St Vincent & The Grenadines VASP Act SUMMARY

The Virtual Assets Business Act of Saint Vincent and the Grenadines (“SVG”) was recently published by the Financial Services Authority.

 

The act regulates Virtual Assets Businesses incorporated in St. Vincent.

 

According to this law, the following categories of business are now subject to regulation in St Vincent & the Grenadines:

  • Exchange between virtual assets and fiat currency;
  • Exchange between one or more forms of virtual assets;
  • Transfer of virtual assets whether or not for value;
  • Safekeeping and administration of virtual assets or instruments enabling control over virtual assets; or
  • Participating in or provision of financial services related to an issue or sale of virtual assets.

 

The abovementioned businesses, if incorporated in SVG, must now be registered with the Financial Services Authority as Virtual Assets Business and included in the special register maintained by the FSA. The Act is now published on the website of the FSA.

 

Additionally, the Act imposes some obligations for such businesses including appointment of an eligible Auditor and submission of Audited Accounts on a yearly basis.

 

The Virtual Assets Business Act was passed on 10th of May 2022 in order to keep with the global trend for regulation and to create a regulatory framework according to the St. Vincent Times.

 

Requirements Summary

 

The main requirements as regards an applicant for a VASP License in SVG are:

  • Must pay a security bond of $US100,000 to the SVG FSA
  • Must pay an annual license fee of $12,000
  • Must have a local Authorised Representative
  • Must submit quarterly reports to the FSA including details of number of customer accounts and their USD value
  • Must submit annual audited financial statements to the FSA
  • Annual economic substance reporting
  • Must do customer due diligence, transaction monitoring and PEP screening and
  • Must report suspicious activities

 

OCI can assist you to apply for a VASP License in SVG. Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

The Role of Regulations in a Foundation DAO

A Private Foundation is essentially a Corporatised trust. Like a Trust a Foundation is a 3 headed creature ie its set up by one party (called a Founder) and is managed by a 2nd party (ie a Councillor or board of councillors). Private Foundations typically have beneficiaries nominated ie persons who are designed to benefit financially from the set up of the Foundation.

 

Unlike a Trust a Foundation has legal/corporate personality (ie it can sue and be sued in its own rights), and has limited liability (ie the Founders/Councillors/Beneficiaries can not be held responsible for any debts or legal liabilities incurred by the Foundation). Moreover is considered at Common law to be both the legal owner AND beneficial owner of any assets it holds. This places such assets beyond the reach of any creditors of the Foundation Founders, Councillors or Beneficiaries.

 

By its very nature, a Private Foundation has no owners and is thus highly compatible with decentralized autonomous organizations (DAOs) and DeFi projects which prioritize decentralization.

 

Furthermore, the establishment of a DAO as a separate legal entity grants it reliable corporate standing, leaving it ready to execute contracts on behalf of the DAO as well as open accounts at banks or exchanges. Finally, advanced control mechanisms can be implemented by allocating them to persons external to the Foundation’s Councillors (the Foundation’s version of Directors) — allowing founding members an influence in determining the direction taken by their organization.

 

DAO Foundations  – Key Roles

 

A Foundation is established by the (public) filing of a “Charter” (sometimes called a Constitution) ie a document which records the name of the Foundation, the name of the Foundation’s Founder and the general objects/purposes for which the Foundation in question is being established.

 

When a Private Foundation is deployed as a Legal Wrapper for a DAO there are typically a number of players involved including:

 

DAO Founders: These individuals launch the DAO by deploying smart contracts and overseeing the initial issuance of tokens. These are the persons who are said to have Founded (ie given birth to) the Foundation. A Foundation need only have one Founder and the Founder/s name/s appear/s in the Charter which is a publicly accessible document. The Founders typically have the right to appoint Foundation Councillors.

 

DAO Councillors: Elected by the Founders, the primary role of a Foundation Council is to oversee the day to day management of a Foundation (they are the Foundation’s equivalent of Directors in the case of a Company). The Councillors should  make decisions in the best interests of the DAO members. The Foundations need to appoint and have at least 1 Councillor at all times. (Panama Foundations require minimum 3 Councillors)

 

DAO Managers: The Foundation may or may not have a supervisory board. Managers (also known as Supervisors) oversee – and their powers, rights, and obligations are set out in the Regulations. The DAO Managers, acting as Protectors, ensures that the DAO Councillors adhere to the will of the DAO members during the decision-making process.

 

DAO Members: They are tokenholders who deposit their virtual assets into the foundation’s treasury, participating in the DAO’s development and decision-making processes. Initial members may also be enlisted as co-Founders of the Foundation. The ability of a Foundation to appoint DAO members and the rights of such Members will typically be set out in the Foundation’s regulations. The Foundation’s regulations can also provide for each Member to be given a seat on the Foundation Council and or the regs can compel the Council to only in accordance with the votes of the members. The voting rights of each member can also potentially be determined in the Regulations by reference to the proportion of assets contributed. Additionally at settlement the rights and responsibilities of the Foundation’s Councillor/s can be reserved to the Founder/s. The Founder/s can then assign any such reserved rights received to any 3rd party/s (eg Members)

 

DAO Beneficiaries: These are the persons or class of persons who are entitled to receive an economic benefit from the Foundation. The rights or obligations are set in the Foundation’s regulations (See below). A Foundation may or may not have beneficiaries at any point in time (for example a Foundation can be set up as a “Purpose Foundation” ie to fulfil a specific purpose or purposes).

 

Note the name of a Foundation Founder/s is recorded in the Charter ie a document which is publicly accessible. If you want to act as a Founder or have the rights of a Founder but don’t want your name to appear in the Charter as “Founder” on record then most Foundation registered agents (for a fee) can supply a Nominee Founder for such purposes;

 

Foundation Regulations – Overview

 

Historically any information not required by law to be included in a Foundation’s Charter and which a Founder would rather keep private is written into the Foundation’s Regulations, (sometimes referred to as By Laws) ie a private document that does not need to be filed at the registry whereat the Foundation was/is registered. Typically the only people who will ever see the Foundation’s Regulations are the Founder, the Foundation Council and the Foundation’s legal advisers.

 

Traditionally, any information containing beneficiary names and their rights over the foundation property is written into the Foundation’s Regulations. This also ensures that the beneficiaries’ identities and succession dispositions are not revealed to third parties.

 

The law places practically no limits upon the structuring of the beneficial interests of a foundation. One of the more common scenarios is for a Founder to designate himself/herself as a beneficiary for life and appoint successive beneficiaries upon his death. Commonly the Founder’s wishes regarding the use, transference, and final destination of the Foundation assets are also recorded in the Regulations so that such wishes can be easily understood and then carried out privately (post the Founder’s death) by the Foundation Council.

 

The Panama Foundations law further enhances the confidentiality of this instrument by creating in the Foundations Law article 35 severe sanctions (fines of up to US$50,000 and imprisonment of up to six months) for breach of the duty to maintain the information confidential. This obligation applies to members of the Foundation Council and of the supervisory bodies and public or private employees having any knowledge of the activities, transactions, or operations of the foundation.

 

Furthermore, Regulations may be kept outside the country of registration, in the hands of the Founder, his fiduciary agent, the Protector, or any other person or institution vested with the confidence of the Founder.

