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Legal Business

SMEs: Carefully Navigating The Loan Agreement

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Morenike George-Taylor, Founder at Reni Legal

If you are an SME owner and you are thinking of taking a loan from a commercial bank, you should read this informative article focusing on the key terms to negotiate. It is necessary to read any legal document before signing it, but reading is not enough, you may have to take things a step further by negotiating the terms to better suit your interest.

One of the documents that most Small to Medium Enterprises (SMEs) will come in contact with is a loan agreement. In many cases, these agreements will come from financial institutions and would be largely non – negotiable. While this is often the case, this is not always the case. Before you get a loan from any commercial institution it is fundamental that you try to negotiate the key terms. Before you sign any legal document, I would always advise that you contact a lawyer; the lawyer should review the agreement and explain to you exactly what you are getting into.

Having said that there are some key terms that you should focus on in any loan agreement.

1. The time frame for repayment: Ensure that you understand and can see clearly spelt out the time frame within which you must repay the amount that you have borrowed. If you have discussed one thing with your bankers, and another thing is reflected in the document, this is a BIG deal. The bankers you negotiated with today may lose their jobs and all your oral assurances may go with them, but you will remain bound by your written agreement.

2. The time frame for demand of late payments: I remember reviewing a loan agreement for a client and the time frame for demanding for late payment was only one week. This was ridiculous, according to the agreement if he missed paying an instalment by one week, the entire sum of money advanced to him would become immediately recoverable and the security he provided would be lost. Ensure you get a fair amount of time. At least a month is reasonable.

3. Waivers of your legal rights: You will find that in many loan agreements, the bank will urge you to waive rights you have under the Conveyancing Act or Property and Conveyancing Law. Kindly consult your lawyer and see how you can waive as few rights as possible.

4. Rights to direct debit unrelated accounts: Watch out for any clauses giving the bank the right to debit accounts that are unrelated to the loan transaction which you or other directors in your company may have in the same bank.

I could write a book about some of the outrageous and unfair clauses included in some of the standard form loan agreements in circulation today. You should obviously pay attention to what happens if you do not timeously repay the loan for example, insurance obligations and so on. Regardless of how desperate you may be for funding, you do not want to do anything that would be counter – productive to your business. Therefore it is important that you negotiate and review your loan agreements properly. If you do it NOW, you will thank me about this later.

Also Read Meet Sivi Malukisa, The Congolese Entrepreneur Whose Food Startup Is Promoting DRC Cuisine

If you have questions about loan agreements and how they are reviewed, you can always contact me. An SME owner needs all the legal help they can get to prevent and avoid mistakes and costly litigation.

Author: Morenike George-Taylor is a qualified Legal Practitioner that graduated from the University of Sheffield at the top of her class. She has several years of experience practicing in leading law firm owned by a Senior Advocate of Nigeria and now is a partner in a law firm GM George – Taylor & Co. which powers her own business, Reni Legal. A law business which focuses on uniquely solving the legal problems facing SMEs and Start-ups. Send an email to info@renilegal.com and she will be in touch.

Legal Business

The Legal Lore: Taking us from the bench to the fireside

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Photo Credits: Tonkin Clacey Inc

In the complex and intricate world of law, where every case is a story waiting to be told, the wisdom passed down from seasoned legal professionals holds immeasurable value. Within the hallowed halls of law firms and legal institutions, an age-old tradition persists-one that transcends formal training and case law. It’s the tradition of fireside chats, where senior legal practitioners weave narratives of their experiences, trials, and triumphs, igniting the flames of inspiration in the hearts of their junior counterparts.

In these intimate gatherings, the rigid walls of hierarchy crumble, and the barriers between senior and junior practitioners’ dissolve. Here, amidst the flickering glow of the fire, stories untold-stories of courtroom battles won and lost, negotiations that sealed deals or unraveled, and ethical dilemmas faced with unwavering resolve. Through these stories, senior legal practitioners impart not just legal knowledge but invaluable lessons from the trenches of practice.

For junior practitioners, these fireside chats serve as a beacon of guidance, illuminating the path ahead with the collective wisdom of those who’ve walked it before. They chats provide insights that textbooks can’t convey, painting a vivid picture of the complexities and nuances of legal practice. From navigating tricky client interactions to finding creative solutions to legal challenges, the stories shared in these informal gatherings offer a treasure trove of practical advice.

