75% of all startups fail within the first 6 months of launching. Sometimes, not because their product is not good enough, but because they started on the wrong foot. Although this is probably the least fun part of launching a startup, founders and co-founders need to familiarize themselves with the basic legal requirements that they need for their long-term success.

We sat down and put together the following 6 items if done properly from the start, you will face less legal issues in your startup. The web is full of information on how to start startups but none of them applies to Rwanda. So here’s the Rwandan version of the legal side of startups.

1. Register Your Company

Before you even buy a domain name for your startup, you should make sure to register your company with RDB (Rwanda Development Board).

Registering a business in Rwanda is as easy as going to RDB’s online business registration website and filling in the forms. Don’t worry we will cover how to in a bit, for now, let’s explain the different types of businesses you can start in Rwanda.

There are two categories of companies allowed by RDB and the law in Rwanda

• A public company
• A private company

What’s a public company

As a starting point, every company is assumed to be a public company unless it is stated in its application for incorporation that it is a private company. A public company generally can be subscribed to by members of the public and there is no limit to the number of shareholders that a public company may have.

What’s a private company?

A private company is limited to having a maximum of one hundred shareholders and a prohibition to inviting the public to subscribe for shares or debentures. Furthermore, there are some restrictions on the right of shareholders to transfer their shares.

Thinking of starting a cooperative in Rwanda?

Generally, I don’t see why you’d want to launch your startup as a cooperative, however for the sake of this guide, we’ll talk about cooperatives as well.

The difference between a company and a cooperative is as explained below:

• The primary objective of a company is to earn profits while the primary goal of a cooperative society is to provide a service.
• The liability of members of a company is generally limited to the face value of shares held while the members of a cooperative society can opt for unlimited liability. But in practice, their liability is generally limited.
• Membership closes as soon as its capital is fully subscribed. People who want to become members, later on, have to buy shares on the stock exchange. However, membership for a cooperative society is open at all times and new members have to pay the same amount per share as old ones have paid.
• In a company, the number of votes depends upon the number of shares and proxies held by a member. The membership of a cooperative is democratic as each member has one vote and there is no system of proxy.
• The profits of a company are distributed as dividends in proportion to the capital contributed by the shareholders. In a cooperative society, a minimum part of the surplus must be set aside as a reserve and for the general welfare of the public. The rest is distributed in accordance with the patronage provided by different members after paying dividend up to 10% on capital.
• The shares of a public limited company are freely transferable and shareholder cannot demand back his capital from the company until it’s winding up. The shares of a cooperative society cannot be transferred but can be returned to the society in case a member wants to withdraw his/her membership.
• In a company, members have no relationship and are usually drawn from different parts of the country and even from abroad or even different professions. A cooperative society generally draws membership from a limited local area. The members have a common bond in the form of a common occupation or employer or locality.

Preparing to Register your company

Once you’ve made your decision on what category your company should be it’s time to register it! This is done online and at the time of writing this, it’s done for free online.

The requirements are simple. All you need is a valid ID (a national ID or a passport), an address in Rwanda, and an email address.

The good news is if you are thinking of starting a company, then you probably already have all those requirements.

Simple head over to Online Business Registration at http://org.rdb.rw/busregonline  and proceed from there. 

Click here to learn How to create your eSignature Account at RDB’s Online Business Registration portal

Once you’ve created your eSignature Account with RDB, your next step is to figure out what type of company you want. There are two types of companies:

• Public Companies
• Private companies

Like we discussed earlier, “public” means open to the public while “private” means it’s yours and it’s harder for external entities to obtain shares from you. Think of it like this:

For an external entity to purchase shares from you, you’ll have to manually add them as shareholders in RDB and get a share certificate for them, however as a public company, it will be listed in the Rwanda Stock Exchange and to purchase them anyone can just walk into the RSE and buy them.

Most startups choose to get a private company to protect their ownership of the company. However, the choice is yours.

Our recommendation is if you want to launch your startup for profits, registering a private company makes the most sense and later on when the company’s capital is high enough and you don’t risk your company being bought out by a bigger company “without” your knowledge, you can then go public with the company.

Limited Liability & Shareholder shares of the startup

Before we dive into this section, you should understand what “shares” mean. A share is simply a divided-up unit of the value of a company. While owning shares in a business does not mean that the shareholder has direct control over the business’s day-to-day operations, being a shareholder does entitle the holder to an equal distribution in any profits, if any are declared in the form of dividends.