 

DAO Foundation Regulations

 

One of the primary goals of a DAO is to establish decentralized governance. This entails granting decision-making power to various stakeholders, including founders, investors, validators, and tokenholders. To achieve effective governance, DAOs must implement clear procedures for voting, vote counting, decision implementation by DAO managers, and the involvement of the DAO guardian. These procedures are usually enshrined in the bylaws/regulations of the Foundation, ensuring legal enforceability for all DAO members.

 

As for the use of a Foundation for crypto, the private Regulations document could be used to set out a governance model for a DAO, (which could also be the shareholder of a Company that engages in for-profit crypto-related activities). It could hold DAO assets and could be compliant with a bank’s KYC requirements.

 

Moreover the Foundation’s bylaws can be set forth in the Regulations setting out bespoke rules with respect to who the players are in the DAO in question and how the Foundation will seek to achieve its objectives. The bylaws can establish limitations on the roles and duties of the Foundation’s Councillors and managers; and the Foundation can in the regulations nominate beneficiaries (for example, a DAO’s token holders), who will have only those rights and powers that are specified in the bylaws.

 

Additionally arrangements between the Foundation and the DAO associated with it generally provide that the Foundation will execute the DAO’s protocols.

 

Decentralized Governance

 

DAO members typically receive voting rights within the DAO. The specific procedures for granting voting rights may vary among DAOs. Some DAOs require token holders to stake their tokens in decentralized finance (DeFi) platforms, while others issue separate governance tokens or limit membership to protocol validators.

 

One of the primary goals of a DAO is to establish decentralized governance. This entails granting decision-making power to various stakeholders, including founders, investors, validators, and tokenholders. To achieve effective governance, DAOs must implement clear procedures for voting, vote counting, decision implementation by DAO Councillors, and the involvement of the DAO Managers/Supervisors. These procedures are usually enshrined in the bylaws/regulation of the foundation, ensuring legal enforceability for all DAO members.

 

To summarize a set of Regulations is an extremely useful tool for any DAO Foundation in that it can decide, in advance:

  • Who the key players are going to be in your DAO Foundation
  • What role each player is to have
  • What commercial or philanthropic activities the DAO is being established to pursue
  • How voting rights are determined
  • How your DAO Foundation will make decisions
  • Who (if anyone) can/will benefit financially from the Foundation’s investments/activities

 

The above is a general guide in respect of what you need to be thinking about prior to passing Foundation regulations. If you are looking to set up a DAO Foundation it is recommended that you engage a specialist Web3 Lawyer to assist with drafting of the Foundation’s regulations.

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

Panama Foundation DAOs

Since their advent the Courts and legislators have considered DAOs (Decentralized Autonomous Organizations) to be unincorporated partnerships. In a partnership, each partner has joint and several liability ie unlimited liability. Therefore, if a DAO is sued or becomes insolvent (ie unable to pay its debts as and when due), each member is exposed to liability for the entire amount of funds owed at law by the DAO.

 

To address this weakness, ideally your proposed DAO would be “wrapped” inside a legal entity (such as a Limited Liability Company or a Private Foundation) to ensure limited liability.

 

Over the course of the past few years, for a variety of reasons, Private Foundations have become increasingly deployed to act as Foundation Legal Wrappers.

 

The object of this Article is to provide a brief synopsis of the Panama Foundation as a potential Legal Wrapper for your DAO.

 

Private Foundations Overview

 

A Foundation is a 3 headed creature and (like a Company) is a separate legal entity with Limited Liability. Unlike a Company however a Foundation doesn’t have the typical top-heavy Director focussed hierarchal management structure.

 

A Panama Foundation:

  • Is set up by a Founder/s
  • Is managed day to by a Councillor or a board of Councillors
  • Is either set up to fulfil a specific purpose or it has nominated beneficiaries ie persons or a class/es of persons who are designed to benefit financially from the set-up/actions of the Foundation

 

Whilst the day to day decision making responsibilities of a Foundation lies with the Councillor/s the Councillors’ rights can be reserved to the Founders (and the Founders can assign those rights as reserved to them to any third party)

 

As you may know a DAO legal wrapper typically holds the DAO treasury, protects DAO members from unlimited liability, and permits DAO members to vote. A DAO that has been ‘legally wrapped’ is often more attractive to investors as a DAO with a strong legal framework is less likely to face difficulties with issues of liability, non-compliance with regulation, and ineffective treasury management.

 

All in all, in a DAO structure, a Foundation performs three main functions:

  1. It acts as a liability wrapper to protect the DAO members from unlimited liability for the DAO’s activities;
  2. It works as a governance overseer – every Foundation must create a Constitution (commonly known as a Charter) which typically lays out a set of rules governing the Foundation’s operations; (additional rules about how the Foundation carries out its objects etc can be set out in its “Regulations” which is a private document that doesn’t need to be filed with the Registry)
  3. It acts as a Compliance manager for the DAO Treasury to implement AML measures and to supervise their realization in the process of disposing of the DAO Treasury.

 

Limiting Liability

 

In the Web3 industry, some DAO Founders probably (wrongly) assume that if the DAO Treasury is on-chain and its management is carried out by on-chain voting, the DAO won’t require any legal structure. However, in an unregistered DAO, the community of members can sometimes be recognized by regulators or judicial bodies as an unregistered general partnership which as alluded to can have (potentially severe) legal consequences.

 

At law the Partners in a Partnership are jointly and severally liable for the debts/liabilities of the Partnership. If a DAO is established/operates as an unregistered general partnership then each member is exposed – ie unlimited legal liability attaches to each member. Consequently, if regulators, tax authorities, or business partners/suppliers have concerns about the legality of certain activities undertaken by the DAO, and can establish liability of at least one member of the DAO, liability can extend to all the Members property/assets ie all the DAO members may be recognized as responsible for the actions (or inactions) of the DAO as a whole.

 

A Foundation is a legal entity in its own right ie it can sued and be sued. To protect a proposed DAO members from unlimited liability, savvy Web3 founders often look to the registration of a Foundation as a “legal shield” for DAO members. In cases of regulatory investigations, it will act as a “legal representative” for the community of the DAO members and protect them from the risks of unlimited liability.

 

Moreover, each member of the DAO can act as a Founder or Councillor of the Foundation (as well as a beneficiary) – delivering voting rights – with voting carried out online via execution of smart contracts.

 

More particularly, if the DAO structure is reasonably straight forward (and if the DAO is looking to generate a profit) then you should be able to use a Panama Foundation with the governance token holders nominated as a class of beneficiaries.

 

The members would have to agree to abide by the DAO constitution and operating rules which will in effect “marry” the corporate structure with the DAO operations.

 

Foundations Tokens & VASP Laws

 

Commonly the purpose of a DAO might be to raise Capital via the issuance of Crypto Tokens (ie a Virtual Asset).

 

Most jurisdictions have either passed or are on the road to passing VASP (Virtual Asset Provider) Legislation. If you are set up (or hoping to set up) as a Company or as a Foundation in one of these jurisdictions you will need to apply for a VASP License, which typically is an involved (circa 3 months) and costly (20-30k+) process.