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Moreover, fireside chats help to build   a sense of fellowship and community within the legal profession. They create spaces where junior practitioners feel seen, heard, and valued—not just as legal novices, but as aspiring storytellers in their own right. Through the exchange of anecdotes and experiences, bonds are forged, mentorship relationships blossom, and a culture of continuous learning thrives.

Most importantly, these chats have the power to shape the trajectory of junior practitioners’ careers. By exposing them to diverse perspectives and real-world scenarios, these informal gatherings expand their horizons, instilling in them the confidence to navigate the complexities of the legal landscape. They inspire them to dream bigger, reach higher, and aspire to leave their own indelible mark on the legal profession. 

Photo Credits: Baker McKenzie

In a profession where the stakes are high, and the journey is fraught with challenges, storytelling becomes a guiding light—a compass that points towards excellence, integrity, and justice. The Advancing Women in the Workplace (AWW) program- a program to support women in leadership in South Africa adopted this approach of storytelling as a model. So, let us gather around, dear practitioners, and share our stories. For in the flicker of the flames lies the power to shape not just individual careers, but the future of the legal profession itself.

Acknowledgements

The AWW program, a program sponsored by Vance Centre in partnership with the South African Legal Fellows Network and the US mission.

 

Written by: Adaobi Adaobi Egboka and Dr Kim Lamont-Mbawuli. Africa Program Director, Cyrus R. Vance Center for International Justice, Vance Center Consultant and Director of KLM attorneys.

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Legal Business

Data Privacy and How It Affects Your Business

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Data privacy, defined by Tech target is a discipline intended to keep data safe against improper access, theft or loss. One of the triads of cybersecurity is confidentiality and this has to do with data privacy. The world has become a global village and data privacy issues are now more relevant than they ever were before.

In 2009, a popular brand in America had a serious breach of its systems. For 18 months, hackers had access to the brand’s data and were able to get customers credit card details and personally identifiable information undetected. How did this happen? and how can you make sure that this doesn’t happen to your organization? The answer is simple, you need to pay attention to data privacy. As long as your business collects personal identifiable information, your business has a duty to protect the confidentiality of the people who have given you that information.

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Sometimes, the obligation to protect data is beyond a moral right. In Europe for example, you have the GDPR (General Data Protection Regulation), in America you have applicable laws like Health Insurance Portability and Accountability Act of 1996 (HIPAA) which demand data privacy. In Nigeria, privacy rights draw from the Constitution of the Federal Republic of Nigeria (1999) (as amended) and can also be found in the  Nigerian Data Protection Regulation, 2019.

All these laws show you that as a business owner, you are not only expected to protect data, you are under an obligation by law in some cases to protect certain types of data. The question is, how do you protect data and ensure that the privacy rights of your customers are respected?

  1. Employ a CISO: You should consider employing a Chief Information Security Officer (CISO) if your organization is large, who would be in charge of formulating policies to protect data privacy as well as other valuable data in your organization. Actions like these can prevent competitors from getting valuable data from your company, ensure your company complies with relevant laws on data privacy and thus win customers’ confidence in your brand.
  2. Implement good information security policies and procedures: You would also need to create good policies on information security. Ensure documents with sensitive data on customers are password protected, ensure that firewalls and anti-malware software are installed to fight off malicious cyber-attacks aimed at stealing customer data and create trainings for staff handling sensitive data.
  3. Don’t collect data you don’t need: Where you don’t need to collect customer data, don’t do it. Only ask customers to give you the information relevant to the service you are providing for them. 
  4.  Don’t keep data longer than you need it: Where you don’t need data anymore, and no law requires that you keep it, destroy it. Where a customer has indicated that they want their account deleted, or they don’t want to share their data with your company anymore, ensure that the data is destroyed.
  5. Properly destroy data that is no longer useful to you: The same way you receive data through a process, you need to understand that destroying data is also a process. Data is not destroyed simply because you put it in the recycle bin and deleted it from the recycle bin. Ensure that data is properly destroyed when it’s no longer useful. 

At the end of the day, data privacy is important for businesses in the world today. I hope these tips would help you choose to take steps to protect your customers data in every part of your business and ensure the data privacy rights of your customers are respected.

 

Article by: Morenike George-Taylor CDMP, County Support Director & Data Governance Expert 

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Legal Business

Kenya: Country-by-country reporting thresholds introduced from 1 January 2023

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Tax image credit: Getty

The Kenyan Government, in its latest Finance Act 2022, has enacted some key changes in the area of direct tax, including an important update on the country-by-country (CbC) reporting threshold for multinational companies.

