We have received many inquiries about a cost-effective way to structure an initial offer of currency (ICO) quickly and successfully, so we have decided to write this manual that can be beneficial for many of you.
An ICO is an unregulated medium through which a nascent company collects the necessary funds to initiate, develop or complete its software projects based on cryptocurrencies or the blockchain.
Using a new cryptocurrency, the nascent company issues tokens that investors can acquire through existing digital currencies, which are usually BTC, ETH or fiduciary currencies. Once the company obtains the financing required to develop its project, the investors of the same wish that the tokens increase their value to obtain a high return of the investment. It is taken for granted that the risk associated with this type of investment is considerable because there is no guarantee that financiers will recover their money if the company does not raise sufficient funds or if something does not happen according to plan.
Investors want the emerging company to overcome the previous legal barriers required, such as: incorporation, terms and conditions, safety laws, commodity laws, taxes, AML / KYC and consumer protection, which affirms the veracity of your existence and authenticity of your business.
The corporate structure of an ICO
In an ICO, there are various structures that a company should consider. However, it is essential to understand that most ICOs operate through a separate and particular issuing company (ICO-CO) and an operating entity (OPCO). There are certain reasons why this should be done.
Main arguments to separate the issuing company from the operation are:
- The OPCO can be established in several countries that will support payments in fiduciary currency to the personnel that will develop the project.
- In some circumstances, it will be difficult to obtain a bank account for the ICO-CO, while for the OPCO it will be much simpler, however (for tax and legal reasons), you can transfer the cards received during the sales of the ICO- CO to OPCO through a current agreement.
- There may be other advantageous commercial entities, such as foundations and trusts, which are good for issuing the ICO but not suitable for the current business.
Using two entities when building the structure of an ICO is extremely important
Taxes – Once you are operating two entities, you can use the appropriate jurisdiction that presents the lowest effective tax rate on the activities of your company. However, although it is unlikely to happen for a new company, caution must be used to avoid incurring a tax treaty.
Amounts – Cost laws vary from one jurisdiction to another, where some have fewer restrictions. The key point here is to establish your company where your investors are and not where the entity is located.
Liability – In certain jurisdictions, liability laws favor debtors and not creditors.
The two entities should establish a transfer pricing agreement (TPA), prepared by lawyers and tax advisers in the chosen jurisdiction. If the same individual manages the two entities, it would be considered a transaction at arm’s length from the point of view of fiscal matters.
Structure of a broadcasting company
Having implemented the previous primordial structures, another important practice, if not the most significant one, is the configuration that the ICO-CO should have. Many ICO-CO operate in a structure that is based on the Swiss, Panamanian or Estonian foundation. Consequently, a new ICO-CO should also take this into consideration.
It should be clear that in operations buyers are individuals who acquire a product. They are not investors or donors, but rather customers, who have the full right to make use of their product. This is to avoid the existence of token owners with the privilege or right to the actions of the company, and it is also the reason why the fundraising must be done through an entity that does not have shares. The appropriate entities for this are foundations, companies with limited guarantee and trusts.
The main caveats are the need to have a work structure that demonstrates that your company is not just a general partnership where the founders operate with joint obligations. It is also necessary to understand that, although the sales of the ICO tokens are still non-regulated activities, issues such as securities laws, taxes, customer identification measures, general fraud and extracontractual liability, etc., should be considered. Which have regulations and jurisdictional laws. Finally, your ICO-CO must provide a product or service and meet its commitments, and, of course, it should not be used to defraud people.
In conclusion, make sure that people really need the tokens issued by your company, and that these constitute a solution for their customers. The basis of such issuance must be genuine and tangible. Risking other people’s money is a sign of greed and lack of due diligence. Of course, it is possible to make a profit based on the advances in the world of cryptocurrencies, but remember that your reputation is at stake, and once it is lost, it is difficult to recover it. The economic design and the implications of its platform should also be considered diligently and judiciously to avoid participants suffering negligence losses. Each aspect of the project must, therefore, be well planned and structured in order to procure an effective and profitable business.