Are you looking to create and sell a Crypto Token? Or are you looking to launch a DEX?
There are various ways to Legally structure such enterprises but the most common approach we see to the legal structuring of such organizations is to create a collective of legal entities including:
- A DAO Foundation +
- A Developer Company +
- A Holding Company +
- A Token Distribution/Issuance Company (Token Co) ie the Exchange intends to sell it owns native Token +
- A Management Company
In terms of roles the DAO Foundation can potentially do several things ie it can/would/could:
- Engage/pay the Developer Co
- Act as an Incubator fund for collecting seed Capital (eg privately introduced/early stage investors and/or DAO members could make donations to the Foundation and in return receive tokens or a SAFT ie a Simple Agreement for Future Tokens)
- Own the Tokens as developed and or it could own/provide working capital to the Exchange Company (ie act as a/the Treasury)
- It could be used to incentivize sweat equity (ie it can be used to gift and/or air drop tokens to high performing team members or to benefactors)
The Developer Company would be engaged to do the IT/Tech work and would typically be owned by the Tech Members of/Coders for the Collective. This enables the software developers to be remunerated on a commercial basis for the work they do.
If you plan to develop/sell your own Coin or Token (ie a Token that could be publicly traded) then ideally (eg to minimise liability exposure to the rest of the Group) this function should be carried out by a stand alone Company. This Company could be owned by the DAO Foundation and or by stage 2 Investors/founders collectively via a Holding Company .
To ensure that the Founders get paid fairly for running the business ideally the Founders should form their own Management Company. This Company would be engaged via contract by the Token Issuing Co to manage the day to day affairs of the business.
Sometimes we see the DAO Foundation form an IP Company so that the technology/IP can be sold separately later and/or protected from law suits. Where an IP Company is deployed typically it is owned by the DAO Foundation and it hires/engages the Developer Company.
Occasionally we see a Holding Company deployed to own the Exchange Co and or the Token Issuing Co. Typically post launch Commercial Investors (eg if/when you need to do a 2nd capital raise to fund expansion) would hold shares in this Company as would the Founders of the Enterprise.
(In case you’re wondering what a DAO is you might want to check this article: https://offshoreincorporate.com/what-is-a-dao/ )
How to use a Foundation to help launch an ICO
Private Foundations are increasingly being used Internationally as the preferred fund-raising vehicle for entrepreneurs looking to launch ICOs. The purpose of this Article is to examine how Foundations are typically being used in such instances (and to look at possible commercial alternatives)
So first up… What is a Foundation?
A Foundation is a legal entity set up by a person called a Founder (like a Settlor in the case of a Trust) which is managed day to day by a person called a Councillor (akin to a Trustee in the case of a Trust but more like a Company Director in terms of duties/responsibilities).
There are in essence two types of Foundation:
(a) Foundations with beneficiaries
(b) Purpose Foundations
Type (a) is the more traditional model ie where an entrepreneur or investor sets up a structure which is designed to hold/manage assets for the benefit of 3rd parties called beneficiaries. In this instance the Foundation is designed:
(i) to minimize the amount of tax that would otherwise be payable by the Founder on profits made by any asset/company that the Foundation owns; &/or
(ii) to protect assets from any law suit/judgment that might be foiled/lodged against the Founder; &/or
(iii) as a cross generational family wealth management vehicle
Type (b) is where a Foundation is set up to fulfil a specific purpose. That purpose might be Charitable or non-Charitable (eg to hold shares in XYZ Company”.
In the case of a Crypto enterprise what actually happens is that a Foundation is established under the law of the jurisdiction where it is registered with a purpose which allows it to justify investing in the particular start-up in question (although, it needn’t be limited to investing in a specific start-up –) or the Foundation could be established for the purpose of owning a/the Crypto Token Issuing Company! Moreover where a Foundation doesn’t have named beneficiaries (ie making it virtually impossible to identify the underlying owners of the Crypto Token Developer/Issuing Company) this acts as an additional deterrent to law suits and regulatory over reach (In our experience most Crypto related Foundations are established as Purpose Foundations).
In terms of management the Foundation is independent and controlled by a board of appointed individuals (“Councillors) who oversee its management and operations (including any grant making). The Foundation takes in the money paid by individuals (which conceptually could almost be considered a donation) in exchange for crypto tokens, and then uses the money to support the development of platforms and technologies that can arguably deliver the foundation’s purpose (which is obviously in practice intended to mean funding the start up at the centre of the ICO).
To summarize a Foundation when deployed as part of a Crypto venture can deliver considerable utility including:
Protection from legal liability: A Foundation is an ownerless vehicle. Nobody “owns’ a Foundation. As such if your Crypto Token issuing Company were to be sued or attacked by Regulators the underlying Founders of the venture should be protected from liability.
Tax Planning Options: A Foundation when deployed to own an income producing company (and with a well thought through “Offshore” management/directorship structure) can potentially enable the Founders of the enterprise to lawfully avoid having to declare/pay tax at home on (what would otherwise be) their share of the Company’s profits.
Seed Capital raiser: A Foundation can be used to raise startup/development capital from benefactors and to reward parties who contribute to the development of the Foundation’s Ecosystem and related projects
Development Engine Room: A Foundation can be used to develop a Token/Cryptocurrency and to reward parties who contribute to the development of the Foundation’s Ecosystem and related projects
All that said there’s no one perfect way to structure a Crypto Token Enterprise. Every business is different. Moreover, you don’t necessarily need to kick off with a menage of Companies – some can be “bolted on” later as the business grows.
The good news is that OCI can provide detailed guidance in this regard ie we can assist you to tailor a Legal structure designed to meet your particular goals/needs having regard to your budget, potential for legal exposure, location, growth aspirations and time frames.
Would you like to know more? Then please Contact Us:
info@offshorecompaniesinternational.com
DISCLAIMER: OCI is a Company/Trust/LLC/LP/Foundation Formation Agency. We are not tax advisers or legal advisers. You are advised to seek local legal/tax/financial advice in regards to your local reporting/tax requirements before committing to set up or use an Offshore Company or other entity.
