Can a business expand into a new country without going through the necessary legal registrations?

This is a critical question frequently pondered by CEOs and executives seeking to expand their businesses internationally because traditional business expansion methods are filled with numerous bureaucratic hurdles and delays.

With a decade-long experience as a startup lawyer and entrepreneur, I’ve frequently grappled with this question, observing the real-world complexities of business growth. During my time leading compliance at Paystack, a pan-African payment company now part of Stripe, we frequently encountered situations where promising businesses were unable to integrate payment solutions due to business registration complexities. Their business wasn’t registered in a particular country, so we couldn’t integrate them into our services. This was frustrating but necessary to maintain compliance. 

I moved on to co-found RegCompass, a regulatory compliance outfit that supported leading African tech companies, including unicorns like Flutterwave and Chipper Cash. This experience gave me a deeper understanding of the challenges faced by companies, from daily operational hurdles to navigating complex fundraising rounds and merger and acquisition transactions.

While at RegCompass, I found a solution to the hurdle of legal registration and regulatory compliance in new markets. 

We created startbutton, a Merchant of Record platform that dramatically accelerates market expansion, reducing the registration time from months to a mere 24 hours. We’ve since then further enhanced our solution with treasury management and compliance capabilities, creating a comprehensive suite of solutions that empowers businesses to focus on growth.

In this post, I’ll share:

• Why every company doesn’t need to register in a new market; and
• How companies can avoid this trap with a more sustainable, scalable solution.

Why the current way business expansion in Africa is done is broken

Business expansion in Africa is a long and arduous process. Here’s why: Africa is a continent of remarkable diversity. With 54 countries, it boasts the highest number of nations among all continents. Now that’s 54 different countries with over 1,000 languages spoken and a wide range of cultural norms and traditions. But business expansion is most significantly affected by the diversity of payment systems and regulations.

Fragmented payment landscape

The African payment landscape is characterised by a different mix of traditional and modern methods, with cash remaining a dominant mode of exchange.  This is due to various factors, including limited access to bank accounts, particularly in rural areas, and the preference for cash in informal sectors. Notably, 70% of transactions in Egypt and Morocco are paid via cash. 

Given the widespread use of cash across Africa, offline channels, particularly agent networks, play a vital role in the continent’s digital payment ecosystem. Prominent examples include SANEF in Nigeria, Mukuru in Southern Africa, and Fawry in Egypt, all boasting agent networks with over 100,000 access points, demonstrating the significant reach and impact of these non-telecom players.

Mobile money services are more prominent in other parts of Africa, providing financial inclusion to millions of previously unbanked individuals. Popular platforms like M-Pesa, MoMo, and Orange Money allow users to send, receive, and store money using their mobile phones. While highly popular in countries like Ghana and Kenya, their penetration in Nigeria and South Africa, despite significant growth, remains relatively lower.

Digital payment platforms are gaining traction, especially in urban areas and among younger demographics. These platforms enable online transactions, mobile payments, and point-of-sale (POS) transactions. In Nigeria, bank transfers remain a dominant method, favoured for their perceived ease and speed. Conversely, debit cards enjoy higher usage in South Africa, reflecting distinct consumer behaviours and market dynamics.

The prevalence of different payment methods across different markets necessitates businesses to offer a variety of payment options to ensure seamless transactions. Neglecting customer preferences in this regard can lead to significant consequences, including abandoned sales and increased customer churn.

Heterogeneous business regulations 

The time required to register a business across Africa varies significantly, ranging from a matter of weeks in some countries to several months in others. This disparity highlights the diverse regulatory environments and administrative procedures found throughout the continent.

Countries exhibit significant variations in their tax structures, directly impacting business profitability. For instance, Côte d’Ivoire levies a Value Added Tax (VAT) of 18% and a Company Income Tax (CIT) of 25%, whereas Kenya imposes a 16% VAT and a 30% CIT.  Many African countries are rolling out more than ever Digital Service Taxes (DST) to capture tax from non-resident tech companies. Nigeria stands out with a substantial 6% DST, while Kenya’s 1.5% rate aligns more closely with the global average range of 2-7%. Tanzania’s moderate 2% DST and Côte d’Ivoire’s 3% levy further illustrate the diversity in this emerging tax domain.

Other disparities include appointing foreign directors in African countries which can present unique challenges as requirements vary significantly, with some jurisdictions mandating residence permits for foreign directors. In some countries, business registration can be done via electronic registration systems, while others necessitate physical presence for certain procedures. Furthermore, local shareholder requirements are common in some African nations like Ghana.

