created, especially for ICO's. This typically
requires the creation of: 1) an operational
company (OpCo), which launches an
ecosystem and sells crypto-tokens and/
or cryptocurrency; 2) a "trust"-like entity
(usually referred to as a Foundation),
which holds any cryptocurrency on behalf
of outside third parties looking to invest
into the OpCo or participating in ICO's
(and only releasing funds to the OpCo on
specific conditions being met); and 3) a
development company (DevCo or ManCo)
which manages day-to-day processes and
back-end services of the OpCo. Given the
potential number of entities involved and
complexity of the structure, planning this
phase properly will help to solve various
potential problems going forward.
INTELLECTUAL PROPERTY (IP)
Although you are essentially starting out,
chances are that your new business will
aim to solve a market problem by using
a dazzling method based on blockchain
technology. In layman's terms, you have
a great idea and you are attempting to
develop this into a commercially viable
venture. During this process you will
be creating IP and therefore a crucial
consideration is to make sure you
protect this IP adequately. If you do not
consider this upfront, it can expose you
to unnecessary risks and be a rather
cumbersome dilemma to solve going
forward. As such, be aware of it, consider
your options and decide in advance
how you are going to manage this very
important aspect.REGULATORY ADVICE
There is still a lot of uncertainty as to
what existing laws and/or regulations
govern and enforce the practical
application of blockchain and distributed
ledger technology in South Africa. As
such, carefully considering the current
legislative framework (and more
importantly, the purpose behind it) may
provide a helpful understanding of the
things entrepreneurs should consider
when developing their business models
for the market. Although it is not usually
favoured by entrepreneurs, getting
regulatory support to ensure compliance
with the most recent legislative and
regulatory concerns is advisable. Such
support may include investigations into
any of the following:
■ FICA, anti-money laundering and
know-your client (KYC) legislation;
■ "Business of a Bank" and collective
investment schemes regulations and
legislation;■ the Financial Advisory and
Intermediary Services Act (Twin Peaks
Financial Sector Regulation Bill);
■ Exchange Control Regulations;
■ the Companies Act;■ consumer protection laws; and
■ tax legislation.These are merely a few legislation and
regulatory aspects entrepreneurs would
have to consider for their ventures –
each venture will obviously require a
personalised approach.PRODUCT
You've done and completed all the
structural matters. You've created your
platform, done your alpha and beta
launches, and are poised to launch.Before this, however, you will have to
prepare the documents which describe
and explain your blockchain venture
or ICO (commonly referred to as a
"White Paper"). You will also need to
prepare the documentation required to
manage the contractual relationships
between you and your potential client
/ ICO participant/ employees. These
last-mentioned documents usually take
the form of employment, independent
contractor, service, software-as-a-
service (SaaS), participation or purchase
agreements. You may even need to enter
into agreements with service providers.
Being aware of these agreements, aligning
their terms to fit into the context of your
venture and, most importantly, limiting
your risk profile is crucial to the success
of your venture.INVESTMENT
While investments may occur at a later
stage, it is important to know how to
prepare for this right from the early stages.
As a matter of good practice, always keep
careful track of all official documents
relating to your venture by ensuring that
everything is neatly, safely and coherently
saved on file and kept on record. Should
an investment opportunity arise, this will
ensure that you have easy access to the
relevant information required during a
due diligence investigation by potential
investors. And hopefully, the preliminary
steps for any investment can commence
without risk or delay.Although the above list is not exhaustive,
we hope that these basic tips provide
entrepreneurs who are contemplating
a venture into blockchain and related
industries, with some practical guidance
as to what to consider. There are
various levels of uncertainty regarding
the practical and legal implications of
these new disruption industries and
so it is advisable to get in touch with
service providers who have the interest,
knowledge and experience to sufficiently
assist with this process.Louw Bothma joined Dommisse
Attorneys in 2016 to begin his articles
of clerkship. Dommisse Attorneys is a
fully specialised corporate finance and
commercial law firm, with a strong
focus on providing start-ups with the
legal support they need. Visit
http://www.dommisseattorneys.co.za.