Good morning everyone.
Sandow podcast number 59.
Today is part three of a mini series we've been doing here on Sandow about foundation
companies, which is the legal structure underpinning our sandbox style and our sand fam.
Also if there's anyone from star Atlas style or eight coin down.
Hello this is also applicable to you as you are also a foundation company within the Grand
Cayman Islands.
The scope of the talk today is an analysis of the facts.
It's all about transparency, giving our Dow community more information and better education
so that we can make smart decisions about how we run our Dow.
I have with me here two experts in the field two very well qualified individuals, Carolyn
and Melissa.
The disclaimer is none of us represent the sandbox game or the sandbox foundation.
We're not your financial legal advisors.
Nothing we say should be taken as financial or legal advice.
Carolyn, Melissa, do you agree with that?
Completely.
Absolutely.
So if we say the word sip, we mean sandbox proposal.
If we say the word Dow, we mean a centralized autonomous organization.
And if we say the word sand fam, if I use the word sand fam, I'm referring to the sandbox
community.
Those who participate in the people, product and purpose of the sandbox ecosystem.
That ecosystem looks a little bit like this.
I made it out to be about three sectors, the people, product and purpose.
They're referring the gamers to the sandbox team, the game client to the Dow, the sandbox
white paper and everything that the leadership has commented on.
All that goes together every day equal that ecosystem.
Today's episode is squarely within the Dow, particularly the legal framework behind it.
And today I have with me two individuals from Walkers Global, which is an internationally
recognized company that provides both legal and company management services.
Melissa, Carolyn, welcome.
And if you would please give us a little bit of introduction about yourselves.
Thank you so much, Shane.
So I am Melissa Lim.
I am a partner at Walkers.
Walkers is headquartered in the Cayman Islands.
It's a law firm.
We advise on the laws of the Cayman Islands, Bermuda, BBI, Guernsey, Jersey and Irish
laws.
We are the largest Cayman law firm and I am the co-head of the global fintech and blockchain
practice at Walkers.
Wow.
Welcome.
Thank you, Melissa.
Yeah, I'm not really sure how to follow that, but my name is Carolyn Kelly.
I'm an associate in the fintech team at Walkers as well.
Welcome to you both.
Thank you so much.
Absolutely.
Very happy to be here.
So we're going to do a quick five minute recap for those of you watching to catch you back
up.
Sandow 34, Sandow 56 and Sandow 57 is what led us to today, specifically Sandow 34.
We first began piecing together what I called the relationship map, trying to figure out
who was doing what based on Google searches, all sorts of things I could put together and
the public domain that looked a little bit like this.
I still know I didn't get every single bit of it right, but each day I learn more.
I update that.
Update that as much as I can.
Today we're specifically focusing on also in Sandow 34.
I also talked a little bit about where everyone was in the sandbox style, particularly the
illegal, the company management services and how I thought it was strange at first when
I didn't know anything, how all most of them were in the same town on the Grand Canyon
Island, specifically Georgetown.
And there are many different reasons.
I thought maybe it was because it was a small town island feel, or perhaps it was just they
were all in the same business district, or maybe they all knew each other.
But that ended up not being the case as I moved into Sandow 56, part one of our mini
series looking at the acts and regulations for the Grand Canyon Islands.
I think it became a lot more clear that it wasn't just because people knew each other
or their childhood friends or whatever the case may be, but actually there's some really,
really good reasons why you would find a Grand Canyon Island company or law firm or management
services to fulfill some of these roles within the foundation company and it all comes down
to licensing requirements, all the very, very particular and professional requirements required
for things like management services or director or secretary or legal counsel, management
services, all these things that help make a foundation company successful.
Some very good reasons why you might find a Grand Canyon Island company or firm to help
provide that.
We did a deep dive into the regulations in Sandow 56, particularly called it the Reg
Stack.
So we started first with the Cayman Companies Act, the Foundations Company Law, then we
went into Companies Management Act.
We did a reading through all of them and all the notable things that I found and a few
others, the directors, registration licensing law, the companies, excuse me, the citation
of acts of parliament law, the Virtual Asset Service Provider Act, which I'm very glad
we went over because that's part of today's brief, and the Securities Investment Business
Law, all sorts of stuff we could look into to see what does it mean to be a foundation
company.
And when we read our documents, such as Articles Association and Random Association, Foundation,
Limited By Guarantee, all these keywords, these buzzwords, Subscriber, even why do we
see $50 duty stamp on the actual articles?
What do those words actually mean?
That's why we went through the Reg Stack.
And I tried my hand at what I thought it meant to actually create a company.
And after today, I'm going to be updating it even more because I know that some of this
is a little bit incorrect.
So I'll need to update that after today.
And then part two, Sandel 57.
We talked to a practicing attorney in the United States and discussed some of the case
law that's out there right now.
OkieDow, BZXDow, LidoDow, and some of some other frameworks and opinions going out there,
such as the 2017 SEC investigative report, the April 2019 framework that they put out
as well, and how different US regulations and statutes, such as the Longarm Statute,
Conducts and Effects Test, and the Dodd-Frank Act, how that might apply to why we see a
US regulator suing a German company and how that applies to US people.
We also went through the comparative nature of Dow LLCs within the US, particularly DUNAs,
Decentralized Unincorporated Nonprofit Associations, and Limited Liability Dows, followed up by
an opinion piece, one of which is our two authors today, Walkers Global, Cayman Islands
Foundation Companies, are a leading vehicle for wrapping a Dow.
So that leads to today, part three.
We're going to hear a brief from Melissa and Carolyn about foundation companies, DOWs,
and virtual assets, followed by a Q&A, then the allotment that we can do for the next
40 minutes.
So Carolyn, Melissa, all yours, the slides are ready, ready for you.
Take it away.
Excellent.
Carolyn, do you want to start?
Yeah, absolutely.
Thanks, Mel.
So really, I think probably a good place to start here is what is a foundation company?
And so a foundation company is an exempted company.
It is without share capital, which means it's limited by guarantee.
It has no shareholders, as it has no shares.
It can have shares, but the way we incorporate Walkers and to feed into the decentralized
community ethos of decentralized autonomous organizations is that we incorporate them
without having any shares.
It has one member on incorporation, but that member immediately resigns after incorporation,
leaving it as this memberless company.
And the main reason we form these foundation companies is to act as legal wrappers for
the Dow.
It's a relatively flexible and bespoke vehicle.
And it was actually introduced.
You know, it didn't actually, you know, it wasn't necessarily with the intention of,
you know, just for sort of blockchain projects.
There was, you know, it's sort of a trust and philanthropic purposes.
You know, that's why it was sort of introduced.
