Most token launches require legal set up in some form of another, along with a thorough legal analysis of your token type. For projects conducting a utility token launch (dApps, deAI, L2 projects, etc.) there are a couple of options for a corporate set up available. One choice that has become something of an industry standard involves the establishment of a Cayman Foundation along with a limited company in the British Virgin Islands as a subsidiary of the Foundation.
This article takes a closer look at this corporate structure, and explores the legal steps that founders must take should they choose this option. We’ll look at why this pair of jurisdictions is so popular, which projects currently use it and how feasible it is for different project types and founders of different residencies to use it. Finally, we’ll assess the roadmap of legal works required in the pre-incorporation, incorporation and post-incorporation stages.
Along with exploring this guide you may also want to check out our guide on progressive decentralization, a playbook on utility token launch legal structures and a similar guide on Panama.
What is a Cayman Islands and BVI set up for token launches?
Simply put, the set up involves registration of two separate entities:
- a Foundation in the Caymans and
- a Business Company (equivalent to a private limited company) in the British Virgin Islands.
By combining the Cayman Islands foundation and the BVI entity, projects can enjoy a double entity structure, in which the BVI entity manages initial token distribution as well as private and public token sales, while the foundation remains focused on long-term ecosystem development.
The Cayman Islands Foundation acts as the cornerstone of long-term project development and treasury management. It can operate without formal ownership, which provides protection to the founding team and simultaneously creates a structure that supports genuine decentralization.
The separation of responsibilities between the Cayman Islands foundation and the BVI company has proven effective in similar projects, providing clear delineation between initial token distribution and ongoing project development.
When using these two entities for token launch, the Caymans Foundation owns the BVI entity. This is known as an orphan structure, as it has no direct shareholders or traditional owners. As a result, the BVI-Cayman Foundation allows projects to avoid any complexities that typically arise because of conflicts between decentralized aims and shareholder interests.
In cases where the project also operates a front-end (interface) of the protocol, it is also recommended to have a separate company (referred to as Front-end Operator) that handles this activity. As an option, a BVI subsidiary company can be used for this purpose after the initial token distribution is complete.
What makes the Caymans and BVI so popular for Web3 projects?
Both jurisdictions offer clear legislation for virtual asset providers, making them attractive to crypto projects..
English common law legal systems
In particular, both jurisdictions have a legal system built on English common law, which offers several benefits, primarily legal certainty, predictability and adaptability to new technologies. This legal system offers strong investor protections, supports sophisticated corporate structures and provides a precedent-based framework, which can more easily accommodate and regulate new business models and technologies.
Reputation
The BVI and the Cayman Islands are tax-neutral, plus both jurisdictions are widely recognised by investors, other jurisdictional regulators, and financiers, which helps to encourage further investments and financial activity.
A word of caution, although both jurisdictions have made efforts to have good relationships with other developed nations and meet AML and CTF requirements set by the FATF and OECD, they are still offshore jurisdictions with offshore reputations and that comes with certain challenges:
- Banking; many offshore crypto firms struggle to open accounts
- International regulatory crackdowns on offshore structures
- Reputational concerns; some investors and partners may be less familiar with, therefore hesitant to engage with offshore registered entities.
Crypto-friendly legislation
The Cayman Islands has established itself as a leading jurisdiction for decentralized projects through progressive regulatory frameworks. In 2017, it introduced foundation legislation, which provides a robust legal structure for DAOs and decentralized governance models. In October 2020, the Virtual Asset Service Providers (VASP) Act was enacted, offering clear regulatory guidelines for blockchain businesses, including compliance requirements for virtual asset issuers, custodians, and exchanges.
Similarly, the British Virgin Islands (BVI) has embraced the crypto industry with proactive regulatory measures. In 2020, it introduced the Financial Services (Regulatory Sandbox) Regulations, allowing blockchain and fintech companies to test innovative business models within a supervised regulatory framework. In December 2022, the BVI VASP Act was enacted, further defining compliance requirements for businesses engaging in virtual asset services.
In addition to its crypto-friendly legal framework, the BVI offers flexible corporate structures, such as the BVI Business Company, which enables Web3 founders to customize governance models and operational frameworks. These regulatory advancements, combined with the jurisdiction’s tax neutrality and business-friendly policies, make both Cayman Islands and BVI attractive destinations for blockchain and Web3 projects.