 

Interestingly in Panama the Legislators tried to pass a VASP law but the law was struck down last month as unconstitutional by the country’s Supreme Court. What this means is you can incorporate/register a Blockchain based enterprise in Panama (including a Foundation DAO) without needing to apply for a VASP License!

 

OCI can assist you to set up a Panama DAO Foundation from as little as $2,900.

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

 

 

Mauritius Virtual Asset Provider (VASP) Licensing Options

A number of leading Offshore jurisdictions have taken the step of regulating Blockchain focussed enterprises including the Cayman Islands, The British Virgin Islands and Mauritius.

 

This article takes an in-depth look at the Mauritius model of regulation.

 

The Mauritius Virtual Asset and Initial Token Offering Services Act 2021 (the “Act”) came into force on the 7th of February 2022.

 

The Act sets out a comprehensive legislative framework to regulate the business activities of virtual assets service providers and initial token offerings.

 

It has been developed inter alia in accordance with international standards established by the Financial Action Task Force to manage, mitigate and prevent anti-money laundering and countering the financing of terrorism risks associated with these emerging and innovative business activities.

 

CATEGORIES OF ACTIVITIES LICENSED

 

The Act regulates two main categories of activities:

 

A. VASP, meaning a person who conducts, as a business activity, for or on behalf of another person one or more of the following activities or operations, namely:

(a) exchange between VAs (“Virtual Assets”) and fiat currencies;

(b) exchange between one or more forms of VAs;

(c) transfer of VAs;

(d) safekeeping of VAs or instruments enabling control over VAs;

(e) administration of VAs or instruments enabling control over VAs; or

(f) participation in, and provision of, financial services related to an issuer’s offer and sale of a VA; or an issuer’s offer or sale of a VA.

 

B. Issuers of ITOs, are companies registered under the Act and making issuance of ITOs. An ITO is an offer for sale to the public of a VT in exchange for fiat currency or another VA.

 

What are the different licences available under the VASP regime?

 

VASP consists of several sub-categories of licences as follows:

a. Holders of Class M (Virtual Asset Broker-Dealer) licences carry out activities such as exchange between VAs and fiat currencies; or exchange between one or more forms of VAs.

b. Class O (Virtual Asset Wallet Services) licences pertain to the transfer of VAs.

c. Class R (Virtual Asset Custodian) licensees are responsible for safekeeping of VAs or instruments enabling control over VAs; administration of VAs or instruments enabling control over VAs.

d. Class I (Virtual Asset Advisory Services) licence is required for the participation in and provision of financial services related to an issuer’s offer and/or sale of VAs.

e. Virtual asset exchanges must apply for a Class S (Virtual Asset Market Place) licence. A Virtual Asset Exchange is a centralised or decentralised virtual platform, whether in Mauritius or in another jurisdiction which facilitates the exchange of VAs for fiat currency or other VAs on behalf of third parties for a fee, a commission, a spread or other benefit and which:

 

(a)  holds custody, or controls VAs, on behalf of its clients to facilitate an exchange; or

(b)  purchases VAs from a seller when transactions or bids and offers are matched in order to sell them to a buyer.

 

WHAT IS A VIRTUAL ASSET?

 

A Virtual Asset (“VA”), according to the VAITOS Act 2021, is a digital representation of value which may be digitally traded or transferred, and may be used for payment or investment purposes, but does not include a digital representation of fiat currencies, securities and other financial assets that fall under the purview of the Securities Act.

 

The definition of Virtual Asset Exchange also includes the owner or operator of the virtual platform, but excludes a platform only providing a forum where sellers and buyers may post bids and offers and a forum where the parties trade in a separate platform or in a peer-to-peer manner.

 

What are the requirements for the application of a VASP licence?

 

1.        An application for a VASP licence, specifying the relevant class or sub-category of licence sought, must be made to the FSC.

2.       The applicant must:

i.          be a duly registered company carrying on business activities in or from Mauritius;

ii.         be directed and managed from Mauritius;

iii.        have a physical office in Mauritius and

iv.        ensure that each of its controllers, beneficial owners, associates and officers satisfy the ‘fit and proper’ criteria of the FSC.

In its determination of whether the applicant is directed and managed from Mauritius, the FSC may consider:

i.          the location of the strategy, risk management and operational decision making;

ii.         the location of the executives responsible for such decision making or the management team meets to effect policy decisions;

iii.        where board meetings take place; and

iv.        the place of residence of officers, employees or directors, amongst other factors.

 

OCI can assist you to apply for a VASP license in Mauritius. Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

Cayman Islands VASP (Virtual Asset Service Provider) Regulations REVIEWED

Are you looking to do a Crypto token launch?

 

Would you prefer to domicile your venture in a jurisdiction that offers your investors the comfort and certainty of Regulation?

 

If so, you might want to take a close look at applying for registration in the Caymans Islands as a Virtual Assets Service Provider.

 

Overview

 

In the Cayman Islands, the Virtual Assets (Service Provider) Act defines virtual assets as follows -

 

“a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes but does not include a digital representation of fiat currencies.”

 

The Cayman Islands VASP Act regulates the following “virtual asset services”.

 

A “virtual asset service” is defined as - the issuance of virtual assets or the business of providing one or more of the following services or operations for or on behalf of a natural or legal person or legal arrangement —

(a) exchange between virtual assets and fiat currencies;

(b) exchange between one or more other forms of convertible virtual assets;

(c) transfer of virtual assets;

(d) virtual asset custody service; or

(e) participation in, and provision of, financial services related to a virtual asset issuance or the sale of a virtual asset (e.g. market making).

(f) operating a virtual asset trading platform

 

A company issuing virtual assets (other than private sales) or undertaking any of the above services would need to register with the Cayman Islands Monetary Authority (CIMA) (registered person).

 

If the company operates a virtual asset trading platform or provides custody services, it would eventually be required to obtain a full license (licensing scheme has not commenced yet, currently in consultation period).

 

 

Requirements


The VASP law provides for certain general requirements for registered persons, such as the approval of senior officers, trustees, AML officers by CIMA, approval of transfer of equity interests, periodical AML regulatory audits, preparation of financial statements, and independent annual audits to such statements, among others. It also provides specific requirements for each type of virtual asset service activity.

 

Documents required for the business are as follows -

  • · Business Plan
  • · AML/KYC Manual Policies and Procedures
  • · Cyber Security Program Policy
  • · Customer Private Key Storage Policy (if applicable)
  • · Risk Management Policy (if applicable)
  • · Internal Safeguards and Data Protection Policy
  • · Auditor Consent Letter

Forms to be Completed are as follows -

  • · AML/CTF Inherent Risk
  • · VASP Registration Application

The company must appoint an AMLCO, MLRO and DMLRO that -

  • · holding university degree in relevant area (e.g. law, finance, business, etc)
  • · having qualifications such as ACOI, LCOI or ACAMS or equivalent
  • · 3 to 5 years of experience in compliance departments, preferably experience in similar businesses or same industry

 

If you would like to drill down into the details you might want to take a look the AML guidance notes from CIMA which expand on the responsibilities of the officers - https://www.cima.ky/upimages/commonfiles/GuidanceNotesonthePreventionandDetectionofMoneyLaundering,TerroristFinancingandProliferationFinancingintheCaymanIslands-5JUNE2020_1591983049.pdf

 

The company will also need to appoint an auditor prior to submitting the application.