But it's been used to for, you know, to act as a legal wrapper for decentralized autonomous
organizations.
And it's an incredibly popular vehicle.
And that's because, you know, traditional corporate structures are at odds with the
protocols community and obviously the vast majority of blockchain protocols which have
their own custom blockchain community projects, many of them with community governance at
their core.
So what, you know, those traditional structures require that to be sort of a shareholder or
a member.
If you just had a normal Cayman Islands exempted company, basically, in other words, like an
owner, whereas foundation companies can sort of provide a solution to that problem, they
can be structured in such a way that they don't require an owner.
And like I said, that is because they can be memberless and instead they can be governed
by the Dow.
And we can perhaps get onto that a little bit later.
But that's in essence what a foundation company is.
And I guess why would a Dow wish to use a Cayman entity is probably the next best question.
And I think, you know, we are very lucky in the Cayman Islands that we have, you know,
very, you know, a crypto, a government that is fairly crypto friendly.
There is regulatory certainty in the Cayman Islands, particularly with, you know, the
introduction of the Virtual Assets Service Providers Act.
It's a tax neutral jurisdiction.
So that's also incredibly attractive.
And you know, we're very, we are very, very fortunate.
We have an incredible blockchain community in the Cayman Islands, which is growing all
the time.
And that allows for, you know, the community to provide sort of very sophisticated, become
very sophisticated about this area, about the digital asset Web3 space.
And what that means is we have incredibly sophisticated service providers based in the
Cayman Islands who, and Shane, you mentioned this earlier, you know, those roles that need
to be fulfilled, you know, that the foundation company needs to needs to fulfill.
They can be selected from this very sophisticated group of individuals who have great knowledge
about this space.
So we are incredibly fortunate in that respect.
And we've got very passionate people as well, which is obviously very helpful.
And Cayman Islands entities can also be incorporated on the same day basis.
And also investors just generally are quite familiar, very, very familiar with the Cayman
Islands as it's the sort of leading offshore jurisdiction for investment funds.
So I'll probably pause there.
Exactly.
And I think, Shane, you were mentioning also, you know, why are they all based in Cayman
in terms of the service providers?
Why are they based in Grand Cayman?
Well, there's a little bit of geographical knowledge here.
So the Cayman Islands is comprised of three islands, but the biggest island is Grand Cayman.
And that is where the financial center of the Cayman Islands is located.
I did not know that.
Three islands, you say?
Yes, okay.
Exactly.
The other two islands are very, very small with population of maybe a thousand people
or four thousand people.
It's only in Grand Cayman that you'll find a financial center and Grand Cayman has about
five thousand people.
So if you're wondering why everyone has the same addresses, it is because the financial
center is in Grand Cayman.
Well, how about that?
There you go.
Exactly.
And then in terms of what Carolyn was mentioning before on just the extremely flexible nature
of the Cayman Foundation.
Well, the Cayman Foundation company was actually something that Walker's trust partners had
worked with the Cayman government on because our trust partners work a lot on setting up
family trusts for high net worth individuals.
And these trust vehicles tend to be very flexible, just reflect what the family wants to do with
their assets.
And under Cayman law, a trust vehicle does not have what we call separate legal personality.
So it's the trustee that conducts the operations of the trust.
So these so there was a need from these clients for actually a corporate vehicle.
So they wanted something like a hybrid between a trust and a company.
So our walk trust partners then worked with the government to put in place a foundation
company, which is a hybrid between a trust and a company, not knowing that eventually
foundation companies will become the vehicle of choice for the Web3 ecosystem.
So it's been quite interesting how the evolution of the use of a foundation company was initially
meant to be for family trusts and now has become the key vehicle for Web3.
That makes a lot of sense.
And I'm probably not surprised to.
So we also looked into Guernsey Purpose Trusts and how and I saw so many similarities and
I thought that that sounds like the origination like a company and a trust put together like
the best of both of them.
Exactly because then you have a corporate shield because ultimately is a company is
corporate and you have separate legal personality because you have a corporate.
So that's been the key difference and evolution of the just typical trust structure that we
had historically.
Thank you.
Thank you for sharing that.
I did not know that Grand Cayman Islands was Three Islands.
That makes a lot more sense now.
There we go.
I have now showing the why would a Dow form Cayman Foundation Company.
Yes.
And I think Carolyn had yes, we're moving on to that one.
I think Carolyn, we would chat about this one as well.
Would you like me to take this one?
Well, I'm happy to actually.
I think Mel has touched on it as well with what she's saying about and we've sort of
touched on it earlier, but the Cayman Foundation fits with that decentralized ethos.
We mentioned about community governance and one of the things is, obviously, because it's
memberless, it's very sort of unique and flexible structure.
So I think the key things to think about is a Dow doesn't have separate legal personality.
And so echoing what Mel said, a Cayman Foundation Company can be used as a wrapper for that
Dow and the Cayman Foundation Company in and of itself has separate legal personality.
And what that means is, you know, that Cayman Foundation Company can enter into real world
contracts that a Dow would not otherwise be able to do.
And so that's hugely beneficial for a Dow, particularly one that is growing, has a burgeoning
project and wants to enter into contracts with service providers and grant developers
and lots of, you know, various different types of contracts.
And so the Cayman Foundation Company can act as the vehicle for the Dow.
And we say is the legal wrapper for the Dow.
That's the sort of terminology we use.
And then in addition to that, it has not been tested in Cayman Court yet, but it is structured,
the Cayman Foundation Company is structured so that it provides sort of a shield of liability
for the Dow.
And that's the hope.
And that's what we touched upon in the article that you read, Shane, on, you know, that the
Walker's article on LinkedIn, because that was sort of the key, one of the key, you know,
areas of concern for people following sort of the Uki Dow case, particularly.
And then obviously with sort of the Lido Dow judgment as well.
Gotcha.
Okay.
And next was the timeline events.
Yeah, I think Shane, we always talk about, oh, you know, the ideal world, you know, for
Dow is all like on-chain transactions, you don't need, you know, a real world entity
as well.
But ultimately, there's a lot of, you know, given that we don't actually have the infrastructure
at this stage, a lot of stuff is still done off-chain.
So that's really two main purposes for forming actual, you know, legal entity to represent
the Dow.
One for the limited liability protection and then number two for any like real world transactions
where, you know, let's say, Ape Foundation wanted to sponsor an event.
Well, you still need to enter into, you know, vendor agreements or sponsorship venue and
all of that.
But that may not necessarily be all done on-chain because you have a real world event that needs
real world contracts to be entered into.
Something that I was struggling through was in this bullet here, a Dow does not have a
separate legal personality.
