Initial Coin Offerings (ICO)

With the increased usage of cryptocurrencies, the way new companies gain the capital they need is changing. Rather than making an Initial Public Offering (IPO), many startups are making Initial Coin Offerings (ICOs), using coins or tokens to promise their investors rights to services or future income.

Since blockchain—the technology in which cryptocurrencies such as Bitcoin and Ether are used for transactions—operates independent of a centralized location or entity, many erroneously believe that ICOs aren’t subject to regulations. While it is a bit of a nebulous area, various countries are beginning to implement new laws to govern the transactions made using cryptocurrencies.

If you are a startup looking to make an ICO, the legal expertise at Hart David Carson, will be of invaluable assistance in your endeavor. We can help you determine the viability of your offering and structure the transaction in a way that is both legally compliant and financially sound.

ICOs and the Law

While regulations specific to ICOs are not yet as prevalent as they are with other financial matters, that doesn’t mean they are completely unregulated. Regulators are constantly striving to apply various rules to ICOs. Since they bear so much resemblance to IPOs and securities, laws applying to securities and other forms of financial trading are being used more frequently to regulate ICOs made by new companies.

In addition, countries all across the globe are working to establish ICO-specific regulations to prevent fraud and protect the interests of investors. Regulations are consistently changing, so it’s important to have legal guidance to help you navigate the process successfully. If there are no existing cryptocurrency laws in the jurisdiction where you intend to do business, you’ll need to take into account how existing laws may apply to your situation.

The ultimate purpose of these laws is to make sure you can deliver on the promises made in your ICO. Violation of established standards, even when they don’t explicitly deal with cryptocurrencies, can result in significant legal backlash, so your ICO must be carefully structured to avoid that. Hart David Carson, can provide you with the legal guidance and counsel you need to successfully roll out your initial coin offering while avoiding hefty legal repercussions.

Structuring an ICO

Determining the structure of an ICO can be a complicated matter since numerous factors must be taken into consideration. A few of these include the following:

• The jurisdiction of the startup and its investors
• Recent developments in regulations governing ICOs and cryptocurrencies
• Whether the offering can legally be considered a security, financial instrument, or property
• Whether the tokens offered are tradeable and would yield a profit

Given the amount of complexity and instability involved in the use of cryptocurrencies, each situation must be examined individually to determine whether it’s viable and how the transaction should be structured.

With decades of experience helping clients navigate various scenarios in the financial marketplace, Hart David Carson, is well versed in existing laws, including SEC and FTC regulations. We stay abreast of new developments in these areas, and our attorneys are able to guide you through the process of structuring and rolling out your Initial Coin Offering. 

For more information or to schedule a free consultation, contact us today.