Do you know the three key points for setting up a blockchain project overseas?

Source: Lawyer Jin Jianzhi

For friends who start a blockchain project, the first legal problem they encounter is to register a company. Registering a company will not pose any legal difficulties for traditional projects, but for blockchain projects, due to regulatory issues in mainland China, most blockchain projects will go overseas. Registering a company overseas is an unfamiliar area for founders. Coupled with the business characteristics of blockchain projects, sometimes registering a company cannot solve actual needs. So how many companies need to be registered? The answer to this question requires project parties to make flexible choices based on their own scale, whether to issue tokens, strategy and business needs.

01 Why set up multiple companies?

Generally speaking, some small blockchain projects may only register one technology company in the early stages of the project, mainly for developing and maintaining blockchain technology, and also for Developers pay a salary, rent an office, pay for some software subscriptions, and accumulateintellectual propertys among other operational tasks. The technology company is usually registered in the country where the founder is locatedas this makes it easier to manage the team, pay salaries, and enjoy tax benefits.

For some larger-scale blockchain projects, especially those involving multiple businesses, you can consider setting up different technology companies for different businesses; if the project involves commercial operations, marketing and profit models, you can consider Register an independent business company to handle business matters.

If the project operates globally, it may be necessary to register companies or branches in different countries to meet local regulations and operational needs.

Once the project decides to issue Token, the project party needs to set up a separate Token issuance entity. This is mainly due to the following four reasons:

1. Convenient financing. It is convenient for investors to know which company will be designated in the investment document;

2. Prepare legal opinions for Token listing. Because most Token listing platforms require a Token legal opinion, and in most cases, the legal opinion cannot be prepared without a registered legal entity;

3. Reduce 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;

4. Carry out tax planning. Since Token issuance may involve huge profits, choosing a country and region with preferential tax rates to establish a separate Token issuance entity will reduce the tax burden.

In the selection of the place where theToken issuance entity is established, two main factors are taxation and supervision. In general, offshore places such as the British Virgin Islands (BVI) and the Cayman Islands, or onshore places such as Singapore and Hong Kong, are the locations where project parties or investors prefer Token issuance entities. The BVI and the Cayman Islands have no taxes on corporate income and profits and have a relatively relaxed regulatory attitude towards virtual currencies. From a tax and regulatory perspective, the BVI and the Cayman Islands are more convenient choices.

02 How do different companies build it?

When multiple companies are established, the question of how to build a structure to facilitate the management of multiple companies will naturally arise. A common and mature framework is the following framework from OK Group:

The structure was simplified by Mankiw King

According to public information on the Internet, OKLink (OKLink OKC Holdings, the parent company of Yunchain) and OKCoin, is registered in the Cayman Islands. Xu Mingxing became the largest shareholder and actual controller of OKC Holdings through multiple offshore companies registered in the BVI. OKCoin’s subsidiaries, that is, specific project companies, include OKCoin Trust Co., Ltd. (Hong Kong), OKLink Investment Holdings Limited (BVI), Shenzhen Ouke Cloud Network Technology Co., Ltd., etc., OKCoin’s subsidiaries There are OKX Singapore, OKX Hong Kong, OKX Brazil, etc., which are established according to actual business needs.

At the same time, OK Group has set up a foundation specifically for the issuance of its Token. However, Mankiw King's lawyer has not discovered the partnership status of his foundation through public channels, but speculates that its partners should include some offshore companies in the OK Group's equity structure and some natural person investors.

Other project parties can completely refer to OK Group’s architecture and build their own multi-layer architecture based on their own needs.

03 What is the legal form of DAO?

Although the above are all centralized corporate structures and some legal means adopted to achieve centralized management. However, in some blockchain projects, founders will still adopt the form of DAO on issues such as community governance to achieve "decentralized autonomy."

But if the form of the DAO relies solely on smart contracts without any legal appearance, DAO members will Facing the legal risk of being considered a general partnership, DAO members will bear unlimited liability for their activities. For example, in the case of the U.S. Commodity Futures Trading Commission (CFTC) v. Ooki DAO, since Ooki DAO did not form any legal entity, the judge held that OOKI Token token holders affected Ooki DAO governance through governance token voting. As a result of the proposal, OOKI Token holders can be recognized as voluntarily participating in Ooki DAO governance and need to bear personal responsibility for the actions of the DAO.

Therefore, establishing a company for a DAO will protect DAO members from potentially endless judicial, tax, financial and other liabilities; at the same time, the establishment of the company will also standardize the procedures for the financial management of the DAO, such as , ensuring AML and KYC procedures for disbursement of grants from the DAO Treasury, etc.

04 Mankiw King’s lawyer’s advice?

Whether a blockchain project should establish one or multiple companies is a very compliance and practical issue, which requires the consideration of multiple factors, especially legal supervision and financial taxation. In the future of the bull market in the currency circle, if you are also preparing to develop overseas and ride the waves, it is recommended to consult professional compliance professionals for tailor-made solutions.