The laws of the jurisdiction of the country where a Company is incorporated and from which an Initial Coin Offering (ICO) Launch was performed is the relevant law governing the Project Launch.
The laws of the jurisdiction referred to by a Company in its White Paper as well as the laws of any other jurisdiction in which the Token issued could be considered as having been offered or sold or in which such activity could be deemed to have been carried out would also be relevant to the Project Launch .
Legal Challenges
Legal challenges arise for any Company involved in a coin offering especially if an ICO targets investors globally.
A number of token offerings to date have involved an entity incorporated or established in the Cayman Islands, Gibraltar, Singapore, Switzerland, the UK or the US. There are many factors that drive the choice of jurisdiction, which vary on a case-by-case basis.
A burning question we are frequently asked is whether any law other than that of the jurisdiction of incorporation of the entity generating or offering the tokens is required to be considered in relation to a token offering and our answer is always in the affirmative.
In addition to the laws of the jurisdiction in which the entity issuing or generating the tokens is incorporated or established, the laws of each jurisdiction within which the tokens could be considered to be offered or sold, or in which a regulated activity may be deemed to be carried out, will also be relevant.
Most jurisdictions regulate the conditions under which certain investments may be offered within that jurisdiction. There are also generally restrictions on the ability of certain persons to carry out certain (regulated) activities in relation to such investments, or which submit the carrying out of such activities to conditions (such as licensing or authorisation requirements).
A company could be classified as having carried out a token sale activity in several jurisdictions not limited to the country which was the seat of its incorporation and the laws of the various jurisdictions would be relevant to the project subject to the terms and conditions of the documentation provided by the Company in its token offering.
Relevant documentation and applications including the White Paper, Business Plan, Token Acquisition Agreement, github repositories, smart contracts have to be adequately prepared and applied to ensure functionality and compliance with the laws in the relevant jurisdictions of the Project Launch.
In other jurisdictions, the token issued may be classified as an investment which will include the token being classified as a security token. Such investment activity is regulated activity whereas in other jurisdictions, the token may be classified as a utility token which is not regulated. A utility token is generally not regulated as it is not considered as investment activity. Some jurisdictions may however, consider a token as a hybrid utility token as well as a security token and the token issuer would be carrying out a regulated activity contrary to the Securities Laws in the jurisdiction if the token issuer is not appropriately licensed to carry out investment activity which is generally regulated.
Conclusion
It is important that Companies that intend to undertake a coin offering take appropriate legal advice before embarking on the Token Project Launch in order not to fall foul of regulations in various jurisdictions.
In the event you are a Company wishing to launch a token offering or you are a token acquirer who has suffered a loss, please feel free to contact us and we can assist.
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