Which projects have successfully used the Cayman Islands + BVI formula?
Although it's quite hard to spot specific projects using BVI companies for token issuance publicly, we have proof that the following Web3 projects have (or where planning to) set up Cayman Foundations:
- DeFi platform Indigo Protocol incorporated a Caymans Foundation in 2022.
- The Ethereum Name Service (ENS), a decentralized naming system built on the Ethereum blockchain, incorporated in the Caymans in 2021.
- The ssv.network, a decentralized Ethereum staking protocol, choose the Caymans for incorporating their DAO foundation. Of the various foundation options available to the project, the Caymans came out as the optimal choice.
- DeFi platform Balancer shared a proposal for a foundation set up in the Caymans for the BalancerDAO. Comments from the community highlighted that this route was important for BalancerDAO to become more decentralized and resilient.
- The decentralized network Threshold shared their proposal for setting up a Threshold Foundation in the Caymans in 2023.
- The decentralized exchange dydX published a proposal published in 2024 outlining plans to establish a Caymans Foundation for the management of ~40M DYDX tokens from the Community Treasury.
- Decentralized protocol Ren discussed the pros and cons for registering a foundation in a proposal published in 2023. The two favourite options were Panama and the Caymans, and the proposal noted that the latter was very popular amongst DAOs.
Which types of Web3 projects can use this set up?
A wide range of Web3 projects can benefit from the combined BVI and Cayman Foundation setup, particularly those issuing native tokens. This structure is especially advantageous for such projects:
- DeFi protocols can leverage it for creating decentralized lending platforms, establishing decentralized exchanges, and developing stablecoin projects.
- SocialFi platforms, which combine social media with DeFi, can use this structure to tokenize social influence and manage social tokens.
- GameFi projects that integrate blockchain technology into gaming ecosystems can benefit from this setup for managing in-game assets and economies.
- Layer 2 networks, which are crucial for improving blockchain scalability, can utilize this structure for their legal and operational needs.
These are not the only Web3 projects who will be able to benefit from a Caymans-BVI setup. Other types of Web3 projects that can also consider this setup include:
- Infrastructure providers developing blockchain protocols or scaling solutions.
- Blockchain technology projects focusing on smart contract platforms and decentralized data storage solutions.
- Web3 development projects creating decentralized protocols and identity solutions.
Ultimately, the Caymans-BVI structure supports various activities, from NFT marketplaces and Metaverse projects to intellectual property holding for Web3 innovations. It is no surprise that DAOs often find the Caymans Islands to offer optimal conditions for foundation incorporation, or that many blockchain businesses look to the Caymans-BVI dual-entity set up for their token issuance projects.
Set up costs and timelines
How much does it cost to set up a Cayman Islands and BVI double-entity structure?
Costs for a typical setup—registration support and compliance services—start from $6,000 upfront for a Cayman foundation and from around $2,500 for a BVI company, including incorporation, registered office, and secretary fees. Annual recurring costs average at around $5,000 for the foundation and around $2,000 for the BVI company, and cover government fees, a registered office, a secretary, and compliance filings. Hiring nominee directors in BVI and/or a supervisor might cost an additional $2,000 to 3,000 per year per role.
How long does it take to set up a Cayman Islands and BVI double-entity structure?
Usually, setting up a Cayman foundation or a BVI company takes on average one week after all the documents have been collected. However, we’d recommend reserving at least one to two months for the process. This will help you ensure that all the important considerations have been reviewed before you create any entities, and will also give you enough time for the post-incorporation matters, like appointing nominee directors/supervisors and preparing agreements, etc.
Founder residency and tax considerations
When establishing a legal structure for a Web3 project, founders must be very mindful of their own circumstances and how this could create further problems. In a nutshell, founders should think about governance issues, tax implications, and company vs founder liability.
Governance considerations
Many jurisdictions now offer the possibility for remote company administration, which is particularly beneficial for Web3 projects with globally distributed teams. This allows founders to manage their companies efficiently without the need for physical presence. Alternatively, founders may benefit from using nominee services, for example in BVI. This can help maintain privacy and reduce personal exposure for founders. However, it's essential to understand the legal implications and potential risks associated with using such services. This should be analysed on a case-by-case basis with help from an expert.
Tax implications
There are a couple of tax rules floating about that founders should be aware of when picking jurisdictions for company registration.
