Over the past year, several startups have offered convincing evidence of the increasing viability of ICOs as sources of substantial startup funding. If you’d like to know more about the legal issues surrounding ICOs, or if you wonder whether an ICO is the right way forward for your business, have a look at these answers about ICOs from LawTrades’ cryptocurrency experts:
When you have determined that your product and company structure is suited for an ICO, the next step is tactical planning. Here, a crucial (and often overlooked) decision that has to be made is where to have the issuing company incorporated.
Note that there is no need for the company that is responsible for the day-to-day operation of your business to be the same legal entity as the one that issues the tokens in your ICO. Often, it makes sense to incorporate a separate legal entity for that purpose – precisely because the location of the issuing company can be so crucial to your ICO’s success.
Why is location important?
Your company, and the ICO process, will be subject to the jurisdiction of the legal system in which it has been incorporated. For this reason, the choice of “incorporated in” jurisdiction can have far-reaching and immediate consequences for your ICO.
Jurisdictions have different approaches to the regulation of securities and security exchanges, different tax rates, differences in regulatory and compliance-related costs, and company incorporation costs. Additionally, given how new and evolving cryptocurrencies and the ICO space is, each jurisdiction implies varying levels of risk for regulatory changes and uncertainty.
You have the flexibility to choose the jurisdiction that will best serve your strategic interests – utilize it. There are several free resources online that allows comparisons of various jurisdictions. Here, we’ll list the most popular jurisdictions for ICOs to incorporate in, and briefly discuss the pros and cons of each.
Singapore is widely regarded as the best jurisdiction for ICOs, especially based on data from the last year. The financial market in Singapore is large and deep, tax rates are low, regulatory processes are transparent and efficient. In addition, the country is considered to be a startup hub.
Despite its widely favored status as a location for ICOs, it is worth noting that the Singapore’s financial regulator (MAS) issued a statement in August clarifying the regulation of certain types of digital tokens. MAS issued another statement in December warning about the dangers of investment in cryptocurrencies. This has led to some speculation that Singapore is moving in a similar regulatory direction as the US with regards to securities. Despite these statements causing some market hesitation, Singapore has strongly emphasized its commitment to fintech innovation, company incorporation, and its regulatory sandbox.
Switzerland’s long history of stable politics and a predictable economy has allowed it to be another favored hub for ICOs – some $600 million has been raised there. Despite Switzerland’s continuing commitment to blockchain technology and innovation, the country’s regulators have recently shown some reluctance toward ICOS.
The Swiss regulatory authority, FINMA, announced in September that it is investigating ICO procedures and warned that ICOs are subject to existing regulations. The future of ICO regulation in Switzerland remains to be seen. Despite this, it is still one of the best jurisdictions to consider for an ICO.
This British Overseas Territory has long been a tax haven and popular choice for offshore incorporation. With ICOs, this trend has continued. The territory has a stable political platform and a relatively well-known legal system. A substantial advantage of company incorporation in the Cayman Islands is its robust regulatory system. Operating in the Cayman Islands require substantial commitment to compliance and reporting, but the reward is a clear, predictable and rigorous regulatory environment.
A potential added advantage of the Cayman Islands is the possibility that cryptocurrencies might not be considered securities under its law. If this turns out to be the case, incorporation in the Cayman Islands allows one to avoid one of the most prickly issues of ICO regulation to date.
Gibraltar is a popular tax haven for company incorporation, and has been looking to expand its popularity to an ICO-favorable jurisdiction as well. In a recent attempt to attract the booming ICO industry to its shores, the country has issued statements clarifying its regulatory approach.
The government of Gibraltar released an extensive proposal for its future token regulation. The upside is potentially increased regulatory certainty. In the current nebulous climate, that upside is worth a lot.
Contact one of our business formation lawyers to provide you with expert guidance on ICO’s and incorporation every step of the way.