Considering an Initial Coin Offering (ICO) requires expert legal strategy due to the dynamic nature of applicable laws, including, securities, taxation, corporate structure and agreements. An ICO is also considered as a Token Generation Event (TGE), which refers to a novel way to raise capital by issuing crypto tokens. Companies issuing tokens or coins via ICO generally structure the offering in a manner such that the tokens or coins are linked to a smart contract on the Ethereum blockchain or similar platform.
In essence, the tokens or the coins are issued as a right to use the technology that is being funded by the ICO. It would be apt to compare an ICO with an Initial Public Offering (IPO), wherein shares of a company are issued to the investors. It is a common belief that tokens or coins issued by way of ICO are equivalent of securities, whereas mostly they are different from securities, and hence, it is important for companies to highlight such difference to their investors and token buyers. Since the tokens or coins do not represent equity shares of the company, issuing these during ICO shall not affect or dilute the equity of the founders.
A crucial strategy to structure ICO involves having separate legal entities to issue the tokens or coins and to operate the business. This can ensure minimum legal liabilities and further allow the founders to have flexibility to opt for desired legal structures for both the entities. For example, ICO can be executed using a trust or a foundation, whereas operating entity can be a private limited company capable of issuing equity shares to the founders and investors. In addition, it may be more advantageous to incorporate both the entities in different jurisdictions to avail the advantages of local laws and regulations. For example, ICO operating entity can be incorporated in any of the jurisdiction selected from, Switzerland, Singapore, Hong Kong, British Virgin Islands, Cayman Islands, Isle of Man etc.
Legal aspects of Blockchain and ICO are crucial for business consideration due the dynamically changing nature of this field. Beginning from ICO legal opinions to ICO structuring, to legal entity incorporation, and further including international legal compliance, ICO lawyers and Blockchain attorneys always work on the edge to assist their clients.
Technology lawyers and law firms that are required to review legal aspects of Blockchain and ICO focus primarily on laws applicable to a business that is on the verge of implementing a Blockchain technology for business operations. This legal analysis also includes determining the best jurisdiction to incorporate legal entity, obtain the required licenses and permits, ensure local and international legal compliance (KYC and AML compliance) etc.
For issuance of coins or tokens during the ICO, lawyers assist clients by reviewing and auditing the ICO legal structure, application of the Howey Test, Family Resemblance Test, Risk Capital Test etc. Additional services include review and audit of the ICO White Paper to ensure compliance with domestic and international laws.
Global Blockchain Lawyers (www.GlobalBlockchainLawyers.com) is a digital platform to discuss legal issues, latest technology and legal developments, and applicable laws in the dynamic field of Digital Currency, Blockchain, Bitcoin, Cryptocurrency and raising capital through the sale of tokens or coins (ICO or Initial Coin Offerings).
Blockchain ecosystem in India is evolving at a rapid pace and a proactive legal approach is required by blockchain lawyers in India to understand the complex nature of applicable laws and regulations.
Rahul Dev is a Patent Attorney & International Business Lawyer practicing Technology, Intellectual Property & Corporate Laws. He is reachable at rd (at) patentbusinesslawyer (dot) com & @rdpatentlawyer on Twitter
Patent Forum (Munich, Germany) | News Channels | Ministry of Corporate Affairs | ASSOCHAM | FICCI | Brand Licensing India | BioEnergy International
Economic Times | The Hindu | BioSpectrum | International Bar Association | LawAsia | SwissInfo | Global Legal Post | HT Live Mint | Outlook Money