Does that mean to say it doesn't inherently have like by itself a separate legal personality
and a foundation company grants it that or is that separate legal personality always
separate from the Dow?
Okay, so that's what we talk about when we speak to our clients.
What is the philosophy they want to adopt?
Some clients, they want the Cayman Foundation Company to represent the Dow and be a legal
wrapper for the Dow.
By doing that, we are hardwiring all the token holder governance mechanics within the memorandum
and articles of association of the foundation company.
So that is, for example, what was done for Ape Foundation so that all token holder approvals,
voting, all of that is reflected in the Cayman Foundation Company's constitutional documents.
So it means that all actions of the Dow therefore are actions of the Cayman Foundation.
And conversely, all actions of the Cayman Foundation are actions of the Dow.
And that explains the extensive foundation review it goes through before it goes to vote.
Exactly.
So that's why that is the philosophy quite a few clients take.
The other philosophy is, and it's a very good question, Shane, is that some clients will
say, okay, we want our foundation company to be a steward for the ecosystem, but not
represent the Dow in terms of be a legal wrapper for the Dow.
So no token holder governance mechanics are hardwired into the constitutional documents
of the Cayman Foundation.
The Cayman Foundation is director led, but a director will take into consideration any
of the approved proposals by the Dow.
But it actually doesn't action these proposals if the directors determine not to.
So there is some discretion there because ultimately it's a director led foundation.
The good thing is though, for those type of foundations, typically the directors do affect
what the token holders vote on.
It's just that none of the token holder governance mechanics is hardwired into the constitutional
documents of the foundation because the foundation acts separate and apart from the Dow, but
is a steward for the Dow.
So that's the philosophy.
So we say to our clients, do you want the foundation to represent and wrap the Dow or
do you want the foundation to be a steward acting separate and distinct from the Dow,
but also furthering the ecosystem of that protocol or NFT?
I did not understand that distinction.
That is a very important distinction now that you say that.
How can I tell when reading the constitution or the articles or memos?
You can tell immediately by, if you look at the constitution, whether you have all the
token holder governance mechanics in the constitution or not.
So it doesn't have token holder governance mechanics in the constitution.
It means that it's a director led foundation with a director taking into consideration
any votes and snapshot and so forth.
But that is the big distinction.
So you'll see various, if you look out there, you'll find foundation companies with two
different types of memorandum and articles of association.
One with token holder governance and one without.
Thank you so much for distinguishing that in my brain.
I've been confused about that this whole time.
No worries.
They just answered an absolute, I call it the philosophy.
What is your philosophy?
And we have clients who go, they pick different approaches to this.
And so we definitely have those clients who want this sort of steward approach and the
ad hoc sort of token holder governance where they pass certain actions.
But I think quite often we see them act as the legal wrapper for the Dow when we are
incorporating the token holder governance mechanics set out in the bylaws of the bylaws
and the foundation company.
And then we are amending and restating the memorandum and articles of association to
reflect that token holder governance.
And like Mel said, the directors are sort of there to enact the will of the Dow subject
to obviously they can't do anything that's illegal.
So if the Dow decided for whatever reason they wanted to do something and that was sort
of illegal and illegal action, then the directors can refuse obviously to do that.
But generally speaking, they are there to enact the will of the Dow.
And they're fiduciaries, correct?
The directors?
Indeed.
They have fiduciary duties and obligations to the foundation company to act in the best
interest of the foundation company to avoid conflicts of interest.
I'm skipping ahead there.
This is just so exciting.
Okay.
We left off with the timeline of events.
I was just going to that.
Yeah, no problem at all.
Mel, do you want me to just take this one or?
Yeah, sure.
Okay.
So the timeline of events.
So I think, you know, from this is obviously the walker sort of timeline of events.
So you might get sort of different approach with different legal service providers in
the Cayman Islands.
But in essence, we have to firstly do our sort of client KYC and onboarding checks,
which are sort of our internal compliance and requirements.
We would then sort of, you know, we discussed with the client, we have a kickoff call, we
discussed with them about the types of service providers and the types of roles that need
to be fulfilled and the service providers in the Cayman Islands.
We are seeing sort of lots of service providers also act in the first instance and incorporate
Cayman Foundation companies.
But if we put that to one side and we go through the entire process from our side, you know,
we're looking at then preparing the what once the client has been sufficiently clear by
our compliance team and has been fully onboarded then and that's, you know, probably like the
labs called the Devco that we would onboard at that stage.
And we would then prepare those incorporation documents.
And I think Mel touched upon.
What was that?
Devco?
Oh, so the development company, the onshore development company or the onshore labs company
typically would be our client of record initially when we onboard a Cayman Foundation, when
we onboard a client of record in order to incorporate the Cayman Foundation.
But then we prepare the incorporation documents.
So we prepare the memorandum and articles of association.
And then we typically they are director led.
So that that is most of the powers best with the directors initially.
And then at a later stage, we would then look at amending and restating if they're going
to the Cayman Foundation company is going to act as a legal wrapper for the Dow.
We would then look at a later stage to to to incorporate the governance mechanics that's
set out in the bylaws.
But in the first instance, we prepare that initial M&A along with some stage two ancillary
documents.
And at that point, the Cayman Foundation will need to have selected the service providers
that it wants to appoint into the roles, which we can come on and talk about a bit later.
So once the Cayman Foundation company has been incorporated and set up, it's then really
led by onshore council and the client as to when token holder governance and they want
to implement token holder governance.
And usually that aligns with the token generation event.
And so at that point, though, they would be one of the ones preparing the bylaws.
So we looked onshore council to prepare those.
And they set out that, like I said, that token holder governance.
And then we prepare the amended and restated memorandum and articles of association, as
I mentioned, to reflect that token holder governance.
And this is in the example where the foundation company is acting as a legal wrapper as opposed
to just being a steward.
There's various commercial agreements.
It's a stage process.
OK.
Within the workers' global, I guess, advice or is this always how it goes?
Yeah, like this is this is pretty standard, right?
This is pretty standard.
But again, obviously, if they are not if the foundation company is not going to act as
this sort of the legal wrapper where it's reflecting that token holder governance and
if it's just going to be a steward, then obviously in terms of the.
Beyond that.
OK.
Well, yeah, you would you might just leave it as a director led foundation company.
So but if the intention is to have those that token holder governance baked in, then we
would need to amend and restate at the end the articles to reflect that, you know, to
reflect all of that.
And so at that stage also, you know, you're looking at lots of and this sort of is goes
alongside the whole process of what we're doing.
But, you know, we're looking at the there's lots of commercial agreements that may need
to be executed, certainly service provider agreements with the secretary and and secretary
of the initial office and supervisor and the directors.
