Overview

The Cayman Island Foundation is a special type of entity which can be registered in a certain way to be the perfect governance structure for crypto projects. By registered the foundation as a memberless and founderless foundation the entity has a solid base to be governed by a community of token holders. We have deemed this the Cayman Islands Web 3 Foundation. This is how most crypto projects have set up their entity stack.

Use Cases

This popular Cayman company structure can be a great fit for Web3 groups, decentralized projects as well as more usual organizations. Foundation Companies are a good fit for decentralized projects and structures. They may also be used in conjunction with another company in a structure that allows the company conducting the development of a project to be separate to the issuer of tokens for the project. Good intel is needed at the point of setup in order to avoid straying into a heavier regulatory burden.

Cayman Foundations are an innovative combination of features from corporations and trusts, based on existing well-known and trusted company structure. However, foundations lack shareholders, which makes a decentralized model more workable. The Foundation’s directors are not bound to serve the shareholders’ interests but instead the purpose of the foundation. Foundations are ideal when the mission is not to generate shareholder profits, but to serve another purpose which would be described in its constitution. Both charitable and non-charitable activities can be supported by Foundations.

Foundations do serve to protect stakeholders from personal liability, but their inherent flexibility still allows a high degree of responsiveness. Combined with the capacity for decentralized governance they offer a unique model which sits well with many Web3 projects and communities.

Tax Status

Foundations in Cayman do not have corporation, income, capital gains, or withholding taxes applied to them.

Privacy

Directors of a Cayman Islands Foundation are filed with the registry, they are also part of the public record.

The names of beneficiaries are not filed as it is the token holders that are the beneficiaries. Due to the transferrable nature of tokens it is not possible to file for every change of token holder.

A Web3 Foundation is registered with a Senior Managing Official, these are essentially seen as initiators of the project. These Senior Managing Official will be filed with registry but they are not visible on public record.

Onboarding

Getting onboarded to register your Cayman Islands Web3 Foundation is a fairly straight forward process. We will need to know some information regarding the new company as well as a KYC and KYB check for all natural and corporate participants.

The following documents are required:

Online Form

Once the Cayman Islands Web3 Foundation is ordered you will receive a link to login to the Otonomos Dashboard. When you enter the dashboard you can start filling out the company application form to stage your foundation. In the application form we will ask information about the entity. The following information will be requested:

• Company Name Options
• Purpose of the entity
• Country
• Source of Funds
• Financial Year End
• Legal Opinion (optional)
• Org Chart (optional)
• Nominee Participants (if applicable)
• Corporate Participants (if applicable)
• Natural Participants
• Corporate Participant Information

Once this is all declared, you move on to the KYC verification process.

To register the entity the following roles need to be filled:

• Director
• Supervisor
• Senior Managing Official (if Director and Supervisor are a corporate/nominee)

KYC Verification Process

The KYC Verification process is very straight forward and smooth thanks to our friends at SumSub. After submitting the online form with all the new company information all natural participants will receive a KYC invitation to upload the needed documents along with the required information.

Read more on how to use SumSub here.

Constitution an Bylaws

As part of your Cayman Islands Web3 Foundation order we will assist you with getting your Constitution and Bylaws in place. These documents go deeper into the purpose of the foundation and how the foundation will be governed.

Initial Asset Pledge

Most web3 projects get funded through an initial token sale, this is generally done through a dedicated token issuance SPV. Once the token raise is completed it is common to pledge these assets to the Cayman Web3 Foundation.

To ensure this is properly documented, it is required to fill a form to explain the source of the assets.

Entity Maintenance

Keeping your Cayman Islands Web3 Foundation in good standing is very straight forward as there are no annual return obligations. This means you will only need to pay renewal fees and submit the annual Economic Substance Declaration.

Annual Renewal

The annual renewal payment is required to make sure the registered address is renewed. Besides that there are annual government fees that need to be paid. To ensure we can make the payment in time to registry we urge you to make the payment shortly after we give the initial renewal notification.

Renewal Periods

The renewal period for the Cayman Islands Web3 Foundation is on January 1st of each year. This means that the incorporation date does not matter in this regards.

Reporting

Besides the renewal payment you are required to provide an annual Economic Substance Notification. This is done to determine whether the foundation is carrying out relevant activities and therefore is required to have substance in the Cayman Islands.

The precise purpose of a DAO will have a significant effect on the burden of compliance applied to it. If its activities are considered ‘relevant’ then the more onerous Economic Substance Regulations may apply. The main ‘relevant’ activities include banking, insurance, fund management, IP management, shipping, distribution or acting as a headquarters. If these do apply the company is required to have a physical presence in the country, employ local personnel and generate revenue.

Another important and relevant piece of legislation to bear in mind is the VASP act which is concerned with bodies who issue, have custody and are trading virtual assets such as crypto and tokens. If this does apply then a VASP licence application is needed.

Shutting down your entity

When shutting down an entity there are two options to follow:

• Formal Dissolution
• Strike off

Dissolution

Please note to dissolve an entity, it must be in Good Standing status which requires any outstanding obligations to be settled as per the Registry’s requirements. If the foundation has been active and possibly has outstanding assets and liabilities, and the directors wish to have a proper discharge from their duties, voluntary liquidation or dissolution is the preferred choice. All pending dues in the name of the entity must be settled before dissolution.

Once all in order to proceed, the Registry will require a one time payment to start the process prepare the required documentation. Please allow between 15-45 days for the dissolution process to complete depending on the entity's jurisdiction. Once completed, a Certificate of Dissolution will be provided as proof and uploaded to the entity’s dashboard.

Strike Off

Alternatively, depending on the jurisdiction. Strike Off would be an option to close an entity at a lower cost than dissolution/liquidation. This option while lower in cost will usually take longer to process as it’ll be based on specific periods of the year. Example: Filing the Strike Off in quarter one will be dissolved in quarter two.