 

Further documents and requirements may apply depending on the virtual asset service provided.

 

Government Fees

 

There is a non-refundable CIMA fee of KYD$1,000 (approx USD 1,220). If the application is approved, an annual fee to CIMA will apply which ranges from KYD1,000 (approx USD 1,220) to KYD 15,000 (approx USD 18,293) depending on a number of factors. You can find the fees on page 12 https://www.cima.ky/upimages/lawsregulations/VirtualAssetServiceProvidersRegulations,2020_1603983073.PDF (note that the fees are in KYD, not in USD).

 

Generally, foundation companies whose objects are to participate, promote, develop or otherwise operate for the benefit of a DAO do not generally fall under the VASP Act. It is a matter to assess whether any proposed Caymans Foundation will carry out any virtual asset service, as described above.

 

Other jurisdictions that you could consider applying for a VASP license (ie that have VASP legislation) would be:

The BVI – Check this link for details: https://offshoreincorporate.com/bvi-virtual-asset-service-providers-vasp-act-reviewed/

Mauritius – Check this link for details: https://offshoreincorporate.com/how-to-launch-an-ito-initial-token-offering-in-mauritius/

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

 

 

 

Samoa International Business Companies

Samoa (formerly Western Samoa) is a group of lush tropical islands in the middle of the South Pacific, located approximately halfway between Hawaii and Sydney Australia, is 2,842 sq. km in size and with a population of circa 215,000. The legal system of Samoa is based on English Common Law and includes a sizeable body of New Zealand statute law, on account of New Zealand having administrative power over Samoa prior to independence. Whilst local Polynesian is the predominant first tongue English is the language of Government and Commerce.

 

The Samoan International Companies Act passed in 1987 provides for the incorporation of Samoa international companies, the redomiciliation to Samoa of existing companies, and for the incorporation of U.S. style limited life companies. With a solid Corporate Law, a history of political stability since independence and a sophisticated international satellite telecommunication system Samoa is a popular location for incorporation of tax free International Business Companies.

 

Feature and Benefits of Samoan International Companies Include:

 

•          Nil Corporation or Business Tax is levied

•          Chinese character names may be registered.

•          Chinese character memorandum and articles of association may be filed.

•          An international company is not required to have a share capital (“Creditor Controlled” companies).

•          There is no minimum share capital requirement or capital duty on share capital.

•          Redemption of shares and reductions of capital can be effected simply and quickly and without the necessity of a court order.

•          A company may finance the purchase of its own shares.

•          A company may repurchase and cancel its own shares.

•          Company registration may be for periods of one, five, ten or twenty years in advance, with discounted fees (annual registration renewals are due on 30 November).

•          In the absence of a public offer, shareholders can resolve not to have the accounts audited and not to hold annual general meetings.

•          Annual returns do not have to be filed.

•          Only one director and one shareholder is required.

•          Particulars of directors and secretaries do not have to be filed.

•          Accounts do not have to be filed.

•          Provision can be made for alteration of the memorandum and articles of association by directors’ resolution.

•          Meetings may be held by telephone, closed circuit television or other audio or audio-visual means.

•          Annual meetings are not required, but if held, need not be held in Samoa.

•          Directors’ and shareholders’ resolutions may be passed by circulating written resolutions (including facsimile copies) for signing.

•          An international company need not have directors resident in Samoa.

•          The use of a common seal is optional for execution of documents.

•          The Companies office is subject to strict confidentiality provisions.

•          Companies can be redomiciled into or out of Samoa.

•          Companies can be liquidated. There is also a straight forward striking-off procedure.

•          Speedy Incorporation – 2 to 3 days max

•          Has not signed Tax Information Exchange agreements with either the US or the UK (and only with no EU members save for The Netherlands & Ireland)

 

Samoa Companies Accounting Records Compliance Requirements

 

Every company incorporated in Samoa is required to keep and maintain financial records:

(a) to disclose the current financial position of the Company;

(b) to enable the directors to check that any accounts prepared by the Company comply with the laws of Samoa;

(c) to allow for the preparation of financial statements;

(d) to detail the following;

(i) all sums of money received and expended and the matters in respect of

which the receipt and expenditure takes place;

(ii) all sales and purchase and other transactions; and

(iii) the Company’s assets and liabilities, or other arrangements; and

(e) for a period of at least 7 years from the completing of the transactions or

operations to which they relate.

 

Additionally, the Company must inform its Samoa Registered agent in writing of the location where the accounting records are to be kept.

 

OCI SAMOA COMPANY INCORPORATION SERVICES

 

At OCI we believe in giving you more for your money than would the average IBC formation service. Hence included in the incorporation package for your Samoan Company is the following:

 

SERVICES:

•          Unlimited name availability inquiries

•          Advice from an experienced International Lawyer on how to structure your company

•          Preparation (overseen by a lawyer) of application to incorporate the company

•          Preparation (overseen by a lawyer) of the company’s memorandum of association

•          Preparation (overseen by a lawyer) of the company’s articles of association

•          Attending to filing incorporation request with the company registry

•          Attending to payment of government filing fees

•          One year’s Registered Agent service in the country of incorporation

•          One year’s Registered Office service in the country of incorporation

•          Mailing address in the country of incorporation

•          Delivery of Incorp pack by international courier (ie DHL/Fedex/TNT etc)

•          Unlimited free legal consultations for 12 months

 

DOCUMENTS INCLUDED IN YOUR INCORP PACK:

•          Certificate of incorporation

•          2 sealed/stamped copies of the company’s Memorandum of Association

•          2 sealed/stamped copies of the company’s Articles of Association

•          Resolution appointing first director/s

•          Resolution appointing first shareholder/s

•          Up to 5 share certificates

•          Resolution to open a bank account

•          Resolution to rent an office

•          Resolution/s to engage a Phone, Internet & Website service provider

•          Resolution to hire a staff member/s

•          Resolution to appoint a company lawyer

•          Resolution to appoint a company accountant

•          Resolution appointing you as the company’s authorised business representative

•          Resolution issuing a Power of Attorney in your favour

•          Agreement authorising you to represent the company in commercial negotiations

•          Power of attorney authorising you to sign documents on behalf of the company

•          Register of directors

•          Register of shareholders

•          Expression of wishes (ie an “Offshore” Will)

•          Lawyer authored User Guide (“How to Use Your Offshore Company”)

 

Price (all inclusive): $US 1,500

 

With tax effective offshore company management (ie including Professional Corporate “Nominee” Director, Shareholder & Company Secretary): + $800

 

From 2nd year $US $US990 (+ nominees if required)

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

 

HOW TO SET UP AN ONLINE BASED SERVICES BUSINESS “OFFSHORE”

Do you offer and deliver services online and or to an International Clientele?

 

Tax Free Offshore Companies are commonly used to own/operate online businesses.  

