2. Structural Alternatives (Outline)

Disclaimer

There are at least three basic structures for Crypto Companies, which will be discussed in separate posts:

A.     International Structure  (very hard to make work)
    1. In order to have any reasonable argument that this structure work, you have to assume: 
      1. Existing network development is extremely limited (e.g., pre White Paper); and
      2. Sale of Tokens will be part of an operating business where the Sponsor provides software or services to users.
    2. OpCo forms a wholly owned foreign subsidiary ("ForCo")
    3. OpCo and ForCo enter into a "Cost Sharing Agreement" pursuant to which each will fund a portion of the development costs of the Network, based on the projected share of income from foreign sources and domestic sources.  OpCo funds a portion of its share of those costs by contributing all the foreign rights to the Network to ForCo
    4. Each of OpCo and ForCo sell Tokens or SAFTS to raise money to fund the expenses of developing the network and operating the system
 (Read more: here)
B.     Corporate Structure
      1. Ideally:
        1. Founders contribute their IP to OpCo, and either
          1. reserve a certain percentage of the Tokens or 
          2. receive, in addition to their common stock in OpCo, a SAFT with a market (very low) purchase price entitling them to Tokens upon network launch.
        2. The Company may also offer employees the right to purchase Tokens for the fair market value of the Tokens before the first SAFT;
          1. In order to avoid the risk that the Company (and its "Responsible Persons") are subject to a failure to withhold penalty, the Company might consider having the purchase price of the Tokens be variable (i.e., adjusted upward if the IRS ultimately determines that the FMV on the issue date was higher than the one set by the Company in the documents).
        3. If those common shares and SAFTs are subject to vesting, the Founders file an 83(b) election (and possibly the repurchase right related to the SAFTs is in favor of the other founders rather than the Company.
        4. Following the ICO, the Company invests a portion of the proceeds in an old-fashioned tax shelter to move losses into a year that can be carried back to the year of the ICO.
      2. If the IP is already owned by a corporation (so there is no opportunity to retain tokens when the IP is contributed) and the IP is too developed to justify a low SAFT price (e.g., the corporation has done a SAFT without having previously addressed employee/founder issues), then there are few structuring alternatives.
(Read more: here)
C.    LLC Structure:
      1. Founders contribute IP to a newly formed LLC, 
      2. LLC contributes all the IP other than X% of the Network's tokens (to be reflected in the Genesis Block) to the capital of a newly formed corporation ("OpCo")
      3. LLC issues equity to investors for cash or crypto currency and contributes that to the capital of OpCo;
      4. After the Network Launch and expiration of all lock ups on Tokens, LLC liquidates and distributes any Tokens it owns and the stock of OpCo to its shareholders;
(Read more: here)

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