunately, there are more than a few horror stories of novice entrepreneurs believing verbal agreements are set in stone. No matter the case, put it in writing. Contracts should be well-defined and signed by all parties involved—whether that means outlining roles and ownership with a co-founder, making an offer to an employee or drafting business points with a vendor.
Engaging professionals only after a problem arises
A good accountant or lawyer will be able to advise you of the best way to structure your business to achieve your business goals. It may initially cost some money to get this right, but it is one of the best insurance policies you will take. Understanding the pros and cons of being a sole trader, company, trading trust, limited liability partnership is vital to know at the beginning of a business’s life. By far the biggest mistake of all is becoming an “emergency entrepreneur” — someone who puts off all legal issues until he or she is being sued.
The time to engage with a legal professional is not when threatened with a lawsuit. Healthy people see the doctor or dentist for preventative care; healthy businesses should take the same approach, and establish a relationship with a good lawyer early on in a business’s lifecycle. Knowing more about the legal pitfalls and landmines out there will help keep any business entity on a solid foundation. This way, entrepreneurs can focus on the reason they started the business in the first place.
Expanding too soon
Expanding your business before it has the key resources (cash, access to equity, access to credit) or key structure in place can lead to disaster. Don’t underestimate organic growth. It may appear slow at first, but it is solid growth.
Failing to adapt to change
Multi-generational companies (i.e., companies that were handed down from father to son, or grandfather to son to grandson), with the newer generation failing to adapt to the changes in their industry. Instead, they adopted the thinking of the previous generation which is: “that is how we always did things.” Now with the rise of the digital age, businesses that fail to embrace technology or to see how to exploit it in their businesses are falling behind.
Reliance on one key customer
This can be deadly, especially if that one key client is the government. This is because a change of government or government policy can mean the end of your business. Outside of government, if your one key customer fails in their business dealings, it almost inevitably means that you too will fail. Not to mention that business analysts see reliance on one key customer as ‘high risk’.
[READ ALSO: What to do when interest rates are low in 2020)
Failure to manage cash flow
Cash flow is vital for all business operations. Cash can be likened to blood within our bodies. When you run out of blood, you die. It is all very good to appear profitable in your accounts, but it is not good if those profits don’t convert to cash in your bank account.
Let’s wrap up
Starting a new business is pretty exciting and challenging, and your business has a plethora of growth potential, but there is also the possibility of making quite costly mistakes as you start. If you learn to avoid the most common mistakes made by startups, your startup can run smoothly from the beginning and your business is better prepared to be successful and profitable in the long term.
CITN issues rejoinder to ICAN’s claim over court case
The rebuttal claims that there are some ‘critical misinterpretations’ contained in ICAN’s claims concerning the judgment.
The Chartered Institute of Taxation of Nigeria (CITN) has issued a rebuttal to the “critical misrepresentations” that are supposedly contained in a notice to members sent out by the Institute of Chartered Accountants of Nigeria (ICAN) over a court case, as reported by Nairametrics.
Recall that ICAN had informed its members that Justice S. A. Onigbanjo of the High Court of Lagos State ruled in their favour by striking out “Suit No. LD/3288GCM/19 – CITN VS ICAN” which was filed by CITN. In the suit, CITN had, among other things, prayed the court to restrain ICAN members from filing tax returns with the Federal Inland Revenue Service (FIRS) unless they have a CITN license.
CITN’s position: Now, in its rebuttal to ICAN’s claims concerning the court case, a copy of which was sent to Nairametrics, CITN clarified the following points:
- The Ruling of the Hon. Justice S. A. Onigbanjo of the 2/7/2020 in LD/3288GCM/19 did not invalidate the MOU and TOS because it did NOT address the issues in the substantive suit, itself. However, since ICAN has resiled from the MoU and ToS it freely entered with CITN, the CITN will not stop ICAN from walking away.
- The Judge only struck out the suit based on the Preliminary Objection of ICAN to the effect that the suit was an abuse of court process because the issues in it were the same as the issues in FHC/L/CS/125/2019 – ICAN VS FIRS & 1 OTHER which was earlier decided in favour of CITN. However, the issues in the two suits are completely different and distinct as has now been explicitly admitted by ICAN in its Notice under reference when it said: “The earlier ruling at the Federal High Court in Suit No. FHC/L/CS/125/2019 did not make pronouncement on the memorandum and terms of settlement between ICAN and CITN.”ICAN having admitted that the judgment in FHC/L/CS/125/2019 did not make any pronouncement on the MOU and TOS (and this is a fact), how then could issues in that suit be the same as those in LD/3288GCM/2019 (decided by Justice Onigbanjo) which only asked for judicial pronouncement on the MOU and TOS?
- Regulation 5 of the Tax Administration (Self-Assessment) Regulations, 2011, was categorically annulled by the Hon. Justice Liman in the judgment delivered in FHC/L/CS/125/2019 on 21/11/2019. None of the lawyers to the parties (including ICAN) can deny hearing the annulment of Regulation 5 during delivery of the judgment. It is unfortunate that ICAN is jumping the gun in a case with a pending post-judgment application.