 

In principle here’s how it can work:

 

  • A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated to own/operate the business
  • You design/launch a website which is owned by the Offshore Company
  • The IBC also owns all proprietary items (including also the/any Trademarks, Operating software/systems, soft products to be delivered to customers etc)
  • The website ideally would be hosted in a nil tax/private Jurisdiction (Iceland is currently the most popular destination for such web hosting, Singapore is also often favoured)
  • Your clients find you and/or contact you via the web
  • The IBC is seen to be managed and controlled from (and ideally beneficially owned from, see below) Offshore. This may be achieved via the appointment of a (nil tax jurisdiction based) “Nominee” director.
  • Your standard sale agreement/website terms and conditions should provide (a) that a contract is not formed until the customers offer is accepted by you (ie the Offshore Company) and (b) that the source of the income is the contract. Before the client clicks buy he/she clicks on a button acknowledging that he/she has read and agrees to be bound by your terms & conditions
  • Acceptance of the buyer’s offer would be provided by the Company (which is seen to be managed from “Offshore” via a nil-tax-jurisdiction resident Nominee Director) sending an email to the buyer, after he/she has paid online; In simple terms what that means is that the situs of the Contract ie the place where the contract of sale (ie the agreement between you and the buyer for you to supply services in consideration of the buyer paying), at law, is formed is the Director’s location ie a nil tax environment…
  • Hence the income – from which the contract of sale is the source – has been/is derived, prima facie, in a zero tax jurisdiction (every time a client buys and you send an email thanking him for payment that concludes a contract of sale at law)
  • The Services that your Company has been contracted to provide are then delivered online.
  • An Offshore account (which can/will also be set up to receive card payments via a merchant account) is opened in a banking centre that does not tax bank deposits or interest paid by banks on bank deposits
  • Customers/clients contract with and pay the IBC; All such monies are banked free of tax in the first instance
  • You or your local company would/could be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever
  • (If you need a regular income) You would invoice the IBC periodically (eg monthly) for this service which income would be assessable income in your home state – though a smart Tax Accountant should be able to assist you to claim a series of expenses as tax deductions/write offs against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax that would otherwise be payable on this income (Assessable Income less Allowable Deductions = Taxable Income)
  • Ideally once you start to grow, and to add substance, you would be wise to set up your MD/Board and or a sales team to take orders and receive income in a low tax onshore environment (eg Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google model).

 

As alluded to, in order to minimize the chances of the IBC being taxed onshore, ideally, the IBC should/would be (and be seen to be) managed and controlled from Offshore. How this can be achieved is by including a (nil tax jurisdiction based) “Nominee” Director as part of the Corporate structure. See these pages for details of how that can work:

http://offshoreincorporate.com/faq/should-i-engage-nominees-or-should-i-direct-and-hold-the-shares-in-my-offshore-company/

http://offshoreincorporate.com/faq/how-can-i-protect-my-underlying-ownership-of-my-offshore-company-where-a-nominee-is-engaged-to-act-as-director-or-shareholder/

 

Ideally – so you can swear on oath in the event of a law suit tax investigation, or regulatory inquiry – I am not the beneficial owner of this Company, you will probably want to set up a Private Foundation to act as the shareholder of your IBC. (This should also assist you to get around CFC rules ie if you live in a country which has such regs).

 

The end result? With such a bespoke legal/admin structure in place (a) Vultures should not be able to get their claws into any assets/income streams owned by the Offshore Company and (b) you should only be liable to declare/pay tax on income paid to you by the company (and/or on any distributions paid to you by the Foundation); The rest of your Offshore Company’s earnings you should be able to accumulate, and or reinvest, Offshore in a nil tax environment. Tax should only be payable when you sell the business (unless at that time you’re living in a nil tax country) enabling you to grow your capital far quicker during the lifetime of your business thanks to the power of compounding.

 

Similarly, if a service you provide doesn’t meet a client’s expectations and the client tries to sue you the good news is your personal assets should not be at risk – as the client has contracted with a limited liability Company (ie the Company carries the legal risk, not you personally). Moreover, having your business incorporated Offshore in a foreign/strange land is of itself a deterrent to potential claimants (Have you ever tried to sue/get money out of an “Offshore” Company? It’s the Litigation Lawyers equivalent of climbing Mount Everest!)

 

Local laws though can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up an IBC for such purposes.

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

 

How to use a Foundation as a DAO Legal Wrapper

In the Web3 industry, some DAO founders probably (wrongly) assume that if the DAO Treasury is on-chain and its management is carried out by on-chain voting, the DAO won’t require any legal structure. However, in an unregistered DAO, the community of members can potentially be recognized by Regulators or the Courts as an unregistered General Partnership.

 

At law the Partners in a Partnership are jointly and severally liable for the debts/liabilities of the Partnership. If a DAO is established/operates as an unregistered General Partnership then each member is exposed – ie unlimited legal liability can attach to each member. Consequently, if regulators, tax authorities, or business partners/suppliers have concerns about the legality of certain activities undertaken by the DAO, and can establish the liability of at least one member of the DAO, liability can extend to DAO assets AND to all the Members property/assets ie all the DAO members may be recognized as responsible for the actions (or inactions) of the DAO as a whole.

 

There are several legal structures one could potentially deploy as a DAO Legal Wrapper. This Article looks at how a Private Foundation might be so deployed.

 

Foundations – Background

 

A Foundation is a legal entity in its own right ie it can sued and be sued. To protect proposed DAO members from unlimited liability, savvy Web3 founders often look to the registration of a Foundation as a “legal shield” for DAO members. In case of regulatory investigation, it will act as a “legal representative” for the community of the DAO members and protect them from the risks of unlimited liability.

 

A Foundation is a 3 headed creature and (like a Company) is a separate legal entity. Unlike a Company however it doesn’t have the typical top-heavy Director focussed hierarchal management structure.

 

A Foundation:

  • Is set up by a Founder/s
  • Is managed day to by a Councillor or a board of Councillors
  • Is either set up to fulfil a specific purpose or it has nominated beneficiaries ie persons or a class/es of persons who are designed to benefit financially from the set-up/actions of the Foundation

 

Whilst the day to day decision making responsibilities of a Foundation lie with a/the Councillor/s in the first instance, the beauty of a Private Foundation is that Councillors rights can be reserved to the Founders (and a Founder can assign rights as reserved to him/her to any third party). Hence the Founders of a Foundation can appoint an independent management board but yet control the board by retaining/exercising reserved voting rights.

 

Functions of a DAO Foundation

 

As you may know a DAO legal wrapper typically holds the DAO treasury, protects DAO members from unlimited liability, and permits DAO members to vote. A DAO that has been ‘legally wrapped’ is often more attractive to investors as a DAO with a strong legal framework is less likely to face difficulties with issues of liability, non-compliance with regulation, and ineffective treasury management.

 

All in all, in a DAO structure, a Foundation typically performs three main functions:

  1. It acts as a liability wrapper to protect the DAO members from unlimited liability for the DAO’s activities;
  2. It works as a governance overseer – every Foundation must create a Constitution (commonly known as a Charter) which documents a set of rules governing the Foundation’s operations; and
  3. It acts as a Compliance manager for the DAO Treasury to implement AML etc measures and to supervise their realization in the process of disposing of the DAO Treasury.

 

Operational Flexibility

 

Where a Foundation is deployed as a DAO Legal wrapper each member of the DAO can act/be appointed as a Founder and/or as a Councillor of the Foundation (and be nominated as a beneficiary, see below) – delivering voting rights – with voting carried out online via execution of smart contracts.