So be looking at that.
And also, yeah, like opening a bank accounts and we, you know, that's obviously something
that, you know, they want to fairly quickly.
And then, you know, we adopt the the amended and we say, these men random articles at that
point and then adopted this launch of a native token if if that's what the you know, the
client is intending to do, there may be also be an appointment of council members and we
can talk a little bit more about about that.
But that's kind of really sort of counter through the timeline of events for a Cayman
Foundation company as we do it at Walker's.
And I think, you know, on the next slide, I've kind of touched upon those key points
about it being direct led articles initially.
And therefore, you know, the directors therefore hold those key decision making powers and
the token holder governance being set out in full in the bylaws.
We review those bylaws.
We put, you know, we add in our input from a Cayman Islands legal perspective.
And then once they're finalized, we will, you know, we will put that into the amended
and we say to memorandum and article association and pass a resolution to adopt those articles
and give an effect of the governance to set out in the bylaws.
When you say token holder governance mechanics, are we talking about the Dow wrapper part
of what you and Melissa were referring to?
We're talking about the token holder voting, how they're going to vote, the thresholds,
what they're able to vote on.
And that's all set out in the bylaws.
And then what we do, we review those bylaws.
We and we comment on them from a Cayman Islands legal perspective.
And then we amend and restate the initial memorandum and articles of association to
reflect the token holder governance that is set out in the bylaws.
So if, for example, the token holders have the rights to appoint and remove the director,
we would reflect that in our amended and restated memorandum and articles association to show
that token holders by token holder vote have the rights to appoint and remove directors.
I'm just using that as an example, but you know, that's something that we would look
to take across from the bylaws into the memorandum and articles of association.
Yeah, and that's for the type scenario.
As I think Shane was asking in terms of what we do this for the Dow wrapper scenario.
And yes, that's what we would do for a Dow wrapper scenario.
Yeah.
So earlier when you mentioned that you have like your director led type, foundation companies,
your Dow wrapper types.
So if it starts as director led, because that's how you have to form the company, and then
you transition to a Dow wrapper scenario.
Is that token holder led on the slide that that's your transition to the Dow wrapper
scenario?
Yes, exactly.
It becomes a token holder led, right?
Because it's a Dow wrapper then, because it's wrapping the Dow and giving effect to the
actions of the Dow or the approved proposals of the Dow.
So that was the transition that Carolyn was talking about.
Because obviously you think you still need to form the Cayman Foundation as director
led.
So you form a Cayman Foundation with this token holder led.
It just doesn't quite work that way.
Someone needs to set up the structure first with the director, and then you transition
to a token holder led type foundation because you're hardwiring as Carolyn said, all the
token holder governance into the constitutional documents of the foundation.
Yeah, or not, depending on how your client wants to do that.
That's so fascinating.
John Cracker from East Special Counsel from the Star Atlas Dow, he is in the chat, he
asked, does the director disappear from the picture entirely in a token holder led situation?
No it doesn't do.
No.
You have to have a minimum of one director appointed under Cayman Islands law.
So that is a statutory requirement.
And so they do not disappear, and they are the ones that enact the will of the token
holder of voting.
Yeah, if I recall from reading that you have to have a secretary, a licensed secretary,
you have to have a licensed director and you have to have a supervisor.
Correct?
We will need to clarify what you mean by licensed director because I recall that earlier in
this episode you mentioned the Directors Registration and Licensing Act, that is not applicable
at all.
Cool.
Okay, great.
Got it.
The Directors Registration and Licensing Act applies to SEMA regulated investment funds.
So it doesn't apply to directors that are appointed to non-regulated Cayman entities.
So all Cayman foundations formed to date are not regulated by SEMA, which is the Cayman
Islands Military Authority, which is the regulator in the Cayman Islands.
The reason why they are not regulated by SEMA is because none of them are engaging in any
regulated activities.
Well, I would say those that Walkers works on anyway, I can't generalize for that other
law firms may work on.
So we work with our clients to make sure that the activities of a Cayman Foundation are
not regulated activities.
And typically a Cayman Foundation's activities would be administer a grant program, hold
a treasury of tokens, enter into these real world contracts for these grant agreements.
You may have the engaged consultants, engaged in marketing of the ecosystem.
So these activities are not regulated activities under Cayman law, which means that the Cayman
Foundation does not need to be regulated under Cayman law, which means that its director
does not need to be registered under the Directors Registration and Licensing Act.
However-
Thank you for clarifying that up.
No problem.
However, there's a slight nuance in that, in that if you are dealing with a director
based in the Cayman Islands, and typically we have service providers in the Cayman Islands
who provide directors to Cayman Foundations, it is Walkers view that these companies providing
director services must be licensed under the Companies Management Act.
So that is a separate legislative regime regulating the provision by companies of persons acting
as directors.
So that's a separate act, but something to bear in mind as well.
So not the Directors Registration and Licensing Act, but the Companies Management Act is what
we're looking at.
Got it.
And the follow-up was the, so does the role of director change during a token, token holder
led scenario?
Yeah, do they-
Yes.
Yeah, their role definitely changed because when we form a director led foundation initially,
you know, directors has all encompassing powers conduct the business of the foundation without
any reference to anybody.
But once you hardwire all the token holder governance, the director is required to give
effect to any approved proposals by the token holders.
And the only time, I mean, the director still ultimately has a veto, right?
Because if the token holders vote to do something that is, I don't know, illegal or vote to
do something that is a regulated activity, then the director has the ability to then
step in and, you know, veto that.
Or alternatively, if it's a regulated activity, then propose that maybe a subsidiary be formed
under the Cayman Foundation to engage in the regulated activity and keep it away and separate
from the Cayman Foundation.
Or alternatively structure this proposed regulated activity very clearly under a third party so
that again, the Cayman Foundation does not need to be regulated with the Cayman Islands
Monetary Authority.
And you might be wondering why do we structure it this way that the Cayman Foundation is
not regulated with the Cayman Islands Monetary Authority?
The reason why is because so far to date, if you check the Cayman Islands Monetary Authority's
database, there are no Cayman Foundations registered there.
So you really don't want to be the first.
I mean, you could be the first if you really want to be.
But I suspect that a lot of times when SEMA is dealing with applications to be regulated
and registered with them, they do ask a lot of questions about who is the owner, who is
the UBO.
And given that foundation companies have no shareholders, no owners, I think that will
be quite a difficult concept for SEMA to, I suppose, get their heads around.
I'm not saying it's impossible.
It's just that no one's done it before.
I'm blown away.
This is awesome.
This is the difference between reading the rules and then trying to piece it together
and then seeing how it plays out in real life.
