Nailab : Kenyans Leading Technology Incubator

On Friday 1st February 2013 the Nailab hosted a ‘Legal meets Tech’ event (dubbed #140friday) where we invited a panel of 5 lawyers from 5 different firms in Nairobi to discuss the legal aspects of tech and startups in Kenya with the founders, co-founders, investors and tech start-up fraternity.

 There were many in physical attendance as some settled for virtual presence via Skype while many others followed the event on twitter (see twitter feed here).

 

 The panel of lawyers included (From right to left):

1. Mugambi Nandi – KN Associates LLP, specializing in Corporate, Commercial & Intellectual Property law.
2. Valerie Kasaiyian – Attorney General’s Chambers, specializing in Civil litigation law.
3. Dr. Isaac Rutenberg – Director, Centre for Intellectual Property & Information   Technology (CIPIT), Strathmore Law School.
4. Bryan Yusuf – Lumumba & Lumumba Advocates, also specializing in Commercial law and conveyance.
5. Ndindi Ng’ang’a – Ranja & Co. Advocates, specializing in Commercial law and conveyance

The event was hosted by Mr. Brian Longwe (@blongwe) who started off by giving his own cautionary tale where he set up a company in 1993 and again in 1999 and was screwed[u1]  over both times because he never got a lawyer to advice him. This set the pace for the discussion which he made sure was interactive. After basic introductions from the panel the event took the format of a Q&A session with the panel taking questions from the audience and the answers building up a discussion around them. The MC did a great job of beefing up the questions and moderating the resulting discussion.

Questions asked by the audience ranged from matters incorporation and the best methodology for sourcing good representation, to investment, funding and overall cost of legal services in the startup eco-system. Overall the panel did a great job answering the questions based on their field of expertise and below are the points that were made during the discussion.

First off, your lawyer works for you and not the other way around so there is no need to be afraid of them. If your lawyer does something that you feel violates your agreement or is not in your best interest, there are legal measures that you can take if you feel that you have been falsely advised.  Note that the word is ‘Falsely’ and not ‘wrongly’ because a lawyer’s advice may be unintentionally misleading or turn out to be wrong without necessarily being false. The difference is intent. If the lawyer knew that the advise was misleading at the time then this constitutes mal-practice on their part and you CAN (and should) report them to the Law Society of Kenya who will follow up on the case. The proceedings could result in the said lawyer getting disbarred and their license being suspended and/or their paying damages to you as compensation for any losses experienced as a result of the false legal advice (we discovered that Lawyers in fact have insurance funds set up for this very purpose). There was a light-hearted though serious comment from a member of the audience remarking on the irony of reporting a lawyer who is misbehaving to a body constituted of fellow lawyers to judge them.

The need for good legal representation at the startup stage was strongly emphasized. Because mistrust for lawyers is bound to develop after one or two bad encounters, startups are advised to do their best to get it right the first time they seek legal services. Take your time and treat it as seriously as you would finding a husband/wife. Ask the prospective lawyer for a list of some of the other startups they have dealt with in the past. Get as long a list as possible and select who to contact at random and ask about their experience with that particular lawyer. If anything went wrong in the past, odds are, you’ll find out about it and be saved lots of grief. Overall, if something about the situation doesn’t feel right, don’t ignore your gut feeling. Get out and find other representation.

With regards to incorporation, one lawyer on the panel who works at the Registrar of companies explained that there are brokers who hang about the AG’s chambers looking for clients and sometimes pretending to be lawyers. It was strongly advised that you run a background check on anyone who claims to be a lawyer before using them for any of your work. How do you do this? Ask for their full name and the firm they work for. Search their name on the LSK (Law Society of Kenya) website to ensure that they are in fact lawyers registered in Kenya. Secondly, you should check to see that they have a practicing license because being registered does not necessarily mean that you are currently licensed or allowed to practice law.

It was also discovered that legal services on a deferred basis for start-ups (i.e where payment for the lawyer is deferred until an agreed later date e.g. after funding) are currently non-existent in Kenya, a fact confirmed by the panel and one that raised some debate with attendees proposing that this should change. Among them was Savannah Fund’s Mbwana who emphasized that Kenyan lawyers need to begin thinking long term rather than short term when dealing with startups as they don’t have a lot to spend but may end up becoming good long term clients in the future. Deferred legal service is common in other innovation hubs like California’s Silicon Valley where there actually lawyers (and even entire law firms) that specialize in providing legal services to startups right from the startup level.

