Bringing outside capital into a growing African SME is rarely just a financial transaction. Founders who invite investors without cleaning up their internal governance often face aborted due diligence, collapsed valuations, or the sudden loss of operational control.
For an investor, a business with weak governance represents a high-risk asset. Regulatory fines, ownership disputes, and unrecorded liabilities can quickly drain new capital.
Before initiating fundraising discussions, founders must audit their administrative, legal, and financial structures. This checklist outlines the essential governance steps required to protect the business and secure investment.
Reconcile regulatory filings and ownership records
Under the Companies and Allied Matters Act (CAMA 2020) in Nigeria, or similar regional legislation, companies must maintain updated records. Any discrepancy between your internal share register and official registries like the Corporate Affairs Commission (CAC) will halt due diligence.
Verify that all annual returns are filed, taxes are settled with the Federal Inland Revenue Service (FIRS), and past share transfers are fully documented.
Consider a Lagos-based tech-enabled retail business that recently negotiated a $150,000 investment. The deal collapsed when the investor discovered that a departed co-founder still held 20% of the shares on the CAC portal, despite a verbal agreement to forfeit them.
Separate personal finances from corporate accounts
Many African SME founders treat the business account as a personal digital wallet. Commingling funds destroys credibility with institutional investors who require audited financial statements.
Ensure the business has clean, independent financial statements prepared by a licensed accountant. All founder compensation must be formalised as a salary or documented director fees rather than ad-hoc withdrawals.
This separation directly affects cash flow management and margins. Clear records prove that the business model is self-sustaining without needing constant, informal capital injections from the owner.
Transition from a paper board to an active board
Many early-stage companies have a board of directors that exists only on paper, often comprising the founder, a spouse, or a close relative. Investors want to see structured oversight.
Begin restructuring the board by introducing at least one independent, non-executive director with industry expertise. This signal shows investors that the business is ready for professional accountability.
An active board also protects the founder. Clear board resolutions and voting thresholds prevent a new investor from unilaterally changing the strategic direction of the company after taking an equity stake.
Secure company intellectual property and contracts
A common mistake among African founders is holding intellectual property, such as software code, brand trademarks, or proprietary manufacturing processes, in their personal names.
Investors expect all key assets to be owned directly by the corporate entity. Execute formal intellectual property assignment agreements from founders, employees, and third-party contractors to the company.
Similarly, review all key customer and vendor contracts. Ensure these agreements contain change-of-control clauses that remain valid after a new investor acquires a portion of the equity.
The most immediate action a founder can take is to conduct a self-due-diligence audit. Hire an independent corporate lawyer to review your CAC filings and contract templates before you share a pitch deck.