I didn't notice that there were no Cayman Register entities registered with SEMA.
Yeah, there are none.
So yes, but yeah, you know, we're very happy to answer questions.
Sorry, no Cayman Foundation companies, we should say, not no Cayman entities registered.
Just to be clear.
Yeah.
In terms of Cayman VAPs, Registered Virtual Assets Services Providers Act regulated entities,
there are definitely those that are regulated with SEMA, but they are typically the Cayman
companies, not Cayman Foundation companies.
Got it.
Cayman companies, Cayman Corps, they have shareholders, right?
Just like the typical corps.
So.
Okay, so I had the timeline events up and the next slide was what documents are required
to form a foundation company.
Mel, do you want to take this one?
I feel like I've done quite a lot of the slides if you'd like to or do you want me to take
it?
I think yeah.
So this is really just a documentation exercise when you are wanting to form a foundation
company.
So if you look on the slides, you have an affidavit that's signed by a subscriber.
You have your initial memorandum of association and articles of association, which is a director
led, which is director led drafted just because you don't have token holders at that stage.
And then we have what we call the stage two documents, which are all the ancillary documents
associated with the formation.
So just kind of the admin, but important admin such as what who is a director, right?
The foundation must have a director.
And then we also have other ancillary documents such as an undertaking from the subscriber
to pay the guarantee on demand in order to pay for the initial share because a foundation
company must be formed with an initial share, even though eventually via the notice of resignation
of member, the subscriber then resigns as a member so that the foundation becomes a
memberless company or an ownerless company.
And then finally, you have your other ancillary document, which is a director's resolutions,
which deals with approval of any director services agreements, approval of any registered
office services agreements and all the usual standard incorporation formalities.
So it's just a documentation intensive exercise.
Then once that is done, you have your your Cayman Foundation formed ready to go in terms
of opening bank accounts and dealing with with with counterparties.
Exciting normally, that's the thing.
And then once the affidavit and the memorandum of association and articles of association
is filed with the Cayman registrar, the foundation company is formed on the date of filing.
So you don't actually have to wait and to receive the stamp formation documents before
you commence business.
You can actually start conducting the operations of the foundation company upon the date of
filing.
But that's actually a good nuance to be aware of.
I have so many questions and I'm going to hold them till the end.
So I'm going to go down rabbit holes till afterward you get through it.
All of this.
Okay, so I think moving on to the next slide, then, where we're talking about what are the
roles to be satisfied.
So I think initially we had mentioned before you need a registered office and a secretary
appointed.
So it must be the same entity for the foundation company and that registered office and secretary
must be licensed in the Cayman Islands.
So effectively, the registered office provides the address in the Cayman Islands because
a Cayman entity must have an address in the Cayman Islands.
And the registered office deals with all the filings with the registrar of companies in
the Cayman Islands.
The role of the secretary is to provide a notice confirming no breach of Cayman AML
laws prior to receipt of any donations or gifts by the foundation company.
So that's the set out of the various roles for the formation.
And then the other two roles, remaining roles are on the next slide.
I'm going to hand it over to Carolyn.
Sure thing.
So the directors, as mentioned, there is a requirement to have one, a minimum of one
director that there is no requirement for that director to be Cayman resident.
And we often get asked that question.
But obviously, wherever the director is situated in whatever jurisdiction, you know, tax and
sort of legal advice in that jurisdiction should be sought.
You mentioned you asked the question, Shane, earlier about whether directly, you know,
fiduciaries and they do owe fiduciary duties to the foundation company.
And what we typically see is we see sort of a mix of independent directors and or sort
of founder associated directors.
And again, it really depends.
And you know, that sort of founder associated directors will be subject to that onshore
legal and tax advice.
And we then review one of our roles is to look at the director services agreement and
to provide comments from a Cayman Islands legal perspective on that document.
And then that's approved sort of by way of director resolution once that's been finalized
and then entered into between the foundation company and the director.
And then the other role that Mel was referring to.
So this is a very unique role to Cayman Foundation companies is the role of the supervisor.
So where a foundation company has no members and which we've established is what you know,
the way in which we we use these entities, particularly obviously, obviously in the Web3
blockchain space, they must have a supervisor.
Again, there's no requirement for that supervisor to be Cayman resident.
Again, another question we get asked quite a lot.
If the supervisor is not based in this in the Cayman Islands, then you know, again,
onshore legal and tax advice should be sought in relation to any such appointments in that
particular in a particular jurisdiction.
I'm sorry, can you repeat that sentence that that was I need to process that again.
Yeah, no, just that if if sort of if the directors or supervisor are based in a different jurisdiction,
then legal and tax advice should be sought in the jurisdiction in which they are based
just to ensure that there's no sort of adverse legal or tax consequences for both world to
supervise themselves, but also for the Cayman Foundation company.
And that was just making the point that there's just no requirement for either the supervisor
or the directors to be Cayman resident.
Does it get complicated if the director and the supervisor are outside of the Cayman Islands
and then they're then themselves are not the same jurisdiction?
We you know, I think it becomes a little bit more complicated, I think.
Like, you know, I think depending upon particularly we've seen sort of very anecdotally and I'm
sort of not US law qualified, but you know, particularly if you have directors who are
located in the US, we've seen potential, you know, potential issues there.
But again, it's always good in these circumstances that if you are not appointing Cayman Islands
based supervisor directors, then you should get the requisite legal and tax advice prior
to making those appointments just to, you know, cover off any issues beforehand.
And so, yeah, I think a lot of tax advisors have said to our clients that they prefer
to have Cayman resident directors because they want the mine management of the Cayman
Foundation to be in Cayman.
Yeah.
So, you know, a big draw of a Cayman Foundation company is that, you know, a Cayman entity,
Cayman is a tax neutral jurisdiction.
So if you are saying then that the mine and management of the Cayman Foundation is in
Cayman, therefore the activities are therefore done in Cayman, then there should not be the
ability to tax other jurisdictions to tax the Cayman Foundation.
And the good thing is the Cayman government does not impose, you know, taxes because Cayman
is a tax neutral jurisdiction.
So you're trying to benefit from that tax neutral regime that we have in Cayman.
It's starting to become a little bit more clear to me now when some of the bumper stickers
I've seen across many Cayman Islands firms is that how strong the regulatory environment
is and how, what were you mentioning just the tax jurisdictions, the nuance of that,
I think is starting to become really clear as you speak through these bullet points.
Yeah.
Yeah, the Cayman government does not charge taxes effectively.
So no income taxes, no capital gain taxes.
So it's a tax neutral jurisdiction and that's why many international transactions use Cayman
entities, not just in the Web 3 space, in the investment fund space, really any international
financial transactions use the Cayman Islands.