Navigating property registration processes can be a significant obstacle for businesses, often characterized by complexity and lengthy timelines. These delays can hinder crucial business activities such as securing loans or leasing property. Some markets require as long as six months to set up with costs as high as $12,000 to $20,000.

For companies involved in the trade of physical goods, the challenges are compounded by complex customs procedures, high tariffs, and non-tariff barriers, all of which significantly increase the cost of doing business.

Even after achieving initial compliance, businesses must remain vigilant in monitoring the ever-evolving regulatory landscape. A single regulatory shift can swiftly transform a compliant entity into a non-compliant one, potentially resulting in significant sanctions and operational disruptions.

How we started Startbutton

With the traditional system broken beyond our repair, we came up with two questions:

• Why do businesses expand to new markets?
• What solution can solve this that’s not easily replicable by other lawyers?

In addressing the initial question, we identified a core motivation for companies to expand internationally: to increase sales and access new revenue streams. Consequently, our focus shifted to identifying effective methods for companies to test and validate market opportunities in these new territories.

Our competitive analysis revealed that business registration services were widely offered by most legal practitioners. This led us to focus less on this service offering. Instead, our objective was to develop a unique and differentiated solution that effectively addressed the immediate challenges faced by businesses entering new markets – a solution that would be difficult for competitors to easily replicate.

By synthesizing these insights, we came up with a Merchant of Record (MoR) solution. This service empowers businesses to accept payments in local currencies and ensure regulatory compliance within target markets without the need for establishing local entities. While the MoR concept has been established in the market, with prominent players like Gumroad, Paddle, and DLocal, we believed there was an opportunity to differentiate our offering and capture a significant market share in Africa.

Two years later, Startbutton serves over 100 merchants across 25 countries in sectors like Travel and hospitality, financial services, gaming, and e-commerce. Its footprint spans 14 African countries, including Nigeria, Ghana, Tanzania, Rwanda, South Africa, and Uganda.

What’s different about the MoR approach?

No need for registration 

We have successfully registered in 15 African markets and counting, obtaining all necessary licenses to ensure legal operation. As your trusted third-party representative, we act on your behalf, navigating the complexities of local regulations so you can focus on business growth.

Beyond initial registration, we proactively monitor regulatory changes, ensuring ongoing compliance and mitigating the risk of costly non-compliance penalties.

Integration with payment partners

Securing a bank account for a newly registered business in Africa can be a lengthy and frustrating process, often taking months due to stringent bank requirements. With MoR, this obstacle is eliminated. We seamlessly provide you with a dedicated bank account and access to a diverse range of payment methods from day one.

Furthermore, our strategic partnerships with multiple payment providers ensure business continuity. If one payment gateway experiences disruptions, our redundant integrations seamlessly switch to alternative channels, minimizing service interruptions and maximizing your operational efficiency. This collaboration connects our merchants to over 400 million wallets and bank accounts across 5 major African currencies in Sub-saharan Africa.

Currency Conversion

Currency fluctuations can significantly impact profit margins and erode the value of your hard-earned revenue. To mitigate this risk, it’s crucial to swiftly convert local currencies into a stable currency like the US dollar.

We understand the complexities of navigating currency exchange markets. That’s why we’ve integrated seamless currency conversion directly into our platform. This eliminates the time-consuming and potentially disadvantageous process of manually sourcing buyers for your local currency, ensuring you secure favourable exchange rates and maintain control over your financial outcomes.

Feature	Startbutton (Merchant of Record)	Traditional Business Registration
Legal Entity	No need to establish one	Requires one
Setup Time	Fast, often within days or weeks	Can take months due to bureaucracy
Cost	No upfront cost, typically a small commission on sales	High initial costs for registration, legal fees, etc.
Local Presence	Relies on the MoR’s infrastructure	Requires a physical presence in the target country
Control	Can customise branding and improved customer experience	Full control over branding and operations
Liability	MoR assumes liability for local compliance and regulations	Full liability for business operations and compliance
Flexibility	High flexibility, easy to enter and exit new markets	Less flexible, requires navigating local regulations for changes
Compliance	MoR handles local tax and regulatory compliance	Responsible for all local tax and regulatory compliance

Try Startbutton today

Expanding a business into a new country without formal registration can be achieved effectively by leveraging a Merchant of Record (MoR). With Startbutton you get all this and more, as we’re constantly adding new features and expanding to more markets. If you’re curious and want to learn more, register and book a demo here to talk to our reps to learn how Startbutton can with your business expansion needs.