 

Management & Control of a Foundation in the first instance lies in the hands of the Foundation Council (& a Foundation which is seen to be managed/controlled onshore can be taxed onshore). A Foundation can have multiple Councillors or just one councillor. In cases where a/the DAO Foundation is looking to turn a profit – and members wish to preserve tax planning possibilities – a “Nominee” Foundation Councillor (ie resident in a nil tax jurisdiction) could be deployed and the DAO members appointed via contract as the Foundation councillor’s investment advisers. Members would vote on any proposed activity and the result of that vote would be tendered to the Councillor/s – who could be required by the Foundation’s Constitution/Charter to only make financial decisions based on such advices.

 

More particularly, if the DAO structure is reasonably straight forward (and, again, if the DAO is looking to generate a profit) then you should be able to use a Foundation wherein the governance token holders are nominated as a class of beneficiaries. In this case the members would have to agree to abide by the DAO constitution and operating rules which will in effect “marry” the corporate structure with the DAO operations.

 

In our experience historically Caymans Foundation Companies have commonly been deployed as DAO Legal wrappers. However, with the advent of restrictive VASP rules in the Caymans lately we are seeing Panama and Seychelles Foundations being commonly deployed to act as DAO Legal wrappers.

 

For detailed information in regards to Seychelles and Panama Foundations check these Links:

https://offshoreincorporate.com/seychelles-foundations/

https://offshoreincorporate.com/panama-tax-free-foundations/

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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 Foundation or other entity.

 

 

 

BVI Virtual Asset Service Providers (VASP) Act – REVIEWED

The British Virgin Islands (“BNVI”) has recently revised its laws to provide that any entity wishing to provide virtual asset services in or from within the BVI is now required to be registered by the BVI Financial Services Commission (FSC).

 

New entities must register with the FSC before commencing any VASP activities. VASPs already operational when the VASP Act came into force will have until 31 July 2023 to submit an application to the FSC, or to cease its VASP related activities. After this date, the VASP Registration Guidance confirms that all VASPs that have not submitted applications for registration will be considered to be conducting unauthorised business and subjected to the full enforcement mechanisms of the FSC.

 

When the FSC approves a VASP application, it will register the applicant, issue a certificate of registration and impose such conditions (if any) on the registration as it considers appropriate (including a requirement to obtain professional indemnity insurance).

 

With regard to timing, the VASP Registration Guidance helpfully records that (i) the FSC will endeavour to process an application and provide initial comments within six weeks from the FSC’s receipt of a completed application and (ii) the FSC’s service standard requires that the application process be concluded within six months from the initial submission date. Prospective applicants will therefore be able to take some comfort that they will receive an early indication of the likelihood of success and overall processing within six months.

 

The VASP Act defines a “VASP” as a virtual asset service provider who provides, as a business, a virtual assets service and is registered to conduct one or more of the following activities or operations for or on behalf of another person:

  • exchange between virtual assets and fiat currencies;
  • exchange between one or more forms of virtual assets;
  • transfer of virtual assets, where the transfer relates to conducting a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another;
  • safekeeping or administration of virtual assets or instruments enabling control over virtual assets;
  • participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset; or
  • perform such other activity or operation as may be specified in the VASP Act or as may be prescribed by regulations.

 

A person engaged in any of the following activities or operations, for or on behalf of another person, will be deemed to be carrying on a virtual assets service:

  • hosting wallets or maintaining custody or control over another person’s virtual asset, wallet or private key;
  • providing financial services relating to the issuance, offer or sale of a virtual asset;
  • providing kiosks (such as automatic teller machines, bitcoin teller machines or vending machines) for the purpose of facilitating virtual assets activities through electronic terminals to enable the owner or operator of the kiosk to actively facilitate the exchange of virtual assets for fiat currency or other virtual assets; or
  • engaging in any other activity that, under the Guidelines, constitutes the carrying on of the business of providing virtual asset service or issuing virtual assets or being involved in virtual asset activity.

 

Whether an entity is carrying on a virtual assets service will turn on, inter alia, whether the asset in question constitutes a “virtual asset” (as such term is defined in the VASP Act). For example, crypto based derivative products would require more careful consideration and may be caught by one or both the VASP Act or the Securities and Investment Business Act (“SIBA”).

 

Decentralised protocols that fall within the definition of virtual asset services above will also likely be subject to the VASP Act although specialist advice is required. In this regard we note that the VASP Registration Guidance makes reference to decentralised finance platforms, the sale of non-fungible tokens and the operation of peer to peer financing platforms as being activities and operations which may fall within the VASP Act where they satisfy the conditions of the VASP Act.

 

A VASP application for registration must be made in the FSC’s approved form and be accompanied with the following information and documentation:

 

  • Details of the proposed directors, senior officers, shareholders, beneficial owners, auditor and authorised representative of the VASP, with the ownership structure to be supported by a register of members and an ownership structure chart which evidences the breakdown of percentages held in the legal structure;
  • A business plan in relation to the VASP, containing; (a) details of the knowledge, expertise and experience of the applicant, (b) information about the nature, size, scope and complexity of the VASP, (c) information about how the VASP will be marketed and the expected source of business, (d) the anticipated human resource capacity of the VASP, (e) any planned outsourcing arrangements and (f) an indication of the initial financial and capital projections of the VASP covering the first three years of operation (applicants must be able to demonstrate an adequate level of paid-up capitalisation and adequate liquidity reserves for the nature of their operations);
  • A written risk assessment of the VASP;
  • A business continuity plan;
  • A written manual showing how the applicant, if granted registration, intends to comply with the requirements of the VASP Act;
  • Details of the internal safeguards and data protection (including cyber security) systems intended to be utilised;
  • Details of the system to be put in place on how the VASP will implement to handle client assets, custodian relationships and complaints; and
  • Declarations, completed by each of the applicant and the authorised representative, affirming that the information provided to the FSC in relation to the application is true and accurate.

 

An entity wishing to provide Virtual Assets Custody Services or to operate a Virtual Assets Exchange (as such terms are defined in the VASP Act) need to provide additional information and confirmations to the FSC, which are primarily intended to evidence the VASPs ability to safeguard client assets and to mitigate against the heightened risk of money laundering and terrorist financing.

 

Subject to certain exceptions, a VASP must have certain functionaries appointed at all times. Directors and Senior Officers, Authorised Representative, Auditor and Compliance Officer along with a BVI legal Practitioner.

 

The VASP Act sets out a number of on-going obligations for VASPs which include: 

  • Maintaining records that (a) are sufficient to show and explain its transactions, (b) enable its financial position to be determined with reasonable accuracy, (c) enable it to prepare all necessary financial returns and statements, (d) enable its financial statements to be audited, (e) show any complaints made by clients and (f) show the steps it takes to guard against money laundering, terrorist financing and proliferation financing;
  • Submitting a copy of its auditor’s report to the FSC within 6 months of the end of its financial year;
  • Ensuring that client assets are identified, or identifiable, and appropriately segregated and accounted for;
  • Co-operating with the FSC to ensure compliance with the VASP Act, and providing the FSC with any documents or information it may require to discharge its functions; and
  • Obtaining the FSCs prior written approval to any proposed change of name, disposal of any significant interest in the VASP or changes to its functionaries.

