With Elon Musk’s embrace of the cryptocurrency, Bitcoin continues to lead the pack of cryptocurrencies in terms of market capitalisation, user base, and popularity. The technology at the heart of bitcoin and other virtual currencies is blockchain. Defined as an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way, Blockchain scores as a revolutionary technology that changes any industry.
Governments globally introduced regulatory legislation to govern blockchain information technology and services’ explosive adoption. This signifies the beginning of the blockchain industry mainstream development and a wave of start-ups using catchy phrases such as blockchain, FinTech and disruptors. Another occurrence is the rise of foundations in China which could seem perplexing to many.
Why do Blockchain Companies Choose Foundation Structure in China?
For clarification, running a blockchain business does not impose a mandatory registration of a non-profit foundation. However, based on a blockchain operational structure’s distinctiveness, many blockchain ventures will eventually conduct Initial Coin Offering (ICO) for expansion purposes. Unlike traditional IPOs, ICO in China requires even more rigorous levels of reviews, audits, and approval by the China Securities Regulatory Commission (CSRC) for the listings to be successful. This sprouted several criminal behaviours, such as fake digital currency pyramid schemes in the market.
During the foundation’s setup, certified lawyers and accountants will participate and supervise the foundation’s operation, ensuring the foundations disclose relevant information and comply with laws and regulations during the operation process. As a result, due to the nature of a foundation structure, the legal entity provides certain credibility to increase the credit for ICO issuance. Therefore, many blockchain ventures choose to register and establish a non-profit foundation as the main body of operation.
Blockchain operators generally choose to register foundations in countries or regions that are friendly to ICO policies and have a stable investor flow, such as Switzerland, Singapore, and Seychelles. Notably, Seychelles stood out as one of the popular jurisdictions for these foundations. Thus, this article will explore the Seychelles foundation in particular to establish the operations of a blockchain foundation in offshore Island.
Why a Foundation Entity Structure in Seychelles?
Seychelles charitable foundation is generally a non-profit organisation that uses the property donated by natural persons, legal persons or other organisations to engage in public welfare. The purpose of the Seychelles foundation can be charitable or non-charitable. Therefore, in addition to being widely used in charities worldwide, the foundation can also meet wealth management needs because its structure is not as complicated as a trust.
How does a Foundation Structure Protect its Assets?
As an independent corporate entity, a Seychelles Foundation shall have a minimum of $1 initial assets. Assets transferred to a Seychelles foundation become the foundation’s property with full legal and “beneficial” title and are not considered the founder’s assets. Similarly, beneficiaries of Seychelles foundations are not considered the “owners” of the foundation. They have no legal or beneficial rights to their assets nor control over the decisions of the foundation. The initial assets in the foundation can, later on, be used for other investments.
There are also laws to strengthen the protection of foundation assets through the following requirements:
- The entity helps to protect the Seychelles foundation from the creditors of the founder, even with conclusive evidence; the compensation period is limited to two years
- The compulsory inheritance law does not apply to the foundation
- Upon fulfilling pre-determined conditions, the assets of the foundation will be distributed to the beneficiaries
- There are limitations to the beneficiary’s right to obtain information, and should the beneficiary be dissatisfied with the transfer or distribution of the foundation’s assets, the beneficiary may be denied ownership of the assets
Steps to Set Up a Foundation in Seychelles
- Foundation Name
The name of the foundation can be in any language, as long as it has an English translated name. Usually, foundation formation professionals assisting in the formation will provide the foundation’s real name and accurate meaning to the Registrar. The name should end with the word “foundation”.
- Application Requirements
The pioneer of the foundation can be a natural person or a company, and the full name of the member, founder and beneficiary fully listed. The foundation must have a committee; at least one compliance officer.
- Tax requirements
The foundation will be exempted from Seychelles corporate income tax, withholding tax, social security funds and stamp duty. The foundation accounts must be accurately recorded and appropriately kept even though the foundation is not required to audit or report its financial statements and annual earnings annually in Seychelles.
- Operation period
The foundation’s operation period can be set by the founder – to continue indefinitely or end within the stipulated time limit.
Advantages of Seychelles Foundation
- Seychelles authorities allow foreign foundations to continue operating as a foundation entity in Seychelles
- Integration of two or more foundations into a new foundation and the merger of one foundation with another is allowed in Seychelles
- Non-disclosure of committee members as names of members and founders are not on public records, which is conducive to the protection of privacy
- Councillors of the foundation must keep the information on exercising power confidential
How does the blockchain industry set up a foundation to operate?
The establishment of a foundation in the blockchain venture is more in line with the industry’s characteristics. The foundation can ride on the wave of blockchain publicity and leverage the technology in various aspects of the foundation – from financial transparency to tax planning in the foundation’s operation.
In conclusion, the Seychelles foundation is a diversified and stable operation entity. Compared with other legal structures, it has apparent advantages, especially for asset protection, succession planning and high confidentiality.
Simplify Your Blockchain Ventures with Desfran
Establishing a blockchain business can be an intricate matter, and it is advisable to consult a specialist with profound expertise. Desfran is a multiservice business consultancy with offerings on establishing transnational foundations and obtaining various financial licenses. With more than ten years in different jurisdictions and industries, our professionals would be apt to provide significant assistance in every step of your business ventures.
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