Understanding The Essential Contracts Every Small And Medium-Sized Business Needs In Nigeria

Running a small or medium-sized business requires juggling countless priorities, and legal documentation often takes a back seat to more immediate operational concerns. However, having the right contracts in place is fundamental to protecting your business interests, preventing disputes, and establishing clear professional relationships.

In Nigeria, many small and medium-sized enterprises (SMEs) operate informally without adequate contractual documentation. This exposes them to legal risks, partner disputes, and compliance penalties. Whether you run a tech startup, retail business, or Service Company, having well-drafted contracts is critical for operational clarity, investor confidence, and long-term sustainability. This article outlines the essential contracts every small and medium-sized business (SME) in Nigeria should have to operate safely and efficiently.

1. Partnership Agreement

A Partnership Agreement is crucial, even where it is not legally mandated. This internal document defines ownership structure, management powers, profit sharing, and procedures for resolving disputes or ownership changes.

Under Sections 761–766 of the Companies and Allied Matters Act (CAMA) 2020, partnerships and Limited Liability Partnerships (LLPs) must have clear internal governance arrangements. Without this, your business defaults to partnership law provisions that may not reflect your intentions such as equal profit distribution or dissolution upon a partner's exit.

Key provisions in a partnership agreement:

• Ownership percentages and capital contributions
• Profit and loss allocation
• Voting rights and management structure
• Procedures for adding or removing members
• Exit strategies and buyout provisions
• Dispute resolution mechanisms

This document should be established at formation and updated as your business circumstances evolve.

2. Employment Agreements and Offer Letters

Clear employment documentation protects both your business and your employees by establishing expectations from the outset. While most employment is "at-will," written agreements should outline compensation, responsibilities, benefits, and termination conditions.

For key personnel and executives, more comprehensive contracts may include specific performance metrics, non-compete provisions (where enforceable), and severance terms.

Essential elements include:

• Position, duties, and reporting structure
• Compensation, bonuses, and benefits package
• Work schedule and location requirements
• Confidentiality obligations
• Intellectual property assignment
• Termination conditions and notice requirements

3. Independent Contractor Agreements

Many businesses utilize independent contractors for specialized work, but misclassification carries significant legal consequences. A properly drafted independent contractor agreement clarifies the working relationship and helps demonstrate that the worker is genuinely independent rather than an employee.

This distinction is critical for tax withholding, benefits eligibility, and liability purposes.

Critical provisions in an independent contractor agreement:

• Detailed scope of work and deliverables
• Payment structure and schedule
• Project timelines and milestones
• Intellectual property ownership
• Confidentiality requirements
• Independent contractor status confirmation
• Termination provisions
• Indemnification clauses

The agreement must reflect the actual working relationship. If you control when, where, and how work is performed, the worker may legally be classified as an employee regardless of contractual language.

4. Client Service Agreements

Every client engagement should be governed by a written agreement that clearly defines the services provided, deliverables, timelines, and compensation. This prevents scope expansion, payment disputes, and misaligned expectations.

Client service agreements establish a professional framework and provide crucial protection if disputes arise regarding deliverables or payment.

Core components in a client service agreement includes:

• Detailed scope of services
• Specific deliverables and deadlines
• Payment terms, rates, and schedule
• Expense reimbursement policies
• Revision and change order procedures
• Cancellation and refund terms
• Dispute resolution process
• Governing law and jurisdiction

For ongoing client relationships, consider implementing a master services agreement with project-specific statements of work.

5. Non-Disclosure Agreements (NDAs)

When sharing sensitive business information with potential investors, partners, employees, or vendors, a non-disclosure agreement protects your confidential information from unauthorized disclosure or misuse. NDAs are particularly important when discussing proprietary processes, trade secrets, client lists, financial data, or strategic plans.

NDAs can be mutual (both parties share confidential information) or unilateral (one party discloses information). Select the appropriate structure based on your business relationship.

An NDA typically includes the following:

• Clear definition of confidential information
• Permitted and prohibited uses
• Duration of confidentiality obligations
• Standard exceptions (publicly available information, independently developed material)
• Return or destruction requirements for confidential materials
• Remedies for breach
• Governing law

6. Vendor and Supplier Agreements

Written agreements with vendors and suppliers prevent misunderstandings regarding pricing, delivery schedules, quality standards, and payment terms. These agreements are especially important for relationships involving consistent supply chains or where product quality directly impacts your operations.

Without clear written terms, your business is vulnerable to unexpected price increases, quality inconsistencies, delivery delays, and disputes over warranties or defects.

Important terms in a Vendor and Supplier agreement includes:

• Product or service specifications and quality standards
• Pricing structure and payment terms
• Delivery schedules and shipping responsibilities
• Minimum order requirements or purchase commitments
• Warranty provisions and defect remedies
• indemnification
• Termination procedures
• Force majeure clauses

7. Commercial Lease Agreement

If you lease commercial space, your lease represents one of your most significant ongoing financial obligations. Commercial leases typically favor landlords and often place substantial responsibilities and costs on tenants. Given their complexity and long-term financial implications, commercial leases should always be reviewed by legal counsel before execution.

The terms negotiated at lease inception can significantly impact your operations and profitability for years to come.

Critical terms to review and negotiate in a commercial lease agreement includes:

• Base rent
• Tenant improvement allowances and construction responsibilities
• Permitted uses and restrictions
• Maintenance and repair obligations
• Insurance requirements
• Sublease and assignment rights
• Renewal options and terms
• Early termination provisions

8. Intellectual Property Assignment Agreements

If your business creates original content, software, designs, or inventions, you must ensure your business actually owns these assets. Under copyright law, work created by employees within their employment scope typically belongs to the employer through the "work for hire" doctrine. However, this does not automatically apply to independent contractors.

Without proper IP assignment agreements, you may discover that critical business assets, your website, logo, software, or product designs are legally owned by the freelancer who created them rather than your company.

Key provisions in Intellectual Assignment Agreements are:

• Comprehensive assignment of all intellectual property rights
• Work for hire language where applicable
• Obligation to assist with registrations and enforcement actions
• Carve-outs for previous works and third-party materials
• Post-relationship obligations

9. Terms of Service and Privacy Policy (For Online Businesses)

If your business operates a website, collects customer information, or conducts e-commerce, you need terms of service and a privacy policy. These are often legally required, particularly if you collect data from individuals under the Nigeria Data Protection Act, 2023.

Your terms of service establish the rules for using your website or services, while your privacy policy explains data collection, use, and protection practices. Both documents can limit liability and provide grounds for terminating problematic users.

The Terms of service should address:

• Acceptable use policies
• Account registration and security requirements
• Intellectual property ownership
• Warranty disclaimers
• Limitation of liability
• Dispute resolution and arbitration provisions
• Governing law

While Privacy policies should explain:

• Information collection methods and types
• Data usage purposes
• Third-party data sharing practices
• User rights regarding data access and deletion
• Security measures implemented
• Cookie usage and tracking technologies

These documents must be easily accessible on your website and updated as your practices or applicable laws change.

Conclusion

Every business no matter its size needs a robust legal framework to thrive. Contracts provide certainty, accountability, and protection in commercial relationships. While online templates can serve as a starting point, each contract should be customized to reflect your industry, operational model, and compliance obligations. Engaging a legal professional ensures your agreements are enforceable, compliant with Nigerian laws, and tailored to protect your

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.