And if you have a US director, then the worldwide tax laws that US have might complicate that
scenario a little bit more?
So yeah, we're not tax advisors, but I think the concern that US-based directors, then
you are then saying that the mine and management of the Cayman Foundation is in the US and
therefore the IRS will start charging taxes on the Cayman Foundation, Treasury.
Fascinating.
So if that's you, consult your tax attorney.
Yes, exactly.
At lot of times.
Exactly.
And then one more quick thing I wanted to mention as well, because as Shane you had
mentioned, directors do all fiduciary duties and a big thing is conflict of interest.
And we have seen that for some Cayman foundations, that some Cayman lawyers actually act as directors
to the foundations that they are Cayman lawyers to.
That is something that Walkers does not do because we believe that is a conflict of interest.
So we've been very clear to our clients if they do ask Walkers, oh, can you also provide
directors to the Cayman Foundation?
We would say no, because after all, we as Cayman lawyers at the foundation will therefore
be acting for the Cayman Foundation.
What if the director then breaches his or her fiduciary duties and goes up and does
something wrong?
Well, then we would be in a bad position where we're like, okay, we can't sue ourselves.
So that is why Walkers will not provide directors to a Cayman foundation.
I can think of at least one DAO that does.
Yeah.
How about that?
Yes.
So there are other, we are aware of this practice for other Cayman law firms, but this is something
that we do not do because we believe it's a conflict of interest.
Got it.
Fascinating.
And actually building upon that point is, you know, as we were talking about the supervisor
and what the supervisor's role is, one of the roles of the supervisor is that it can
bring in enforcement action on behalf of the foundation company for the enforcement or
the duties or liabilities of the directors.
And so when you're looking at it in that context, and what we're starting to see, which is,
I think, can only be a good thing is the separation of the supervisor and the director roles,
because actually in the Cayman law, they don't have to be separate.
You could have the same person act as the director and also as a supervisor.
But on the basis that the supervisor is the one who can bring in the enforcement action
on behalf of the foundation company against the directors if they breach their fiduciary
duties or they don't act in compliance with the memorandum and articles of association
and the bylaws.
It seems sensible to have the separation between those roles.
And we are seeing that more and more.
I'm sure that's going to bear that out in some way, shape or form as the case law starts
to develop around this.
Exactly.
Yes.
Exactly.
So far, it has been untested.
I'm tracking.
Yep.
So I was like, I'm high on this.
That's so funny how all this comes together like that.
I'm just, I'm blown away.
Keep going.
You're having lightbulb moments, Shane.
I can see it.
This is so fun and interesting.
Okay.
All right.
Next slide was the bylaws.
Yeah.
And we've touched upon this earlier.
So this is a separate governance document and this is what sets out those token holder
governance mechanisms, how the directors can vote, what those thresholds are required to
make a decision, how token holders can put forward proposals.
Obviously, there's Snapchat, Discord, Twitter Spaces, lots of different types of communication
channels.
And so really that's where the meat-
I see, you're very familiar with those.
That's awesome.
Yeah.
I'm sure you and all your followers know those incredibly well.
That's where the meat of the token holder governance is.
If you were going to read something, that is the document you would be reading, which
would tell you about how the token holders in a particular community are able to vote
on things and what things they're able to vote on.
And so they're not filed with the registrar, they're not publicly available.
And I think we also mentioned this a bit earlier as well, but the directors of the foundation
are bound to follow the bylaws through the memorandum and articles of association.
And what we mean is that there is a article within the articles of association, which
says that the directors must act in compliance with the bylaws and the memorandum and articles
of association.
And they must implement those approved proposals of the token holders.
Again, we referred to that as sort of an act in the will of the Dow subject to those fiduciary
duties and law.
So we also mentioned that where the directors are bound to follow the bylaws and the token
holder votes, say for if they were- the token holders had voted to do something that was
illegal under Cayman law or any applicable law.
So therefore the directors could have a veto right and say, no, we're not going to- we're
not going to enact that proposal.
And then I think we sort of mentioned about once the bylaws and the token holder governance
is kind of finalized and we would review that from a Cayman Islands legal perspective, we
amend and restate the articles to reflect that token holder governance so that you get
this sort of flow through the documents.
And that is the sort of the legal wrap.
You're wrapping your Dow through this sort of nexus between those two documents.
I have a question later on that this is probably a rabbit hole, but the by- I noticed that
the bylaws are optional in the foundation company's law language.
And now I'm fascinated to know how that connection is with the transition, but I'll hold that
till the end.
Okay.
And the next one was the activities of a Cayman foundation company.
Yeah.
Mal, do you want to take this one?
Yeah.
So I think we kind of mentioned before that really a typical activities are that, you
know, it could be governance token minting issuance.
It could be private sales or air drops of the tokens provided that no public sales.
Treasury management of the governance tokens.
You have your grant programs and your bug bounty programs.
You have your execution of sales agreements and consulting agreements.
You have your prop trading of your treasury as well.
So all of these activities are not regulated activities.
And the reason why we said no public sales is because the public sales of tokens is a
regulated activity under Cayman law.
So as long as the foundation is limited to, you know, private sales, air drops, that's
fine.
If the foundation wants to engage in public sales, then we typically then drop down a
BVI subsidiary to engage in any public sales of the tokens because the public sales tokens
in a BVI, it's not regulated.
So the BVI-
And you say not regulated.
You're talking regulated by the securities investment business law, the virtual asset
service provider, something else?
Or just not regulated at all.
Okay.
Got it.
Under the laws of the relevant jurisdiction.
So yeah, so in the BVI, the public sales of tokens is not regulated at all under BVI law.
So the BVI subsidiary will therefore enter into agreements with listing platforms, exchanges,
market making agreements, anything to do with public sales of tokens.
And when you say grant program here, are you referring to like the voting Dow, like the
snapshots and the proposals?
Exactly.
These are the proposals.
Got it.
Where grant aid to the approved proposals.
All right.
So I think moving on then is actually down to the key legislative framework that may
affect the Web3 space.
So the next slide, we're talking about the Virtual Asset Services Providers Act and also
any AML legislation as well.
AML, the money laundering?
Yeah, exactly.
Anti-money laundering or know your client KYC legislation.
Got it.
Okay.
So if a Cayman entity is engaging in virtual asset services, which we will define on the
next slide, then that Cayman entity must be regulated with the Cayman Islands Monetary
Authority with SEMA.
So I think we had mentioned earlier that there are Cayman entities engaging in virtual asset
services and they are registered with SEMA.
So if you look at SEMA's database, you'll find that there are about 19 or 20 vast regulated
entities and Walker's actually acts for a majority of them.