Controlled Foreign Corporation (CFC) rules may require founders to report and pay taxes on the offshore company's income in their country of residence, even if the income is not distributed. Then there’s the concept of the Place of Effective Management (PoEM), which determines where a company is considered tax resident. If management decisions are made in a country different from the company's registration, it may be deemed tax resident in that country. Lastly, founders should be cautious about creating a Permanent Establishment (PE) in their country of residence, which could subject the company to local taxation.
"Establishing economic substance in the offshore jurisdiction may help to avoid some of the potential issues and mitigate tax risk where members of the development team sit as directors on either the token issuer or foundation company", - Paul Muspratt, Managing director @ wb.group
Company's liability vs. founders' liability
Generally, there are a bunch of things that projects and founders could face liability for, if they’re not careful.
- To avoid client onboarding liabilities, projects must implement robust anti-money laundering procedures and comply with international sanctions. Failure to do so can result in both company and personal liability for founders.
- Marketing and promotion liabilities can be avoided through compliance with financial promotion regulations in target markets. Personal data protection laws must be adhered to, especially when collecting user information.
- Negligence liabilities may also arise, and founders may face personal liability for inadequate cybersecurity measures leading to hacks or data breaches. Additionally, unmoderated user-generated content that causes harm to third parties can also result in liability. To mitigate these risks, founders need to regularly audit security measures, establish clear content moderation policies and implement robust compliance programs.
Roadmap of legal works
The following checklist covers the important legal tasks that projects must undertake when setting up a Cayman Foundation-BVI dual entity structure.
Pre-Incorporation Stage
Jurisdiction fit analysis for project needs:
- Evaluate BVI's and Cayman's regulatory frameworks applicability for your type of project
- Assess tax neutrality benefits and implications for token issuance
- Review legal protections for decentralized governance structures
Jurisdiction fit analysis for founders' needs:
- Evaluate remote management possibilities and nominee services availability
- Examine potential tax implications (CFC rules, PoEM)
- Assess liability protection measures for founders
- Consider establishing economic substance in Cayman
Incorporation stage
Documents required for registration:
- Certified copies of passports for ultimate beneficial owners
- Proof of address for directors and shareholders (certified for Cayman, not BVI)
- Certified corporate documents for any corporate shareholders
Information for company setup:
- Determine authorized capital for BVI company
- Define foundation's purpose and if there are to be any beneficiaries for Cayman foundation
- Appoint secretary for Cayman Foundation (the registered office is mandated to provide this)
Tax registration and banking:
- Apply for tax exemption certificates if applicable (optional)
- Initiate bank account opening process
Post-incorporation stage
Company maintenance and agreements:
- Maintain proper accounting records, and their location must be disclosed for the BVI company
- Ensure both entities complies with annual return requirements
- Maintain registered office and agent in both jurisdictions
- Prepare SAFT agreements for private investors
Compliance for different activities:
- Marketing: implement financial promotion compliance measures
- Client onboarding: establish KYC, wallet and sanctions screening procedures
- Client support: develop cybersecurity protocols and AML/KYT measures
- Token regulatory compliance: consider whether you need obtaining a legal opinion on your token for public distribution campaigns
Additional considerations:
- Draft comprehensive Terms & Conditions for a dApp or platform (if applicable)
- Prepare public token offering documentation
- Implement transaction and wallet monitoring systems for regulatory compliance
Could the BVI-Cayman Foundation setup be right for you?
As the industry ‘go-to’ option, it might feel obvious that registering a foundation in the Caymans and another entity in the British Virgin Islands is a sure-fire next step for your project. However, in the world of Web3, it’s never that clean cut. At Legal Nodes, we help Web3 projects understand what their best options are, taking into consideration founder locations, team setup, investor requirements, budgets, project type and more.
Whether your optimal set up is a BVI-Cayman Foundation or another corporate structure, we can help you with comprehensive legal support from the very beginning.
- Start with an initial assessment of whether this particular structure aligns with your project's specific needs and goals
- Complete registration assistance and documentation preparation for all relevant jurisdictions
- Receive pre-TGE legal support to ensure compliance from day one, followed by ongoing compliance support for marketing activities and client onboarding procedures
- Have help with achieving your long-term goals by satisfying any post-incorporation requirements
By partnering with Legal Nodes, you can focus on your core development and project milestones while ensuring your legal structure remains robust and compliant across all operations. Contact us today.
Get support with your token launch legal setup
