Startups planning an initial coin offering, need to start investing in professional legal advice. As well as ICO regulation, startups planning an initial coin offering need to be aware of their full tax reporting requirements.
Legal counsel can help legitimize ICOs and increase fundraising success rates. Here’s how:
Tax Law & Legislation – What Do ICOs Need to Know?
Over the past five years, ICOs have transformed the startup business landscape. By using an initial coin offering to raise capital, startups free themselves from having to pitch ideas to conventional lenders. However, ICOs are coming under ever closer scrutiny by regulators.
Legal Challenges Faced by ICOs
There is a misconception that setting up an initial coin offering is easy. In the United States, there are no laws which explicitly ban ICOs. However, as cited by the likes of the ICO Law Group, ICOs are required to comply with U.S. Securities Law.
“It is generally unlawful to raise capital in exchange for your coins or tokens unless you comply with U.S. Securities Law.”
Why Stricter ICO Regulation is a Good Thing
In theory, anyone can set up an initial coin offering. However, as recently cited by Vitalik Buterin, the gold rush days of the cryptocurrency market are over.
“The blockchain space is getting to the point where there’s a ceiling in sight. There isn’t an opportunity for yet another 1,000-times growth in anything in the space anymore.”
As for why growth in the crypto space is slowing, the reason is simple.
In 2017, fewer than 20% of ICOs returned profits to investors. Some startups failed to use raised capital responsibly. Others were outright scams. As a result, all new ICOs are expected to register with the IRS just like regular startups. Much more importantly, if ICO coins can be considered securities, ICOs must register with the U.S. Securities and Exchange Commission.
Do You Need a Professional Business Attorney?
Does registering as a business seem like too much hassle? If so, you shouldn’t be running an initial coin offering.
When ICOs fail, they do so due to a lack of basic business acumen. Selling ERC20 tokens is easy. Putting funds to work and setting up a successful business, is an entirely different skillset. The good news, though, is that a professional business attorney can help.
- Hiring a business attorney can help ICOs identify the best structure for their business
- A business attorney can help startups get to grips with their true cryptocurrency tax reporting requirements
- ICO specific legal advice can increase fundraising success rates by lending legitimacy to projects
ICO Laws Still Vary State to State
When setting up an initial coin offering, it is important to remember that ICO laws and regulations aren’t universal. Some U.S. States require a special license when engaging in altcoin activities. Others require startups to hold equivocal fiat cash deposits when issuing ERC20 tokens.
Penalties for Non-Compliance
To date, several individuals have been incarcerated in the United States. Specifically, for non-compliance with cryptocurrency specific anti-money laundering laws.
In May, 24-year old Eldon Stone Ross from Pensylvania found himself jailed for selling cryptocurrency without necessary licensing. Moreover, anyone identifiable as operating an ‘illegal money transmission business,’ is liable for prosecution.
Does the Term Illegal Money Transmission Business Apply to ICOs?
Anyone who raises funds via an initial coin offering without proper licensing can be charged under different State anti-money laundering laws. This being the case, never risk launching an initial coin offering, before understanding your full regulatory responsibilities. Moreover, when in doubt, always make sure to seek out ICO specific legal advise from groups like the aforementioned ICO Law Group.