So we know this legislation well.
But none of these vast registered entities or regulated entities are Cayman foundations
because the Cayman foundations are not engaging in regulated activities.
As mentioned before, the public sale of tokens or virtual assets will require registration
with SEMA, but no one has done it because there's no point, right?
Knowing that you can just drop down the BVI sub to do it.
So why ever engage in public sales of tokens out of the Cayman foundation, which will require
registration with SEMA when you can just set up a BVI subsidiary within one or two days
and do a public sale out of the BVI subsidiary.
So no one's had no-
Remind me, what was BVI?
In BVI, the public sales of tokens are not regulated.
BDI?
Sorry, British Virgin Islands.
British Virgin Islands.
Oh, BVI, British Virgin Islands.
Okay, got it.
Thank you.
BVI, deviating things.
We have an office there as well, Shane, and so we have colleagues there where this is
a pretty simple and very well trodden path with Cayman foundation companies.
They will just instruct our BVI team to incorporate a BVI subsidiary as a public token issuer.
Got it.
And start to come together.
Okay.
Yeah.
So it's become marked the standard now to have a Cayman foundation company and then
sitting underneath it is the BVI subsidiary that engages in public sales.
So that is why we work so closely with our BVI office.
So just to reiterate, the private sale of virtual assets do not require registration
with SEMA.
So it means that the Cayman foundation can enter into token purchase agreements and all
of that SAFs with counter parties because that is a private sale because you have pre-identified
the purchaser because you're entering into agreements with them.
So that's fine at the foundation company level.
I should also mention that with the Virtual Assets Services Providers Act, it was implemented
in 2020 for the Cayman Islands.
So we have that regulatory certainty since 2020 and the lawyers here are very familiar
with it.
And so we can advise on it because it's been around for a long time in the Web3 space since
2020.
Yeah, I know.
Five years is like ancient in the Web3 world.
Ancient.
And so the Virtual Assets Services Providers Act in Cayman is actually divided into two
stages.
The first stage is the registration with SEMA and the second stage is a more comprehensive
licensing regime, which has not been implemented yet, but is expected to be implemented later
this year.
Got it.
But that licensing regime is meant to be slightly more onerous in that it will be applying to
like custodians and exchanges.
So probably not applicable to our audience here, but just something to be aware of that
there will be a licensing regime that would be expected to be slightly more onerous, but
we don't really expect it to be two oners starting later this year for custodians and
exchanges.
And then finally, we always ask to advise on our AML sanctions laws and our regulatory
team is very well versed in this and has helped a lot of our clients go through this process.
I would add that, again, because the Cayman foundations are not regulated in the Cayman
Islands, they are not engaging in any relevant financial business that requires Cayman foundations
to be complying with the full Cayman AML regime.
However, Cayman foundations are still subject to the sanctions laws.
So we advise our clients that, okay, the Cayman foundations do not need to run KYC checks
on token holders or anything like that, because it's not subject to the full Cayman AML regime.
But at the very least, though, any counterparties the foundation enters into, and any counterparties
agreements that the foundations entered into, you need to run sanctions screening because
a Cayman foundation should not be dealing with a sanctioned person, otherwise penalties
will apply.
And I mean, that's a similar thing to what's already done in the US as well.
Sanction screening is an important thing to do.
And again, we have providers in the Cayman Islands and outside of the Cayman Islands
who can do the sanction screening of the counterparty.
And then moving on to regulatory, would you like to jump in, Carolyn, or I can continue?
You continue, Mel.
I was, yeah, I can.
I was looking through those two slides because you were mentioning the VASP and then AML.
So I was slipping through as you were speaking.
Yes, exactly.
I was getting ahead of myself getting very excited.
That's okay.
Love the passion.
Yes.
Fine, then.
I mentioned, you know, Cayman entities engaging in a virtual asset services must be regulated
by CMON.
So virtual asset services is defined to mean the public sales of tokens, as well as the
business of providing one or more of the following services on behalf of others.
So these are the businesses.
That is the exchange between virtual assets and fiat currencies, the exchange between
one or more other forms of convertible virtual assets, the transfer of virtual assets, the
custody of virtual assets, or the participation in or provision of financial services related
to a virtual asset issuance or the sale of a virtual asset.
So that was the definition of virtual asset service.
Again, typically a Cayman Foundation is not engaging in any of these activities.
Therefore, a Cayman Foundation, it's not required to be registered with CMON.
We always recommend to our clients that, you know, we have that it is a good idea to get
a regulatory analysis done anyway to confirm that the Virtual Asset Services Providers
Act does not apply.
And a lot of directors on island, independent directors on island, like to have that regulatory
analysis done in the form of a memo so that they have that in their pocket.
Another one that actually a lot of our clients do ask for is a memo or regulatory analysis
that the tokens are not securities under Cayman law.
So we're able to provide that memo as well.
Some listing platforms ask for that.
I know in the US, no one will ever give memo, but in Cayman, we are able to give such memo
because we have that regulatory certainty.
And it's very clear most of the time that these tokens are not securities under Cayman
law.
So a lot of our clients love that memo.
Then they'll just hand it over to whoever they're dealing with, whether it's Binance
or anywhere else, to say, hey, here you go.
Our tokens are not securities under Cayman law.
That's been hugely popular as well, actually.
I can imagine it would be.
Yeah.
I think that's a lot of work coming through.
And then just moving on to the other regulatory regimes that may be relevant.
So we talked about AML, Anti-Money Laundering Regime.
Although in this case, because Cayman foundations are not regulated, then the AML regime actually
does not apply to them.
But sanctioned screenings would be recommended because you don't want to be dealing with
a sanctioned person.
Otherwise, penalties will apply.
Another legislative regime that may be applicable could be the Securities Investments Business
Act, if the foundation is dealing with securities.
But again, most of the time, they're not because the tokens are not securities.
So it's unlikely that Securities Investments Business Act will apply to Cayman foundations
as well.
Another one to look at that we get a lot of questions about is the Cayman Islands Economic
Substance Regime, which is targeting various activities which will require what we call
substance in the Cayman Islands.
And this was really driven by the OECD.
The OECD was very worried about the offshoring of IP.
So if a Cayman entity is engaging in the monetization of IP, then the OECD is requiring that the
Cayman entity must have substance in Cayman.
So there are various...
So we advise a lot on that.
What's OECD?
Oh gosh, I've abbreviated it so much that I cannot remember.
Carolyn, can you remember?
I think it's the Office of Economic Cooperation and Development, the Organization for Economic
Cooperation and Development.
Yes.
So the OECD introduced this economic substance regime across the board.