What is country-by-country reporting?

Corporates and connected persons, such as groups of companies and multinational entities (MNEs) usually face complex compliance risks. To address the potential gaps and mismatches in various tax systems globally, the Organization for Economic Co-operation and Development (OECD) introduced Action 13 CbC reporting as part of its Base Erosion and Profit Shifting (BEPS) Action Plan. Under BEPS Action 13, MNEs are required to prepare a CbC report with aggregate data on the allocation of income, profit, taxes paid and economic activity amongst all the jurisdictions in which they operate. This report must be shared with the tax administrations in these jurisdictions, for use in high-level transfer pricing and BEPS risk assessments. Part of the solution provided by Action 13 is to require countries to adopt legislation dealing with the filing of CbC reports in their jurisdiction. 

Finance Act 2022 updates of CbC

The Kenyan Government has introduced a threshold for CbC reporting with the effect from 1 January 2023. The threshold introduced in the Finance Act is for companies with gross revenues of KES 95 billion (EUR 790 million approximately) or more, including extraordinary and investment income. From 1 January 2023, a parent entity or a constituent entity of a MNE group that is tax resident in Kenya, and that has a gross turnover of over KES 95 billion, will be required to file a CbC report of its financial and economic activities in Kenya, as well as all  other jurisdictions in which the MNE has a taxable presence.

The report must contain all information of the group’s aggregate revenue, profit or losses before tax, income tax paid, income tax accrued, accumulated earnings,  number of employees, tangible and intangible assets, cash and cash equivalents and any other information as requested by the Kenya Revenue Authority (KRA).

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Information to be contained in the master and local bundle.

The Finance Act requires a master file that must contain the following:

  • A detailed overview of the group and the group’s growth engines.
  • A description of the supply chain of the key products and services.
  • The group’s research and development policy.
  • A description of each constituent entity’s contribution to value creation.
  • Information about intangible assets and the group intercompany agreements associated with them.
  • Information on any transfer of intangible assets within the group during the tax period, including the identity of the constituent entities involved, the countries in which those intangible assets are registered and the consideration paid as part of the transfer.
  • Information about financing activities of the group.
  • The consolidated financial statements of the group.
  • Tax rulings made in respect of the group.
  • Any other information requested by the KRA.

The local file must contain:

  • Details and information of the resident constituent activities within the multinational enterprise group.
  • The management structure of the resident constituent entity.
  • Business strategies, including structuring, description of the material-controlled transaction, the resident. constituent entity’s business and competitive environment.
  • International transactions concluded by the resident constituent entity.
  • Amounts received by the entity.
  • Any other information requested. 

Exceptions to the CbC report filing requirement

The Finance Act provides certain exceptions to the filing requirements for a resident constituent entity of an MNE group. If a non-resident surrogate parent entity already files a CbC report for the group with the tax authorities of its tax jurisdiction, the jurisdiction in which the non-resident surrogate parent entity is resident requires a CbC report in terms of its domestic legislation, under the following conditions:

  • The tax authorities of the jurisdiction where the non-resident surrogate parent entity have an exchange of information agreement with the KRA.
  • The tax authority in the jurisdiction where the non-resident surrogate parent is resident has not notified the KRA of a systematic failure.
  • The non-resident parent entity has notified the competent authority in the jurisdiction of its tax residence and that the entity is the designated surrogate parent entity of the group.

Concluding remarks

The reporting requirements brought by the Finance Act 2022 are consistent with the OECD’s BEPS Action Plan 13 guidelines and the three-tiered documentation approach, which is relevant to the reporting of related-party transactions and aligns with the four minimum standards under the OECD’s BEPS project.

It is important for parent entities of MNEs operating in Kenya to note the additional compliance burden which is imposed by this new legislative update. Multinationals that would be affected by the new legislative update should review their current transfer pricing documentation and compliance processes to ensure that they are in line with the new reporting requirements under the Finance Act 2022, by 1 January 2023. Failure to comply with the CbC reporting requirements will be an offense in Kenya and subject to a fine not exceeding KES 1 million (EUR 8200 approximately), a prison term not exceeding three years, or both, upon conviction.

By: Francis Mayebe, Candidate Attorney, overseen by Virusha Subban, Partner and Head of the Tax Practice, Baker McKenzie Johannesburg

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