Web3 project compliance: Why choose the Cayman Foundation for Token issuance?

Source: Lawyer Jinjianzhi

Tip: Since the issuance of Tokens is strictly prohibited in mainland China, this article is an industry legal education and information exchange carried out in the context of relevant overseas laws and regulations.

In previous articles, lawyer Mankunkin introduced the issuance of tokens through the Singapore Foundation (visible“Can you legally issue virtual currency by registering the Singapore Foundation?》).This time, we will continue to introduce the offshore foundation form to you to provide entrepreneurs with more information to choose the most appropriate one according to the specific situation of the project.

1Advantages of the Foundation as the Token Issuing Subject

Once the project decides to issue a token, the lawyer will recommend setting up a separate token issuing entity.There are three main reasons for this:

1. Prepare legal opinion letters for the exchange on Token;

2. Isolate regulatory risks.Strict restrictions or bans on the issuance and transaction of tokens in some countries and regions,welcomeBlockchain technologyTokens are not welcome in countries and regions, such as mainland China;

3. Carry out tax planning.Since token issuance will generate capital gains, choosing countries and regions with preferential tax rates to establish individual token issuance entities will reduce the tax burden.

Theoretically, the token issuing entity can be chosen at will, but token issuing by establishing a foundation is obviously more legal and commercially advantageous.:

1. To reduce tax costs, the foundation can help project parties realize tax planning.In order to support the development of charity, different countries and regions have certain tax incentives for individuals or institutions participating in the foundation.For example, in the Cayman Islands and Singapore, foundations enjoy a full tax exemption policy; Switzerland also stipulates that public welfare foundations do not need to pay income tax on funding and donations, nor do they need to pay income from asset management, related to the purpose of the foundation or assisted by the foundationThe income from economic activities is taxed.

2. Risk isolation: Since the foundation can have no shareholders, the risk will be completely limited to the foundation level.

3. Improve the credibility of the project party.Nonprofit foundations will obviously have a better reputation.In addition, when the foundation carries out fund raising, capital use, operation management, equity management and other matters and transactions through fund custody and equity custody, the project issuer can focus on the research and development of core blockchain technologies.

2Features of Cayman Foundation Company

Many projects with Chinese backgrounds, such as Litecoin, chose to issue tokens from the Singapore Foundation, but compared with onshore areas, offshore areas also have an undeniable advantage due to their unique attributes.

Mature offshore authorities (such as Cayman and BVI) have a clear position on their international level and have become a regulatory lowland. We welcome regulatory supervision.arbitrage.Therefore, the offshore authorities are also considering a single factor, which is to attract more funds;The factors that onshore local authorities need to consider are complex and complex, and government personnel are always balancing interests and then taking various actions.

Especially in emerging industries like Web3 blockchain, every onshore authorities are frightened by this kind of thing that may bring potential huge challenges. Even if you feel the stones, you cannot avoid frequent law enforcement actions and new ones.policy notice.This is true in the mainland, the United States, Hong Kong, and Singapore.In contrast, offshore governments with simple purpose are extremely stable and certain in their supervision, because he doesn’t care about the challenge at all, no matter how big the challenge is, it’s not his small offshore authorities to meet it.so,Offshore may be a better choice for teams with highly innovative business and extremely concerned about regulatory stability and certainty.

In the establishment of the Token issuing entity, Cayman Islands Foundation Company ACT, 2017, provides Foundation Company.What makes the Cayman Foundation company special is its qualities as both trust and company, thus making it particularly attractive.The main features of the Cayman Foundation Company are as follows:

1. Independent legal person of the company: It means limited liability, which can be limited liability for shares or limited liability for guarantees.

2. The purpose is not charitable: The Cayman Foundation may be established for any legal purpose, including charitable and non-charitable purposes.While the Foundation prohibits dividends to its members or otherwise distributes profits or assets, the relevant interests may be distributed to the beneficiaries of the Cayman Foundation.

3. Beneficiaries may be established: Generally speaking, foundations focus on serving society and charity, unlike traditional trusts, to provide financial benefits to specific beneficiaries.But the Cayman Foundation has the option of beneficiaries.

4. No shareholders: The Cayman Foundation can exist as an orphan entity without any shareholders.But without any shareholders, the Cayman Foundation must have a supervisor.

5. Highly flexible: The Cayman Foundation has great room for adjustment in its management rules, structure and role, and can meet a range of customization needs.In addition, the Cayman Foundation’s bylaws can be supplemented by the “Bylaws” which do not require filing with the Company Registration and thus maintain privacy, thus providing a certain degree of privacy for the operation of the Cayman Foundation, andThe rules related to their structure and management can be further flexibly formulated.

6. Reduce responsibilities of relevant parties:Certain provisions of the Cayman Islands Trust Act extend to the Cayman Foundation, including Section 48 of the Trust Act, which allows the trustee to apply for directions from the Cayman Court.This is a remedy that can protect the trustee when a significant decision (such as a significant allocation or commitment).

3Cayman Foundation Company establishment required

1. Application documents: Standard documents provided by the official.

2. Articles of Association: The Articles of Association of Cayman Foundation Company is one of the establishment documents, including Memoradum and Articles, in which the Articles of Association must directly stipulate or refer to the Articles of Association to stipulate the disposal of the remaining assets during the liquidation of the company.

3. Qualified Company Secretary: Designate a company secretary who is licensed or authorized by the Company Administration Act (Amended in 2003).The company secretary is responsible for ensuring that the company complies with relevant regulations and maintains necessary company records.

4. If there are no special requirements, the registered office, agent shareholder, director, etc. can be resolved in a package by the agency.

4Summarize

Having said that, both offshore and onshore have their own advantages and disadvantages, but if entrepreneurs want to learn more about Cayman Foundation companies, please contact the Mankun lawyer team.