Here are a few other important bits of information that were uncovered during the event:

• There are clearly stated minimum legal fees spelled out in the advocates remuneration act stating the minimum amount an advocate can charge for different services but no maximums (e.g. for a shareholders’ agreement the accepted legal minimum is Ksh. 50,000). The reason there is no ceiling is because different situations involve different levels of complexity and require different amounts of attention from the lawyers and therefore there can be no standard charge.

• Yes, NDA’s (Non Disclosure Agreements) are not always enforceable –especially those made pre-incorporation, but they ARE useful to have nevertheless because they prove that an agreement did exist and has been violated. You may find that having one is the difference between salvation and ruin.

• Any legal agreements made before incorporation should be re-done after incorporation to officially put them under the more legally powerful umbrella of the company.

• A company once incorporated is a separate legal entity from the founders/owners of the company (it is considered a person under the law) meaning that it can own property that belongs to neither of the owners and can also incur litigation without necessarily involving any of the owners directly. This separation keeps the property belonging to one from being directly affected by the other. E.g. a company can be declared bankrupt without its owners being declared bankrupt themselves.

• There is no legal reason why a fully foreign owned company cannot register in Kenya. However, the set of requirements for this is different from companies owned by citizens. Whether to apply for basic business visas or actual work permits depends on whether or not the founders/owners and investors intend to live here or are just visiting temporarily (the Registrar of companies should be able to adequately guide any startups on this). E.g. In the case of a foreign company setting up shop in Kenya, evidence of Ksh. 10 M in operating capital may be required at the time of registration.

• If you don’t file your annual returns for a period of 5-7 years, the Registrar of companies automatically deregisters your company and you have to go through the process of searching and registering afresh.

• Watch out for briefcase VCs. A few book recommendations were made for founders to help them navigate the labyrinth that is startup legal life. Mbwana (@Mbwana - Savannah Fund) recommended “Math you can’t use” and Kageni (@the_kageni_mind – ionacloud) recommended “The Founders’ Dilemmas” which explores virtually every scenario a startup founder could face under different circumstances and includes case studies and advice on how to handle different situations (Read HBR review here).

• Copyrights are quick & cheap to obtain. They cost about 1000-2500 shillings depending on what is being copy written.

• Trademarks are a lengthier process. You have to apply and searches have to be done before it is granted. It costs Kshs. 10, 000 – 15, 000.

• Patents are the most expensive and time consuming documents to get but they also offer the highest form of legal protection and in some cases are worth waiting for. After application for a patent it is published for a specific period of time and if there are no challenges to the patent then it is awarded. In Kenya this period is 18 months as per the IP organization KIPI (Kenya Industrial Property Institute) guidelines.

• There is NO SUCH THING as worldwide Intellectual Property protection. IP laws can be different in many countries and there are no blanket patents that apply across all countries worldwide. Trademarks and Copyrights however tend to hold up internationally regardless of which country they were filed in.

• As a startup  you should consider your social media IDs (e.g. facebook page names, twitter handles e.t.c.) as company assets and you may want to register them as intellectual property. This is allowed under the law and also provides you with a proper way to protect them against usurping by other entities.

• Forget gentleman’s agreements. It doesn’t matter how far back you go together (as one lawyer adequately put it; It doesn’t matter whether you shared socks growing up), make sure everything is in writing. ALWAYS have your contracts typed, signed, witnessed, stamped and sealed (by an advocate/commissioner of oaths with a valid practicing certificate/license) and retain a copy of the document. This goes a long way in helping to both avoid and resolve conflicts that may occur between co-founders down the line and may very well be what keeps the startup alive during these tense moments.

• Lastly, do not be afraid of lawyers. It may seem like a hassle getting one and it may be costly but in the end they will save you more money than they will charge and in most cases having a lawyer (even one who is only half as good as they should be) is far better than having no lawyer at all (Just ask @blongwe).

The overall sentiment at the end (it only lasted 2 hours) was that another meet up was in order because clearly the demand for this information was overwhelming. Based on this tweet by Nailab Director Sam Gichuru, it seems the startups will definitely get their wish.

  

 I’m not sure why he was tweeting this at 4 o’clock in the morning but I guess he was so excited it kept him awake that night.

Post by @the_kageni_mind