 

The fees payable to the FSC in respect of a VASP application for registration under the VASP Act are confirmed in the Guidelines and summarised as follows:

  • US$10,000 for an application to provide Virtual Assets Custody Services
  • US$10,000 for an application to operate a Virtual Assets Exchange
  • US$5,000 for any other virtual assets services.

 

ACTIVITIES NOT CAUGHT BY THE VASP ACT – Out of scope services

 

The VASP Act is not intended to regulate the technology that underlies virtual assets or VASP activities and helpfully sets out a range of services which are not subject to the VASP Act, namely:

  • providing ancillary infrastructure to allow another person to offer a service, such as cloud data storage provider or integrity service provider responsible for verifying the accuracy of signatures;
  • providing service as a software developer or provider of unhosted wallets whose function is only to develop or sell software or hardware;
  • solely creating or selling a software application or virtual asset platform;
  • providing ancillary services or products to a virtual asset network, including the provision of services like hardware wallet manufacturer or provider of unhosted wallets, to the extent that such services do not extend to engaging in or actively facilitating as a business any of those services for or on behalf of another person;
  • solely engaging in the operation of a virtual asset network without engaging or facilitating any of the activities or operations of a VASP on behalf of customers;
  • providing closed-loop items that are non-transferable, non-exchangeable and which cannot be used for payment or investment purposes; and
  • accepting virtual assets as payment for good or services (such as the acceptance of virtual assets by a merchant when effecting the purchase of goods).

 

In addition, it is worth noting that, whilst not expressly excluded, the issuing of virtual assets in or from within the BVI is not an activity regulated by the VASP Act. However, care is needed as financial services related to an issuance may be caught by the VASP Act and if the virtual asset is considered an ‘investment’ under the SIBAct there may be further considerations to address.  Indeed, just because the issuance of a virtual asset from a BVI entity may not be regulated under the VASP Act does not mean that other regulatory regimes can be ignored.

 

Any entity carrying on virtual asset services without being registered under the VASP Act is liable on conviction to a fine of up to US$100,000 and/or 5 years imprisonment (for any director, partner or senior officer who knowingly authorised, permitted or acquiesced in the commission of the offence).

 

OCI’s Service Fees  re VASP applications:–

  • Providing an Authorised Representive in the BVI – $US2,600annually
  • Company Formation: From $1,350
  • Professional fee for an application to provide Virtual Assets Custody Services: US$6,750
  • Professional fee for an application to operate a Virtual Assets Exchange: US$6,750
  • Professional fee for any other virtual assets services. US$3,300

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.

 

 

 

 

DAO Legal Wrappers – The Wyoming DAO LLC

In previous articles (see below) we have examined in detail the merits of deploying a Caymans Foundation Company and a Marshall Islands DAO LLC as a Legal Wrapper for any new DAO (Decentralized Autonomous Organization). The purpose of this article if to shine a light on a third option ie the Wyoming DAO LLC.

 

As previously discussed most legal systems would consider a DAO to be a Partnership with the DAO members being considered as defacto Partners. Whilst a Partnership acts as a flow through entity (ie a Partnership doesn’t pay tax – it passes on nett profits to members who then report income/pay tax on their share of Partnership profits as/if applicable) the downside of a Partnership is if ever sued the Partners would be jointly AND severally liable for any judgment debt as may arise.

 

Hence if you want to add legal certainty to your DAO (which would be attractive to certain kinds of investors/suppliers) and if you want to minimize the chances of members being forced to pay the DAOs debts it would be wise to create a Legal Wrapper for your DAO.

 

The Wyoming DAO LLC – Overview

 

Since decentralized autonomous organizations (DAOs) were given the same rights as limited liability companies (LLCs) in Wyoming, the blockchain and cryptocurrency industries are seeing this as a game changer in business formation and business ownership.

 

People forming DAO LLCs will now get the best of both worlds. The LLC model offers benefits like limited liability for its owners while having the democratized voting structure of a DAO where all members have a voice.

 

Most Companies issue shares have shareholders. An LLC is a form of Company which (rather than having shares) issues Membership Units that deliver certain rights, not unlike shares. Moreover an LLC is considered to be a Partnership (ia a flow through entity, see above) and not liable for Company tax.

 

Since DAOs in Wyoming have been given the rights of LLCs, these organizations will have the same benefits and will be established in a similar manner. You’ll enjoy these benefits if you create a Wyoming DAO LLC:

 

1. Protect Your Assets 

 

LLCs, on their own, are very popular since they offer limited liability to its owners. With a DAO LLC, you get the same benefit, which can be even more appealing since the organization is only run by its members rather than owners/partners.

 

Limited liability is a great thing to have since any legal troubles the organization runs into won’t affect your personal assets. For example, if the organization gets sued, the members’ personal assets can’t be used to pay off debts.

 

2. Easy Document Drafting 

 

Setting up a DAO LLC from scratch can be relatively easy. With a regular DAO, you’d typically start the process by creating a mission statement where the organization’s structure and its features are detailed. Things will play out differently, and maybe even easier, for a DAO LLC.

 

We hate to sound like a broken record, but it bears repeating that DAO LLCs will follow a typical LLC business model for the most part. And your document drafting process will start with creating Articles of Organization, which we’ll go into detail a little later.

 

3. Avoid Double Taxation

 

Like the Articles of Organization, a DAO LLC’s taxes will be handled similarly as a regular LLC.

 

LLCs avoid double taxation, meaning the company and the owners aren’t taxed separately. This is great since it can save you money, time, and paperwork. Since DAOs in Wyoming will follow the LLC structure, their taxes work the same way.

 

This is a huge plus since regular DAOs are presently (as of March 2022) in a grey area when it comes to how they pay taxes. Not so with DAO LLCs.

 

The organization’s profits will be taxed only once through each member’s individual income tax return. And, as a cherry on top, the organization’s members may qualify for a 20% deduction of their business income thanks to the Tax Cuts and Jobs Act of 2017.

 

4. Simple to Establish

 

The great thing about starting a DAO in Wyoming is that it will follow the LLC structure. LLCs are very popular with business owners since they offer some benefits like limited liability, appealing tax features, and an easy startup process.

 

In Wyoming, the process of starting a DAO LLC will be the same as starting a regular LLC. This includes mostly the same fees and steps needed to establish one as you would an LLC.

 

There will be a few minor differences, though, like choosing the “Decentralized Autonomous Organization” option as the additional designation for your LLC.

 

The Wyoming Secretary of State’s website has a complete list of FAQs for setting up a DAO LLC.

 

5. All Members Have a Voice 

 

A DAO LLC’s structure can be identified as democratized. This means that each member of the organization can vote for changes to be made in how it operates, how it does business, or other functions.

 

In a corporation, for example, only the board of directors handles these decisions by voting on them. With a DAO LLC, things work in the opposite direction.

 

No one single person or group of persons do this, and it’s left up to the members of the DAO LLC. This gives everyone a voice through a vote.

 

6. Full Transparency

 

Unlike a regular LLC where the business’s inner workings are typically left for the owners to know, a DAO LLC’s members are always kept in the light about the organization’s functions.

