Web3 Project Compliance: Why Choose the Cayman Foundation for Token Issuance?

Source: Lawyer Jin Jianzhi

Tips: Since Token issuance is strictly prohibited in mainland China, this article is an industry legal study and information exchange in the context of relevant overseas laws and regulations.

In a previous article, Lawyer Mankiw Jin introduced the issuance of Token through a Singapore foundation (see "Can I legally issue virtual currency by registering a Singapore foundation?"). This time I will continue to introduce the forms of offshore foundations to provide entrepreneurs with more information to choose from, so that they can choose the most appropriate one based on the specific circumstances of the project.

1 Advantages of the Foundation as the Token Issuing Body

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

1. Prepare legal opinions for Token to be listed on the exchange;

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2. Isolate regulatory risks. Some countries and regions have strict restrictions or bans on the issuance and trading of Tokens. Countries and regions that welcome blockchain technology may not necessarily welcome the issuance of Tokens strong>, such as mainland China;

3. Carry out tax planning. Since Token issuance will generate capital gains, choosing a country and region with preferential tax rates to establish a separate Token issuance entity will reduce the tax burden.

Theoretically, the Token issuance entity can be chosen at will, but it is obviously more legally and commercially advantageous to issue Tokens through the establishment of a foundation:

1. To reduce tax costs, the foundation can help project parties achieve tax planning. In order to support the development of charities, different countries and regions have certain tax incentives for individuals or institutions participating in foundations. For example, in the Cayman Islands and Singapore, foundations enjoy a completely tax-free policy; Switzerland also stipulates that public welfare foundations do not need to pay income tax on grants and donations, nor do they need to pay income tax on income from asset management, related to the purpose of the foundation or auxiliary Taxes are paid on income from economic activities.

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. A non-profit foundation will obviously have a better reputation. In addition, when the foundation carries out fund raising, fund use, operation management, equity management and other matters and transactions in the form of fund custody and equity custody, it can allow the project issuer to focus on the research and development of the core blockchain technology.

2 Characteristics of Cayman Foundation Company

Many projects with Chinese background , for example, Litecoin chose a Singapore foundation to issue Tokens, but compared to onshore locations, offshore locations also have irresistible advantages due to their unique attributes.

Mature offshore authorities (such as Cayman and BVI) are very clear about their international positioning and have become regulatory lowlands, welcoming regulatory arbitrage. Therefore, the factors considered by the offshore authorities are relatively simple, which is to attract more funds; while the factors that the onshore authorities have to consider are diverse and complex, and government officials are constantly balancing interests and taking various measures. Action.

Especially in an emerging industry such as Web3 blockchain, every onshore authority is frightened by this kind of thing that may bring potentially huge challenges, even if they continue to feel their way through it. River cannot avoid law enforcement actions and new policy notices from time to time. This is true for the mainland, the United States, Hong Kong, and Singapore. In comparison, the offshore government with a simple purpose is extremely stable and certain in supervision, because it does not care about the challenges at all, and no matter how big the challenge is, it will not be able to deal with the small divorce. The local authorities came to greet us. Therefore, for teams with highly innovative businesses and who care deeply about regulatory stability and certainty, offshore locations may be a better choice.

As for the establishment of Token issuance entities, according to "Cayman Islands Foundation Companies ACT, 2017", Cayman provides the form of foundation company (Foundation Company), Cayman Fund What is special about a society is that it has the qualities of both a trust and a companywhich makes it particularly attractive. The main characteristics of the Cayman Foundation Company are as follows:

1. The company is an independent legal person: means Limited liability can be limited liability by shares or limited liability by guarantee.

2. Purpose may not be charitable: A Cayman foundation may be established for any lawful purpose, including charitable and non-charitable purposes. While a foundation is prohibited from paying dividends or otherwise distributing profits or assets to its members, distributions may be made to the beneficiaries of a Cayman foundation.

3. Beneficiaries can be established: Generally speaking, foundations focus on serving society and charity, unlike traditional trusts which focus on providing specific benefits. provide economic benefits to people. However, the Cayman Foundation can choose its beneficiaries.

4. Can have no shareholders: A Cayman foundation can exist as an orphan entity without any shareholders. But in the absence of any shareholders, the Cayman Foundation must have a supervisor.

5. Highly flexible: The Cayman Foundation’s governance rules, structure and role have significant scope for adjustment to meet a range of bespoke needs. In addition, the articles of association of a Cayman foundation may be supplemented by Bylaws, which do not need to be filed with the Registrar of Companies and therefore remain private, thus providing a degree of privacy to the operations of the Cayman foundation and Further flexibility is available in establishing rules relating to its structure and management.

6. Reducing liability of related parties:Certain provisions of the Cayman Islands Trusts Law are extended to apply to Cayman Islands foundations, including the Trusts Law Section 48, which allows the trustee to apply for directions from the Cayman Courts. This is a remedy that protects trustees when they make major decisions, such as major distributions or commitments.

3 Required for the establishment of a Cayman Foundation company

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

2. Articles of Association: The Articles of Association of a Cayman Foundation Company are one of the establishment documents, including Memoradum and Articles. Among them, the Articles of Association must directly stipulate or refer to the Articles of Association to stipulate the residual amount when the company is liquidated. How assets are disposed of.

3. Qualified company secretary: Designate a company secretary licensed or authorized by the Company Administration Law (2003 Revision). 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, proxy shareholders, directors, etc. can be solved by the agency in one package.

4 Summary

Having said that, both offshore and onshore Each has its own advantages and disadvantages, but if entrepreneurs want to know more about Cayman Foundation Company-related information and services, please contact the Mankiw legal team.