Are you in Web3? The Crucial Role of Legal Structuring for Crypto and Web3 Projects

These days we can observe a great number of Web3 projects appearing more and more. Some of them will not survive after some time while others will bring some innovative solutions and/or cutting-edge technology. It is essential for such projects to have a strong vision, team, community, continuous support, and, surely, effective legal structuring. Today we are going to highlight the main arguments why it is important to ensure that your crypto or Web3 project should dedicate attention to the proper structuring.

So, what basically is the legal structuring? Legal structuring is a framework that defines how a business company operates. It includes the choice of the right type of company (or companies), specific jurisdiction to incorporate an entity, tax planning (offshore or onshore locations), and so on. VASP licenses, crypto-friendly jurisdictions, DAO LLC, and Web3 companies: these are the samples of how to create a link between blockchains and the real world.

Why it matters? Web3 projects are designed to be used and controlled on the blockchain. However, it is important to take into account that many of them have to interact with the real world in a number of aspects: investments, funds flow, contracting, employment, legal protection, access to services, and various other matters. Let’s make an overview of some arguments in favor.

Certainty in Legal Status 🏛️ and Limitation of Liability 🛡️

While launching the Web3 project one must consider the way it is structured: incorporated or unincorporated organization. Whether it is a separate legal personality or a partnership between several persons. Whether it should be a company limited by shares or a limited/unlimited partnership. How the liability is limited. Whether it should be a licensed or non-licensed jurisdiction. Whether it is an offshore or onshore jurisdiction.

Let’s take an example of DAO – a decentralized autonomous organization. There is a popular opinion that if a DAO exists outside any jurisdiction, it shall follow no rules or can face no liability. Unfortunately, this position is not correct. There were at least several cases when DAO members were subjected to full liability with personal assets – as such structuring is considered in most countries as an unincorporated partnership having no limitation on liability.

There is a number of locations and types of companies that might be suitable for blockchain-based business activities. Some countries even started to introduce a special type of organization called DAO LLC which is designed specifically for the purposes of dealing with virtual currencies, virtual assets, or other types of Web3 projects.

Contracting Outside the Blockchain 📄

Another issue is about the interaction between the Web3 project and the real world. The smart contract can govern a number of processes, and make them transparent, automated, and fully efficient. However, these days smart contracts mostly do not allow entering into various contractual agreements.

Legal structuring allows your project to navigate contractual agreements outside the blockchain. This flexibility is crucial for engaging in traditional business arrangements, partnerships, and collaborations.

The other most simple example could be that projects may require to get servers, and services, hire staff, or obtain a license for a trading platform. These actions require at least two parties that will have a legal capacity to conclude a contract. Legal structuring ensures that your project is not confined to the limitations of smart contracts alone.

By having the right legal arrangement, these matters will create fewer issues and allow you to arrange effective contract management within your organization.

Ownership over the real assets 🏠 and access to a Financial System 💼

The above could also be a part of the previous point and is mostly related to more specific matters like legal ownership rights over particular assets as well as access to the financial system (including banks or other financial institutions). Indeed, nowadays blockchain solutions allow one to own NFTs and virtual assets, there are even attempts to implement these solutions related to real estate and other fields.

The concept of ownership goes far beyond virtual assets. Legal structuring enables your project to establish ownership rights over real-world assets and enforce legal protection in case of need. By arranging the proper structuring your company and project will seize and benefit from both blockchain-based ownership and the classical concept of ownership. This also creates opportunities for tokenization and innovative asset-backed ventures.

The same can be also related to the fiat financial system and accessing traditional banking services. This plays a vital role in managing funds, building a reliable financial infrastructure, or enhancing the financial capacity of the project. Although many financial institutions are still skeptical about accepting clients dealing in crypto, the number of institutions accepting such clients is constantly increasing. It is important to ensure that the bank is clearly understanding the funds flow and your company has a proper anti-money laundering measure implemented (when applicable).

Intellectual Property Protection: Safeguarding Innovation 🌐🔏

One more issue to highlight is about intellectual property rights. This is an important instrument for any business allowing them to advance innovations and secure a position among other competitors. Being properly legally structured, for instance, companies can apply for registering their trademarks or trade (business) names helping them to differentiate exactly their project from all others. It is not only limited to the mentioned and could also include trade secrets, patents, copyright protections, and others.

Having a proper IP strategy, businesses can be assured that they have remedies against any unauthorized or unlawful use of intellectual property assets. This plays another crucial role especially if you are pursuing projects aiming to be developing from a long-term perspective.

Global Expansion: Navigating Cross-Border Challenges 🚀🌎

As blockchain-based projects are aimed at reaching a global audience, the arrangement of cross-border legal structuring may be an essential instrument on their way to success. If your business activities are meant to be associated with onboarding customers from various parts of the Globe, you, most likely, will face the necessity to arrange a group of companies in a number of countries. Resolving this matter will encounter at least the following considerations: locations and jurisdictions, the need for a license, tax planning matters (offshore and onshore solutions), and others.

In this case, it is important to have a clear understanding of how serious the project is intended to be. The serious goals of the project will require deeper and more complex structuring to ensure there is compliance with the local regulatory environment. By this time, a number of countries have already adopted particular legislation while others are working on its development and implementation in the near future.

To conclude on the above, it is worth highlighting one more time that arranging the right legal structuring is never a bad idea. Web3, cryptocurrencies, and blockchains are now becoming more and more a part of nowadays reality. If so, why not consider the building of a reliable organization that would ensure the project’s stability and future prosperity?

If Web3 is to be designed by people and for people, it should demonstrate its commitment to compliance with the regulatory framework. This will require some effort and, on the other hand, a well-legally structured project will benefit afterward. Ensuring the above will most likely gain more trust and attract a broader range of investors including both individual and institutional ones.

That is where the Corpheroes come to assist. Our team deals with global clients helping them to set up their business interests by creating the right corporate structure for their organizations. Company formations for crypto, licenses for dealing in virtual assets, general advisory, intellectual property rights – you can find every service you may need in one place. We care.