Types of share management allowed by the law of Rwanda

There are 4 types of liability and share management allowed by the company law in Rwanda, and they are:

1. Companies limited by Shares

This is the most popular company structure in Rwanda and used by people who want to make a profit from their business activities. It’s Suitable for businesses of all sizes, including startups. 

It can be owned by one person or more (known as shareholders). In this type of companies, you must buy at least 1 share to become a shareholder.

For more information, you can read our: Limited by Shares vs. Limited by guarantee guide

2. Companies limited by Guarantees 

In this type of structure, there are no shareholders. Instead, the company is owned by guranters, also known as members. To become a guarantor, you must guarantee a fixed sum of money to the company. This is the extent of a guarantors personal liability to the business and it must be paid if the company becomes insolvent. 

This type of structure, however, is most suitable for non-profit purposes or generating income for non-profit companies.

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3. Companies limited by Shares and Guarantees 

This type of structure usually combines both the above 2 structures into one.

4. Unlimited companies

This company structure is by far the riskiest company structure you could choose. An unlimited company is very much like a regular private company limited by shares. It must be registered with the Office of Registrar General (ORG) in RDB and have a memorandum and articles of association. There’s a director that manages the day-to-day running of the company on behalf of the shareholders. Persons of significant control and an annual confirmation statement must still be submitted to the Office of Registrar General (ORG) in RDB.

When formal liquidation happens and the company is unable to pay off its debts, the creditors will be able to use the personal assets of the directors and shareholders in order to pay off the liability.

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Once you made your decision on how to register your company, and your shares, you can then go ahead and follow the following guides to register your company with RDB:

• How to register a private limited by shares company
• How to register a private limited by guarantees company
• How to register a private non-profit company

2. Taxes & Accounting

There are many complex and nuanced tax and accounting issues that founders must consider when they first register and start running their businesses, and each one of these matters could be the subject of a full-length article.

Rather than delve into tons of precise details, I will instead point to some of the major tax- and accounting-related decisions that founders must make when launching new startups.

First, it’s important for new businesses to complete the following accounting steps after registering:

• Open a bank account dedicated to business transactions;
• Track business expenses;
• Implement a bookkeeping system; and
• Establish a payroll system.

Next, you must familiarize yourself with tax obligations.

The Rwanda Revenue Authorities Tax Handbook (click here to download) which is intended as a simplified guide to understanding the tax laws and procedures for all tax types in Rwanda. It covers how to register, declare and pay each of the domestic taxes, Local Government Taxes (LGT) and fees, and customs duties.

It’s important to keep in mind the following facts:

Tax obligations vary depending on the legal structure of the business. However, there are certain taxes you need to be aware of:

1. PAYE (Pay as you earn): You pay this tax on behalf of your employees
2. Pension: This is paid by you as an employer to Rwanda social security board.
3. Income Tax (CIT): This is paid either every 3 months or every year and it’s 20% of your annual profit.
4. VAT (Value added tax): This is 18% you charge your clients that you have to pay either every month or every 3 months.
5. Maternity Tax

Declaring PAYE, Pension, CIT and maternity taxes are done online on the Rwanda Revenue Authority’s website at https://etax.rra.gov.rw, however, you will have to register for VAT by going to the RRA HQ and submitting a form.

Regardless of whether you make a profit or not, you are obligated to declare it.

For VAT taxes, you are not obligated to pay unless you have annual sales of over 20,000,000 RWF (twenty million Rwandan francs) or over 5,000,000 RWF quarterly.

Additionally, be sure to do your due diligence if you plan to grant stock options to your employees.

Similarly, all sales of stock to investors and founders will be subject to tax laws. These kinds of laws can also apply to family members and friends who invest in your startup in return for equity.

3. Co-Founder Agreements

When forming a co-founder partnership, it’s very important from the start to:

• Define role responsibilities early (collectively decide which tasks belong to which co-founder);
  Create and sign a founders’ agreement (hammer out the specific details regarding duties, equity ownership and vesting, and intellectual property assignment);
• Agree on time commitments (develop clear expectations of how much each person will contribute and when);
• Agree on an exit plan (do not leave questions about what each member ultimately wants to do with the company unanswered); and
• Agree on a “we failed, now what?” plan (decide early-on what it would take to conclude that the business has failed and what would have to be done in response).