- In the judgment delivered in FHC/L/CS/1480/2018 – CHIEF IGBAROOLA & OTHERS VS FIRS & OTHERS on 21/5/2019, the Hon. Justice A. O. Faji, declared: “CITN Act is thus superior to ICAN Act on the issue of tax practice. The Self-Assessment Regulations being in conflict with the CITN Act is null and void. The Plaintiffs cannot practice as tax agents without first being members of the 2nd Defendant.”
- In the Court of Appeal judgement of 2013 between ICAN v. CITN, it was held that the power to regulate and control the tax profession, to the exclusion of any other body, in Nigeria lies with CITN.
- It is, therefore, now firmly settled from all the relevant judgements at the Lagos High Court, Federal High Court and the Court of Appeal, which have all upheld the primacy of the CITN Charter, that no member of ICAN can practice taxation without first being a member of CITN.
- For the avoidance of doubt, no ICAN member, who is not registered with CITN, has been permitted by any law or court decision to practice taxation. The law has made it clear about the professional body that can regulate tax profession in Nigeria and CITN reserves the right to invoke the relevant provisions against any person that violates the provisions of its charter.
The backstory: The disagreement between ICAN and CITN dates back to 2015 following a misinterpretation of a Memorandum of Understanding (MoU) and Terms of Settlement (ToS) between the two organisations. Due to the disagreement, CITN took legal actions in a bid to basically make the MoU and ToS binding on ICAN members.
UPDATED: Court rules ICAN members do not need CITN license to file tax returns
The suit, which was filed some years ago by CITN, was basically struck out for lacking merit.
Justice S. A. Onigbanjo of the High Court of Lagos State has ruled that members of the Institute of Chartered Accountants of Nigeria (ICAN) do not need to be licensed by the Chartered Institute of Taxation of Nigeria (CITN) before they can file tax returns.
The ruling on July 2nd followed a suit filed by CITN trying to restrain ICAN members from filing tax returns for their clients unless they have a practicing CITN license.
A notice to ICAN members regarding this development, as seen by Nairametrics, noted that Justice Onigbanjo struck out the suit after describing it as “an abuse of court process and an embarrassment to the judiciary.”
The backstory: Nairametrics understands that the disagreement between ICAN and CITN stemmed from the misinterpretation of a 2015 Memorandum of Understanding (MoU) and Terms of Settlement (ToS) between the two organisations. Consequently, CITN had filed a suit before the High Court of Lagos State, seeking the following:
- A declaration that the Memorandum of Understanding and Terms of Service both dated February 12, 2015 between the CITN and ICAN are valid, subsisting, and binding on the CITN and ICAN.
- An injunction restraining ICAN whether by its agents, privies, assigns, or whosoever called, from repudiating, resiling from or acting in any manner or doing anything that is inconsistent with, contrary to or is a violation of the Memorandum of Understanding and the Terms of Settlement dated February 12, 2015, between the CITN and ICAN.
- Determine whether the Memorandum of Understanding and Terms of Settlement both dated February 12, 2015 between the CITN and ICAN are valid, subsisting, and binding on CITN and the ICAN.
However, last week’s ruling by Justice S. A. Onigbanjo which, by the way, was delivered virtually due to COVID-19, has made it impossible for the CITN to implement the terms of the 2015 MoU and ToS. The ruling also aligned with ICAN’s earlier objection to the MoU and ToS.
The status quo: In view of this development, ICAN has informed its members that they do not need to obtain any license from the CITN before they can file tax returns for their clients with the Federal Inland Revenue Service, FIRS.
ICAN members were also informed that an earlier ruling by the Federal High Court on the case does not affect the status quo. This is because “the earlier ruling by the Federal High Court in Suit No. FHC/L/CS/125/2019 did not make pronouncement on the memorandum and terms of settlement between ICAN and CITN.” More so, regulation 5 of the FIRS Act was not reflected in the earlier judgment of the Federal High Court.
China more willing to restructure Africa’s debt than private creditors
Agreements have been easier to reach with Chinese lenders than with private creditors.
A recent study by John Hopkins University reveals it may be easier for African Nations to raise debt and also get debt relief from China than private creditors.
The report of the study comes a day after China promised to cancel interests from loans to African nations and restructure debt to Africa. The study also revealed that China has restructured $15 billion of African debt and written off $3.4 billion in the past ten years.
After 1,000 Chinese loans, including restructured Mozambican and Republic of Congo debt, were analysed, the researchers concluded that “the agreements have been easier to reach with Chinese lenders than with private creditors”.
The Paris Club recently agreed to pause debt payment valued at $11 billion for the poorest 73 nations freeing up capital to tackle the coronavirus pandemic. However, not all eligible nations signed up citing fears of default ratings if debt obligations are not met.
The study discovers difficulties in renegotiating terms on International Bonds for African countries due to the disparate ownership structure making private creditors unwilling to grant complete debt relief, citing warnings on rating downgrades.
China accounts for about 20% of Africa’s external debt and lent over $150 billion to the continent between 2000-2018 the study reveals. Chinese President, Xi Jinping has urged global leaders to be more pragmatic with debt suspension for Africa.
The study says much of the terms of Chinese debt to Africa has not been transparent and the relief negotiations may follow the same path.