10 Steps to do an ICO Series: Step 5 Crypto Regulations and Legal Counsel for ICOs
One of the most important things to do when launching an ICO is to seek legal counsel.
With a quick search, you should be able to find an attorney in your area that has experience with crypto. You will also need to get a securities US attorney to give you an opinion on whether your cryptocurrency would be considered a security or not by the SEC(even if you are not based in the US). All exchanges will require this document when applying to list your crypto with them.
It’s a good idea to double-check the laws in your area on a constant basis. Don’t assume you know it all. Even if you’ve done an ICO in the past, things might have changed since then.
Changes Happen Fast with Crypto Regulations and Legal Counsel for ICOs
As with any young and fledgling industry, the crypto space changes quickly. What’s here today could be gone tomorrow.
Take the U.S. state of Arizona’s recent tax laws, for example. Senate Bill 1091 once had a provision allowing residents of Arizona to pay their state taxes in crypto. In fact, three different versions of the bill were proposed, each containing this specific law.
However, as of May 3rd, 2018, versions of the bill containing the cryptocurrency language have not received sufficient votes in the Arizona legislature to become law. So, it seems that Arizonians will have to continue to pay state taxes in dollars, for the time being.
This is just one example of how the regulatory atmosphere surrounding crypto can be as volatile as the markets themselves. That’s one reason why it’s of the utmost importance to seek legal counsel for ICOs. Regulators can change the rules at any time. A certified legal professional knowledgeable of these regulations will help you hammer out the details.
There are a number of accountants and legal experts that have begun tackling this issue. It’s not hard to find a dependable source on the subject if you know where to look. I suggest speaking with other ICOs in your jurisdiction that have already gone through the process. They most likely have an attorney and an accountant in place.
There are quite a few things to keep in mind when it comes to taxes and ICOs. Make sure to consult a professional who understands tax law in your jurisdiction.
ICO Income is Likely Taxable
ICOs typically do not enjoy tax-free treatment. The amount of tax owed is determined by the fair market value of the cryptocurrency in question on the date the ICO ended.
Unlike individual investors, these coins don’t have to be exchanged for fiat in order to be considered taxable.
You’ve received property that has value. Therefore, as far as most tax collecting entities around the world are concerned, you owe them. And if you haven’t established a formal business entity, the burden will fall squarely on your own pocketbook.
Tax Liability Might Fall on You
If your company hasn’t incorporated prior to conducting the ICO, the tax liability will likely fall upon you as an individual. If you have co-founders, your group is likely considered a “partnership” and will need to file the appropriate tax return.
Conduct Your ICO Earlier in the Year
Beginning your ICO early in the calendar year allows you the opportunity to spend some of the proceeds on things you can write off as tax-deductible. Traditional business expenses like office supplies, employee salaries and rent typically apply here.
These are not the only tax-related topics to keep in mind, of course. But they point you in the right direction when contemplating legal counsel for ICOs.
In addition to tax liability, there are some other important regulatory concerns when it comes to legal counsel for ICOs.
Know Your Customer Crypto Regulations and Legal Counsel for ICOs
It is your responsibility to collect Know your customer (KYC) information from your ICO participants. Some jurisdictions do not require it, but I am quite positive that all will require it soon. It’s expensive and in my opinion not fair (since typical KYC requirements don’t usually kick in under 10,000 USD, and your ICO participants may only be contributing 5 USD) but let’s get ahead of potential regulations.
These rules are intended to help companies know who their customers are and monitor activity for potentially criminal or fraudulent transactions. These rules usually include things like:
- Collecting and analyzing information about customer identities
- Determining the likelihood of a customer to engage in criminal activity such as identity theft, financing of terrorism, or money laundering
- Create expectations of customer’s transactional behavior based on past patterns
- Constant monitoring of customer behavior and analyzing behavior against expectations of that customer and their peers.
Keep in mind that KYC regulations vary depending on location. Be sure to educate yourself on the correct KYC rules for your country’s jurisdiction.
KYC may cost you up to 5 USD per person, and you will need to create systems to collect and handle the information.
ZILLA has a KYC system in place for all ICOs that list on our platform. We make it easy to collect and export this information.
Conclusion – Legal Counsel for ICOs
Tax concerns and know-your-customer regulations are just a few topics to think about when seeking legal counsel for ICOs.
If you’re considering an initial coin offering, be sure to seek legal counsel.
This article cannot be construed as legal advice. Any consequences stemming from any action you take as a result of reading it will be your own liability.
Nothing can substitute for a private consultation with a certified legal professional.
In the end, it’s vital to keep in mind that crypto regulations change quickly and often, there are advantages to becoming a business before your ICO, ICO income is taxable, and KYC regulations vary depending on jurisdiction.
If you are planning an ICO and have complied with all required legal and regulatory requirements, ZILLA will host your project.
Step 6 – Your Roadshow
First of all, congratulations for making it this far! You now have your MBA in how to run a blockchain business. Your post ICO strategy should be focused on delivering on the promises that you made during your ICO.
The cryptocurrency exchange dimension is what makes the difference between crowdfunding and an ICO. As a crowdfunding contributor, after contributing to a campaign you simply sit, wait, and hope that the project that you contributed to is completed.
This is a technical team’s webapp/website checklist for running an ICO. Note: Some of these steps are relevant only for ICOs with ERC20 tokens. While the rest is applicable to all ICOs.
Unlike typical startups, ICOs usually use advisors to help with various functions of the company. We have new projects signing up to our platform daily, so I have seen and evaluated over 400 ICOs.
You've got your product in place; you're implementing your marketing strategy, speaking with lawyers, building your community, now it’s time to hit the road.
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