To flesh out the 2nd point, i.e., signing a co-founder’s agreement, a little more, we can note that such an agreement must contain answers to the following key questions:

• Who gets what percentage of the company? Is this subject to vesting?
• What does each of the co-founders expect in terms of roles, responsibilities, and time commitments?
• Under which specific circumstances can a co-founder be fired?
• At what price can founders buy back a fired or retired co-founder’s shares?
• What is the process for making key business decisions? How will you resolve instances of “deadlock”? And
• What is the overall vision of, and mission for, the startup from each co-founder’s perspective?

4. Employment Law

Failing to comply with the Rwandan employment laws can produce serious implications for your startup, including the possibility of criminal charges being laid against a variety of different kinds of individuals involved in your business.

Amongst other common violations, misclassifying an employee as a contractor and failing to pay employees the minimum wage are 2 typical examples.

To simplify the matter: if an individual is required to show up at your company office at a specific time and work a particular number of hours each day then that person is considered an employee—regardless of whether different terms (e.g., “contractor”) are used in a contract.

See here for more information regarding delineating between employees and independent contractors.

Another important step to take is deciding which kinds of information e.g., cost data, customer lists, general financial data, inventions, product specs, etc. will be kept confidential and private.

Furthermore, as a founder, you must explicitly design a policy and implement practices around preventing harassment in the workplace.

The very best strategy is to do everything reasonably possible to prevent harassment in the first place because once it occurs it can dramatically affect your company’s reputation and the health of your business culture.

5. Privacy Policy & Terms of Use

A “privacy policy” can be defined as a “[s]tatement that declares a firm’s or website’s policy on collecting and releasing information about a visitor”.

TechTarget provides a more helpful and extensive description, noting:

“A privacy policy is a document that explains how an organization handles any customer, client or employee information gathered in its operations. … A privacy page should specify any personally identifiable information that is gathered, such as name, address, and credit[/debit] card number, as well as other [pieces of data] like order history, browsing habits, uploads and downloads. The policy should also explain if data may be left on a user’s computer, such as cookies … [or] if [user] data may be shared with or sold to third parties…”

A “Terms of Use” Agreement (otherwise known as terms and conditions or terms of service) sets forth the key terms and conditions that users agree to follow when using your website/app.

In other words, it encapsulates “the contract for acceptable use of digital media as defined by the developer” (source).

Terms of Use documents are vital because they legally establish specific arrangements between your company and your users.

TermsFeed insists that these statements can help startups prevent abuse, protect their content, preserve their right to terminate, limit their liability, and establish the location of the laws governing their operations.

To put it bluntly, detailed and transparent privacy policies and terms of service statements are absolutely necessary for 21st-century tech companies.

Even if the laws surrounding these two areas of privacy protection and service usage are a bit unclear, no startup operating in today’s Internet-centred world should conduct business without explicitly telling its users what it does with their data and what users can expect from using the startup’s services.

There are a handful of really popular services that make it easy for startups to create first-rate privacy policies and terms and conditions statements, including Clerky, Lubenda, and Snapterms.

6. Intellectual Property

Oftentimes, a tech startup’s most viable asset is its intellectual property (IP).

When it comes to protecting your IP, you have several options from which to choose, including:

• Patent (i.e., a limited duration property right relating to an invention);
• Copyright (i.e., a form of protection provided to the authors of ‘original works of authorship’ including literary, dramatic, musical, artistic, and certain other intellectual works);
• Trademark (i.e., a word, name, symbol or device which is used in trade with goods to indicate the source of the goods and to distinguish them from the goods of others);
• Trade secret (i.e., “any confidential business information which provides an enterprise a competitive edge” such as Coca-Cola’s formula); and
• A confidentiality agreement (i.e., a legal agreement between two or more parties that is used to signify that a confidential relationship exists between the parties”—otherwise known as “non-disclosure agreement” (NDA)).

We believe that patents are usually a waste of valuable resources—especially time —for early-stage startups.

Typically, they’re too much of a time waste and simply unnecessary within the startup world. Entrepreneurs should allocate their time to executing their ideas, not needlessly protecting them at a cost of wasting 360 days minimum and up to 3780 days each.

However, it is crucial that you:

1. Trademark your brand;
2. Purchase related domains (to avoid “domain squatters” and other parasitic individuals who will attempt to take advantage of your success); and
3. Draw up and sign comprehensive confidentiality agreements with your employees and co-founders