 

This is a huge plus if you’re going into business with people you need to trust. Since DAOs involve people working together through the internet, 100% transparency is needed. The basic DAO model offers this, and it’s the same with a DAO LLC.

 

The organization’s code (that we’ll talk about later) is fully trustworthy, transparent, and verifiable to all members at all times. The only way the code can be changed is by a vote, meaning all members will be aware that a change is being considered.

 

7. Opportunity to Become an Industry Trailblazer

 

DAOs and DAO LLCs are new compared to other business types. Today’s internet users and younger generations consider DAOs to be the future of business. Wyoming is already on the forefront for making them legal entities, and DAOs appear to be picking up steam across the country. Starting one now may be the innovative move that’s right for you.

 

 

DAO LLC CONSIDERATIONS

 

Articles of Organization 

With a DAO LLC, you’d be drafting Articles of Organization, which can be much easier since most of these documents follow the same drafting process across all 50 states. This includes adding information like the DAO LLC’s name, identifying its owners, etc. OCI can/will assist you to draft these Articles. Note that the Articles of Organization should state that the LLC is a DAO. You’ll also need to file these articles with the Wyoming Secretary of State.

 

Meeting Necessary Requirements  

Also remember that since your DAO will use the LLC legal entity status, it will need to meet certain requirements as stated in the Wyoming DAO law. For example, it must have a registered agent (a service OCI Can provide as we hold a Wyoming Corporate Service Provider Sublicense)

 

Wyoming DAO LLC History 

Wyoming officially recognized DAOs, specifically DAO LLCs, as a legal business entity on July 1, 2021. This business type is the first of its kind, paving the way for future business owners to see just how beneficial the structure is.

 

If you’re familiar with LLCs, then you might be wondering what the point of merging one with a DAO model is. Both have their upsides, and combining them can be something that could bring a handful of benefits like the ones we went over above.

 

The Wyoming DAO LLC as a DAO Legal Wrapper

 

Most online guides on the Wyoming LLC for DAO incorporation provide only the information on registering the company as a Wyoming LLC for DAO purposes. It’s hard to use this information to make an informed decision on whether to choose this option for your DAO or whether they may be more suitable options offered by alternative jurisdictions.

 

We’ve created this guide to help you decided whether a Wyoming LLC could work for you as a DAO Legal Wrapper and also to help you better understand how it works for a DAO from a legal standpoint.

 

Why might Wyoming work for your DAO? 

 

Like the Marshall Islands, Wyoming has drafted a special regulation for DAO, under which a DAO can be established in Wyoming in the form of an LLC, with certain characteristics. From our point of view, the advantages of this US jurisdiction include:

  • The flexible legal system of the U.S. common law;
  • Easy and relatively inexpensive establishment process;
  • Quick setup—a company can be registered in as little as 2 weeks;
  • Your project will be structured in the U.S., which is considered an investment Mecca;
  • Wyoming offers one of the first working legal regulations for a DAO wrapper;
  • Limitation of personal liability: the DAO LLC members are not personally liable for the LLC’s debts or legal liabilities;
  • No Corporate tax: LLCs have a “pass-through” taxation system: the DAO LLCs receive “pass-through” treatment allowing allocated profits to be taxed only once on each member’s individual income tax return; and
  • Less bureaucracy and paperwork as the registration process is very simple with minimal  documentation required.

 

However, establishing a DAO LLC in Wyoming for the purpose of creating an investment DAO is not considered a great option due to the strict securities regulations in the U.S. There is a risk that your token (if publicly issued) will be deemed as a Security by the U.S. Securities and Exchange Commission. Instead, the Wyoming DAO LLC is usually recommended as a pure governance DAO for your project, due to the transparent and specifically designed regulation.

 

How does a Wyoming DAO LLC work?

 

The main concern with a DAO is that your DAO, if you have no proper legal wrapper, could be recognized as a general partnership, exposing its members to personal liability for any of the DAO’s actions and obligations. At the same time, an LLC is a recognized legal/business structure in the U.S. (and throughout the world) that protects its owners from personal responsibility for the company’s debts or liabilities.

 

Management of the DAO LLC must be vested in its members (similar to the classical model of LLCs) if it’s member-managed, or in the smart contract if it’s algorithmically managed (similar to the classical DAO model, where decision-making is encoded in the protocol). 

 

No member of the DAO LLC shall have any fiduciary duty to the organization or any member with the exception that members shall be subject to the implied contractual covenant of good faith and fair dealing or unless otherwise specified in the articles of organization or operating agreement. Fiduciary duty requires that a particular person works in another person’s best financial interest in certain circumstances. For example, directors of corporations (or managers of LLCs) are charged with certain fiduciary duties in fulfilling their managerial responsibilities. The primary duties are the duty of care and the duty of loyalty. In the case of a DAO LLC, the members have no such duties to the DAO LLC and, therefore, have more freedom for their business activity.

 

How does decentralized governance work in a Wyoming DAO LLC?

 

Articles of organization and smart contracts take the role of the operating agreement in the DAO LLC in terms of what they govern. But, to the extent the articles of organization or smart contract do not otherwise provide for, an operating agreement may supplement the operation of the DAO LLC. Under the applicable law, an algorithmically managed DAO LLC may only form if the underlying smart contracts can be updated, modified or otherwise upgraded.

 

The articles of organization and the operating agreement of the DAO LLC are effective as statements of authority. Where the articles of organization and operating agreement conflict, the articles of organization shall take precedence over any conflicting provisions. But where the articles of organization and smart contract conflict, the smart contract shall take precedence over any contradictory provisions of the articles.

 

Taking this into account, it is wise to very clearly and very consistently “build” the governance and management provisions in all the constitutional instruments of your DAO LLC: smart contract, articles of organization, and operating agreement.

 

Each article of organization of the DAO LLC must contain certain statements about DAO, the wording of which you may find in the special regulations for DAOs. It must also include information on:

  • the rights and voting rights of members;
  • transferability of membership interests;
  • relations among the members and between the members and the DAO LLC; and
  • activities of the DAO LLC and the conduct of those activities, etc.

 

Registering a Wyoming LLC for DAO

 

First of all, a DAO LLC may be formed by either establishing a new legal entity or converting an existing LLC to a DAO LLC by amending its articles of organization to include the statement provided for in the relevant regulation.

 

Any person may form the DAO LLC (which must have at least one member) by signing and delivering one original and one exact duplicate or verified copy of the articles of organization to the secretary of state for filing. The person forming the DAO LLC should not be a member of the DAO LLC. You can deliver these documents either online or by mailing the paper form. Each DAO LLC must also have a registered agent.

 

Getting started with your DAO Legal Wrapper

 

If you need a Legal Wrapper for your DAO and are planning, among other things, to accumulate profits or distribute them among DAO members, you may want to consider Wyoming as an option. The main benefits of this jurisdiction are investment attractiveness, simplicity, speed, and flexibility.

 

You might also like to check out the Wyoming Secretary of State FAQs re DAO LLCs:  https://sos.wyo.gov/Business/Docs/DAOs_FAQs.pdf

 

Cost Estimator:

Set up: $US1,400

From 2nd year $990

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.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.