Web3 Legal Popularization丨Why choose the Cayman Foundation for Token issuance?

Written by Lawyer Jin Jianzhi

In the previous article, Lawyer Mankiw Jin introduced the issuance of Token through the Singapore Foundation (see "Registering a Singapore Foundation, Can you legally issue virtual currency?》). 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.

Advantages of the Foundation as a Token Issuing Body

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

1. Prepare legal opinions for Token to be listed on exchanges;
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, such as mainland China;
3. for 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.

According to theory, the Token issuance subject can be chosen at will, but it is obviously more legally and commercially advantageous to issue Token through the establishment of a foundation.

1. Reduce tax costs, and 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.

Characteristics of Cayman Foundation Company

There are many projects with Chinese background. For example, Litecoin chose the Singapore Foundation to issue Token, but compared with the onshore place, the offshore place Its unique attributes also provide advantages that are hard to refuse.

For mature offshore locations, such as Cayman and BVI, their international position is very clear and they have become regulatory lowlands, welcoming regulatory arbitrage. Therefore, the factor considered locally in offshore locations is relatively simple, which is to attract more funds; while the factors to be considered in onshore locations are diverse and complex, and government officials are constantly weighing interests and taking various actions.

In an emerging industry such as Web3 blockchain, everyone onshore is frightened by the huge challenges that may arise. Even if we continue to cross the river by feeling for the stones, we 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 contrast, offshore governments with simple purposes are extremely stable and certain in supervision. Because it is not about challenges at all, and bigger challenges cannot be easily reached from his small offshore location. Therefore, for teams whose business is highly innovative and who care deeply about stability and certainty, offshore locations may be a better choice.

In terms of the establishment of Token issuance entities, according to the "Cayman Islands Foundation Companies ACT, 2017", Cayman provides the form of a foundation company (Foundation Company). The special feature of the Cayman Foundation Company is that it is both It has the characteristics of a trust and a company, making it particularly attractive. The main features of Cayman Foundation Companies are as follows:

• Company is an independent legal person: it means limited liability, which can be limited liability by shares or limited liability by guarantee.
• Purposes 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.
• Can set up beneficiaries: Generally speaking, foundations focus on serving society and charity, unlike traditional trusts that focus on providing financial benefits to specific beneficiaries. However, the Cayman Foundation can choose its beneficiaries.
• 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.
• Highly flexible: The Cayman Foundation’s governance rules, structure and role have significant scope for adjustment to meet a range of customized needs. In addition, the articles of association of a Cayman foundation can be supplemented by "Bylaws", which do not need to be filed with the Registrar of Companies and therefore can remain private, thus providing a degree of privacy for the operations of the Cayman foundation and Further flexibility is available in establishing rules relating to its structure and management.
• Reducing related party liability: Certain provisions of the Cayman Islands Trusts Law extend their application to Cayman foundations, including section 48 of the Trusts Law, which allows trustees 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.

Required application documents for the establishment of Cayman Foundation Company: Officially provided documents.

Articles of Association: The Articles of Association of a Cayman Foundation Company are one of the establishment documents, including Memoradum and Articles. The Articles of Association must directly stipulate or refer to the Articles of Association to stipulate the method of disposal of the remaining assets in the event of liquidation of the company.
1. Qualified Company Secretary: Designate a company secretary licensed or authorized by the Companies Administration Act (2003 Revision). The company secretary is responsible for ensuring that the company complies with relevant regulations and maintains necessary company records.
2. If there are no special requirements, the registered office, proxy shareholders, directors, etc. can be solved by the agency in one package.

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