The Cayman Islands Foundation Companies Act, 2017, introduced a new form of legal entity known as a "foundation company", a vehicle that operates like a trust, allowing it to function like a civil-law foundation or common-law trust while retaining the separate legal personality and limited liability of a company. It has proved incredibly popular for decentralised autonomous organisations (or DAOs), most of which utilise blockchain technology.
Why does a DAO require legal personality at all?
Legal structures in many jurisdictions require a person or group to act as the owner of the DAO and DAOs without legal personality run into problems such as:
(a) unable to interact with third parties outside the DAO
(b) unable to enter into contracts, open accounts with digital exchanges or other counterparts
(c) unable to hold assets
(d) unable to protect valuable intellectual property that may be imitated by other projects or DAOs, and
(e) unable to carry out the wishes of the DAO or formally recognize community votes
(f) hire developers or other employees to grow the ecoystem
As a result, Developers can sometimes find themselves carrying out actions on behalf of the DAO and, consequently, be personally exposed to potential liability.
Creating a Cayman Foundation Company is the Solution
The solution to the problems above is for the DAO to establish a Cayman foundation company. The foundation company has legal personality to enter into contracts and undertake actions with third parties.
It is also managed by directors who carry on the business of the DAO. Unlike a company, the foundation company can be structured without shareholders. It can be ownerless – just like the DAO it represents. The foundation company can be supervised by a supervisor (or even multiple supervisors if desired). A supervisor has no ownership or economic entitlement in the foundation company but simply acts as a steward, ensuring that the directors of the foundation company observe their obligations to the DAO pursuant to the foundation company's governing documents.
With no shareholders, all of the officers of a foundation company simply have the objectives of the DAO as their priority, similar to trustees and enforcers carrying out the objectives of a trust.
Supervisor
A foundation company does not have to have a member (e.g. a shareholder or a guarantee member) but, if it doesn't, it must have something called a supervisor. The supervisor may also be a director, although this would weaken the structure from an asset protection perspective if there wasn't a separation of roles. Subject to any greater role provided by the constitution, a supervisor's main function, as the name suggests, is to supervise the board of directors' management of the foundation company. The supervisor can be a single individual or a supervisor committee that is established.
Secretary
A foundation must, at all times, have a secretary who is “a Qualified Person”, being someone who is licensed or permitted by Cayman’s Companies Management Act (as amended) to provide company management services in the Cayman Islands (Bell Rock is licensed under the Companies Management Act). The secretary’s office will be the registered office of the Cayman Foundation, where the statutory records regarding the Cayman Foundation must be kept. Failure to keep such records is subject to criminal sanction on the Foundation Company and every director or manager who knowingly and wilfully authorized or permitted the contravention. Bell Rock is licensed and regulated under the Companies Management Act.
Governance Structure
A foundation company could include almost any form of governance structure so long as the foundation company is managed by at least one director, is supervised by at least one supervisor and has a secretary.
Why the Cayman Islands?
In addition to being a great destination for beautiful beaches, the Cayman Islands are also a global financial centre (the fifth largest banking sector in the world), with a number of major banks, leading global financial institutions, accountancy practices and offshore law firms.
The incorporation of a Cayman Islands Exempted Company is easy, fast, confidential, and above all is tax efficient. Here are the main benefits to incorporating in the Cayman Islands as an Exempted Company:
Stability: First, generally speaking, the Cayman Islands have enjoyed economic, legal and political stability throughout its history, and have a very stable jurisdiction and developed legal system, and a leading economy due to its advanced banking system with hundreds of banks and international financial institutions.
Legal System: As a British Overseas Territory, both Cayman Law and the Court system are based on English common law. All documents and legislation are in English as it’s their official language.
Speed and ease of Incorporation: The incorporation takes a day only. There is no minimum capital requirement that needs to be invested at the time of incorporation, and the company can be incorporated with one shareholder and one director, which can be either a corporate entity or individual, and can reside anywhere in the world. There are no requirements for annual reporting to the registrar, accounting or auditing.
Tax Treatment: Perhaps the most well-known aspect of registering in the Cayman Islands is the favourable tax climate. There is no corporation, capital gains, income, payroll, property, withholding, or any other tax on money earned outside of its territory. It’s no wonder the Caymans have become a popular tax haven among entrepreneurs.
Confidentiality and Privacy: Not only do the Caymans provide a tax-efficient business environment, but they also offer a high degree of investor protection. This is possible because there are no mandatory requirements to submit financial records, nor to disclose the names of the Directors, officers, and shareholders, creating a maximum level of confidentiality and anonymity to investors.
Virtual Asset Service Providers Act: The regulation of virtual asset service providers has been pragmatic and commercial. There is currently a registration process in place with the Cayman Islands Monetary Authority. For further information, please see our related article on VASP registration.
How can Bell Rock Help?
A foundation company incorporated in the Cayman Islands is the ideal structure for DAO's. Bell Rock is a fully licensed and regulated firm in the Cayman Islands and the leading provider of services to DAO's. We provide the following services:
Advisory Services to DAOs on operating requirements and entity structuring
Virtual Asset Service Provider Registration Services
Economic Substance Services
Compliance & Regulatory Services
Cayman Foundation Incorporation (24 hour incorporation)
Secretary Services
Registered Office Services & Corporate Services
Director Services
Please feel free to contact us: info@bellrockgroup.com
Comments