Legal registration for ICO projects is a critical task. But it is often seen by startups as a burden that is boring and producing no direct results, and thus prioritized to be done “sometime”.

We at the LetItPlay team are no exception and we treated Legal as a necessary evil. We initially planned to register our company in Zug (Switzerland). But the registration procedure there takes several months and is very costly. Like many other projects that already went through these procedures we decided to register after pre-sale.
We were going to launch our pre-sale on the 25th of December 2017 and were heading towards it. Out of the blue I decided to double check with our legal counsel whether we were on the right track.

Pivotal discussion with the counsel

We had a discussion with the counsel just two days before the pre-sale. We were bewildered by the results. The recap is below:

1. The situation has changed in terms of regulation since summer 2017 when no legal registration was required for ICO at all.
2. Now regulators (including SEC) have dedicated experts and even departments who are in charge of elaborating legal practices for ICO and monitoring ongoing projects within their jurisdictions.
3. A project contacts the regulator for the first time when listed at the exchange. From that point on the regulator keeps an eye on the project and initiates preliminary investigation in respect of the project.
4. The biggest threat for the project is shady fund raising. The existence of such practices and the lack of proper KYC procedure in place during fund raising, if revealed by the regulator, might have dire consequences. At best it will lead to delisting, at worst to criminal charges against the CEO.

Since the majority of top exchanges operate in the U.S, we will have to deal with the most stringent regulator–SEC. We don’t want any troubles with SEC. It would be unwise to put at risk the whole project by failing to meet some formality at the very beginning. We made a decision to suspend the launch of the public pre-sale until we solve the Legal matters. For a few days we delved into specifics of different jurisdictions and their loyalty to blockchain projects.

Choice of jurisdiction

For obvious reasons we did not consider Russia. The legal status of cryptocurrencies is not defined, and the bill that they promised was not passed in 2017. It is difficult to predict what it will be like if passed in 2018. There is a battle going on between liberal and conservative regulatory approaches to cryptocurrencies.

Switzerland
Despite our initial desire to register in Switzerland, we had to reject Zug due to long registration time. Waiting for 2 to 3 months seemed too long for us. Yet in future we’d like to get residence in Switzerland as the most stable jurisdiction in our opinion. So, we were looking for a country where we could register quickly and then change residence to Switzerland in future.

Singapore
Another country known to everybody is Singapore. Registration cost is affordable. It will cost $5,000 to $7,000 to hire an agent who will register the company with all documents for ICO in few days. But we did not venture to register in Singapore in the light of negative news coming from there. At the end of 2017, they started regulating ICO, it became more challenging to find a bank and risks of closing accounts increased.

Belarus
Our fraternal country all of a sudden became a top most loyal to cryprocurrencies jurisdiction thanks to its decree декрету. It happened so unexpectedly that even residents were not ready for such a gift from Lukashenko. We put aside this option as well. On the threshold of the New Year of 2018 no one had a clear understanding how one can technically exercise his rights, legally use cryptocurrencies and hold ICOs.

Estonia
It is considered one of most advanced countries in the blockchain world. You can easy set up a company there. But, as our colleagues from IT businesses warned us, your company can be easily closed against your will especially if it has roots in Russia. After my photo with Putin… we decided to take no chances.

Offshore
We rejected all possible islands like the BVI, the Cayman Islands, the Isle of Man, the Seychelles and others because we can hardly move from them to Switzerland. The Swiss don’t like when an offshore with unclear history tries to move to their highlands with crystal clear Alpine air and crystal clear companies.

For the same reason we excluded Cyprus. It’s no secret that Cyprus companies are often used for tax optimization, and this might be the reason for refusal by Switzerland. On December 28 we almost bought an existing Cyprus company to move forward with our project instead of dealing with endless formalities. Our counsel dissuaded me from Cyprus option. Instead he proposed an option that I never expected and that was well suited for our needs.

Choice of Bulgaria

This choice of domicile for a company that creates projects on blockchain offers many advantages:

1. One of lowest tax rates in EU.
2. Regulation loyal to ICO. The possibility to put tokens onto company’s books.
3. Simple and affordable company registration procedure.
4. Re-registration of a EU-based company in Switzerland is simpler than setting up a new company in Switzerland.

The decision was made, and at the beginning of January we submitted documents for company registration in Bulgaria. Until submittal of documents we decided to suspend public pre-sale. As a result our marketing schedule for pre-sale was significantly disrupted. In fact, we could move on with public marketing only during the last week of January. So we would probably have to extend the pre-sale to make time to hold negotiations with key funds and test marketing channels. Of course, it was a forced but a compromise decision.

There are still a lot of uncertainties about doing business in Bulgaria. We need to dive into details of workflow and see how good is internet banking there. In Russia, as opposed to the rest of the world, we are spoiled with high-quality banking products for businesses. This experience may become a topic of one of my future articles.