For businesses taking the strategic decision to enter the digital age and conduct an initial coin offering (ICO), two questions are inevitable:

  • Which jurisdiction should be chosen to launch and conduct an ICO?
  • What structures are required for that business in that jurisdiction?

With regards to the first question, the Cayman Islands has become a popular choice for many businesses conducting ICOs due to its tax neutrality, its reputation as a pre-eminent jurisdiction for investment funds and its securities law regime, which is generally more permissive than those of other jurisdictions.(1) However, the second question has perhaps been the more difficult to answer. This article considers structuring an ICO in the Cayman Islands for non-asset-backed token ICOs.

No one-size-fits-all structure

Before any steps towards conducting an ICO are taken, it is critical that comprehensive legal and tax advice is obtained for each business before any token is sold or any entity formed. When considering what type of entity should be formed and where it will fit in a business's corporate structure, the first port of call should be onshore tax advisers and the second should be onshore and offshore lawyers. As ICOs remain novel transactions in both the Cayman Islands and abroad, analysis of the applicable legal, regulatory and tax treatment of such transactions and the structures that conduct them continues to evolve. Therefore, this article should not be treated as advice and merely sets out an analysis of structuring issues in the Cayman Islands.

Platform or protocol

ICO projects tend to fall into one of two camps.

The first is the launch of new decentralised blockchain protocols which sell either 'native' digital assets built into the blockchain – similar to bitcoin – or tokens generated on a third-party blockchain (eg, Ethereum), which are then exchanged in future for the native asset (a blockchain project). As these businesses often seek to launch a decentralised product that will ultimately be governed by a community, such businesses often wish to incorporate a vehicle that represents this ownerless product. Cue the Cayman Islands foundation company: a supremely flexible vehicle that operates on a basis akin to an incorporated trust structure. Conceptually, these vehicles are suited for the benefit of the community as they can be shaped to be standalone, ownerless entities restricted in making dividends or distributions. Proceeds raised by the ICO are paid to service providers which are tasked and incentivised to fulfil the objectives of the foundation company. While some blockchain projects have opted to use the ever-popular exempted company of the Cayman Islands for their ICO (as outlined below), subject to appropriate tax advice, considering a Cayman Islands foundation company is arguably a must for all blockchain projects.(2)

The second project is the development of tokens generated on a third-party blockchain, which are then used for utility purposes on a platform (a platform project). As platform projects usually seek to launch technology with a traditional ownership structure, many find that an exempted Cayman Islands company suits their business needs well. Incorporated with a familiar constitution governed by a memorandum and articles of association, with directors, officers and shareholders and an ability to pay dividends, many businesses choose this tax-neutral vehicle to be the 'token generator' (ie, the entity that generates and sells the tokens).(3)

One or two (or more) entities

The central entity for ICO purposes is the token generator. Many businesses are often tempted to use the token generator as a multi-purpose vehicle, either as the holder of the project's intellectual property or as the developer of the protocol or platform. Although this is entirely permissible, businesses must be alive to the fact that the token generator is usually operating a crowdfunding-like business in an ever-evolving regulatory landscape. Therefore, future possible liabilities should be ring-fenced by having the token generator kept separate from the developer of the protocol or platform (the developer). This is one of the many reasons that the most common structure for an ICO now involves at least two entities: a token generator and a developer.

As the developer is often separate to the token generator, the question then arises as to where to situate the developer. Following appropriate tax advice, developers often remain onshore for many projects; however, many choose to incorporate the developer in the Cayman Islands – both inside and outside the special economic zone (SEZ).

The SEZ is a government-designated zone that is designed to attract certain types of business to relocate to the tax-neutral Cayman Islands. Crucially for blockchain-based projects, the SEZ targets software development businesses, thereby making a full-scale relocation attractive. While there are many legal and regulatory considerations for incorporating an entity within the SEZ, the choice to move the developer to the SEZ appears to be primarily tax and lifestyle driven. It is perhaps for this reason that many businesses chose to form their developer initially as a Cayman Islands-exempt company as there is always the option of converting such entities into 'special economic zone companies' in future following appropriate advice and consideration.

While many projects are launched with both a token generator and developer, others also choose to incorporate separate IP holding companies or separate software operators in addition to the above. This choice is often driven by each business's:

  • preferences;
  • risk appetite; and
  • tax considerations.

Parent or partner

It is now more common than ever for ICO structures to involve one or more vehicles based either onshore or offshore. A wide approach has developed as to how the token generator and developer relate to each other following formation.

Often, the developer is the parent of the token generator which, on completion of the ICO, distributes up the funds to enable the developer to develop the platform or protocol. The token generator is seldom the parent of the developer as this could subject the entire structure to the potential liabilities discussed above. As alternate structures, the token generator and developer are sometimes:

  • affiliates; or
  • entirely separate from each other, particularly in cases where the token generator is an ownerless foundation company.

Where the entities are affiliates or entirely separate, thought should be given as to how the token generator, developer and any other entity relate to each other. Failure to correctly document these relationships could lead to unintended consequences. For example, where the token generator transfers the ICO funds to a separate developer, thought should be given as to what consideration is being given by the developer for such funds.

In some cases, a token generator will hold the intellectual property but then:

  • license it to the developer;
  • transfer the ICO funds to the developer under a service agreement; and
  • employ the developer to develop the platform or protocol in consideration of the ICO funds.

In other cases, the developer holds the intellectual property but employs the token generator as a fundraiser. In all scenarios, the creation of a nexus between the parties is critical in order to clarify:

  • the obligations of each entity;
  • the ownership of property; and
  • the separation of liability.

In any case, all businesses should seek tailored legal and tax advice before deciding on structuring intercompany relationships.


Businesses contemplating an ICO will be comforted to know that this is becoming a trodden path in the Cayman Islands and certain trends and patterns are beginning to emerge on how to structure such a venture. Notwithstanding these developments, each business is encouraged to obtain appropriate tax and legal advice at the start of their project and must be aware of the issues highlighted above.

For further information on this topic please contact Bradley Kruger or Michael Robinson at Ogier by telephone (+44 1534 514 000) or email ( or The Ogier website can be accessed at


(1) Further information on the legal regime of the Cayman Islands against the backdrop of ICOs and some of the advantages of conducting an ICO through an entity formed in the Cayman Islands is available here.

(2) Further information on foundation companies is available here.

(3) Further information on exempted companies is available here.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.