I mean, the last I saw over 90, even over a hundred jurisdictions have adopted this
economic substance regime.
So there is no way in a way to...
Well, not no way.
So that the whole offshoring of IP then should be minimized.
But that's been a big thing.
This regime was introduced in Cayman, gosh, I can't remember, about maybe eight years
ago now.
And yeah, about over a hundred jurisdictions have implemented this OECD requested economic
substance regime.
So we advise a lot on monetizing IP.
We advise a lot on lending because all these activities falling under the economic substance
regime, which may require substance in Cayman.
And then finally, we also have a beneficial ownership regime.
But typically the way a foundation company is structured, there are no beneficial owners.
So it'll be a register stating no beneficial owners.
And then finally, just to close it off, we talked about, will a foundation company ever
be SEMA registered in terms of being a VAS?
No, because of the typical activities of a foundation.
We had in some instances seen a proposed foundation company trying to act as an investment vehicle.
And if so, in terms of investment club dials, if so, we probably need to have conversations
with the client on whether it falls within the investment funds regime, which is a private
funds act or the mutual funds act of the Cayman Islands.
And just to close this off, so far, no foundation companies have been registered as mutual funds
or private funds as yet.
So for all the ones that are grants programs, they fall outside of this framework?
Yeah, because they're not investment clubs.
They're not like, I suppose an investment vehicle is where you have investors coming
in and they get to participate in any profits and losses of the underlying assets of the
Cayman entity.
A Cayman foundation with a grant program, they might be giving grants, but they're not
expecting anything in return other than meeting perhaps milestones set in the grant agreement.
But you wouldn't say that any token holders has, well, technically token holders merely
have governance rights.
They're not entitled to have any say or any share in the profits and losses of the Cayman
foundation's assets.
So I suppose any token that accrues to the token holder would be the value of its tokens
increasing in value, I suppose.
But the foundation itself is not an investment vehicle.
It's not as if the token holders are saying, hey, I have a share to the foundation's assets.
Okay.
So that ends our presentation.
Okay.
We have nine minutes before both of us need to conclude.
So let's pick out the most important questions that still are on my mind.
Pentek, okay.
Are these the only conditions?
Oh, let's go with phase one to phase two.
When you go from a director led to token holder led, bylaws are optional, correct?
Yes, but we would say that if you're going to a token holder led, it probably makes sense
to hardwire the token holder governance in the bylaws because you don't have to file
the bylaws with a Cayman registrar while you have to file the memorandum and articles with
the registrar.
So it becomes a bit more inflexible if you have to keep making filings while a bylaws
can evolve.
Because it's not filed with the Cayman registrar.
Okay.
So you have a lot more flexibility in being able to issue them, change them, whereas if
it's a memo or an article, then memory serves.
You have to get that changed.
So the secretary has to get involved, then you have to report it.
You have to file it with the Cayman registrar.
So if you start off with a director led situation, first of all, are they always, always director
led in the beginning or can they be token holder led from the beginning?
They can be token holder led, Shane, but typically we see a more protracted route to decentralization
so that, and we at Walker's, if a client comes to us and says, hey, we've got all of our
token holder governance finalized, we want to do it from day one, which I'm not even
sure I've ever really seen.
Then obviously they can incorporate with token holder governance at the start rather than
director led governance.
But typically the way we do it is it's director led, so the powers best with the directors.
And some of that has to do with speed as well.
So you want to get the foundation company incorporated.
So if token holder governance is not finalized, then the quickest way to do it to get the
entity incorporated is to incorporate with director led articles.
Got it.
And the subscriber, what compels them to resign?
What requires them to resign?
It's because, well, the subscriber typically would be a company management entity that
would be the subscriber because you need to have a subscriber to form a Cayman Foundation
Company.
So they know that they need to resign because a foundation company is meant to be memberless.
So the subscriber is the member, initial member.
And you're dealing with a professional corporate services provider that understands that they
have been paid to be the registered office and secretary and subscriber.
They would do that, form the Cayman Foundation, and then they will resign as a member.
So you're relying on their professional understanding and the whole reason why you have them in
that role to begin with to fulfill that.
But what I'm hearing is that if someone decides to go off the rails and subvert those expectations,
there isn't anything requiring them to do that.
Correct.
That's nothing requiring them to resign.
And that's why you need to pick your service providers carefully.
We highly recommend that you speak to them, interview them if you're wanting to work to
set up a Cayman Foundation.
You're going to be working with them.
And why is it so important to become memberless?
I think it really reflects the whole decentralized ethos you're trying to achieve because you
don't want to be identifying, well, who is the shareholder of this foundation?
Okay, okay.
Got it.
That's the magic word that I was, okay, not connection made.
So the shareholders, got it.
Okay.
And you already answered, are directors required to be licensed?
Thank you.
That was in my brain after reading the registration, licensing law, and all that.
And supervisors, they seem like the eyes and ears of, in this case, the Dow members.
Would you say that's a fair way to characterize it?
I would say it's, yes, in an obvious sense that they have the enforcement powers to take
actions against the directors for breach of fiduciary duties and noncompliance with the
articles and the bylaws.
But typically, and this can change depending upon the client's wishes, but a supervisor
is a sort of quite passive role.
So it's director led articles, so the powers vested with the director, the supervisor takes
it to passive sort of backseat role other than obviously they have the right to bring
enforcement action and certain statutory rights, such as the rights to attend and vote at general
meetings of the company.
But it's typically passive.
And so when you say the eyes and ears of the Dow in the sense of that they can bring enforcement
action against the directors for breach, then yes.
But they're not sort of there to sort of monitor token holder governance and to make sure any
of that's passed correctly in accordance with the bylaws on the token holder side.
You sort of look to a Dow administrator to sort of, or the project itself to sort of
to organize all of that.
So I would say sort of the answer to that is it depends that typically passive.
Are we relying on their professional understanding again?
Or is there something that compels them to be passive?
Let's say we get a very enthusiastic supervisor.
Is there something that compels them to be passive or not?
Well it's the articles of association set out the rights and who has powers to carry
out the activities of the foundation company.
And so they best with the directors.
So then by virtue of the fact that the powers best with the directors, they don't best with
the supervisor typically.
So they take on a sort of, well I was going to say take on a passive role since it seems
them oxymoronic.
But in effect, that's what it is.
So that the powers are, the foundation company is led by the directors until such time as
token holder governance is in place.
And therefore we move from that director led into token holder governance.
In order to that, I read about the restrictions notice power that corporate services providers
have.
It was in section 265 of the Companies Act.
Is that related to this at all?
Yes, it is.
The restriction notice relates to the beneficial ownership regime.
So effectively if you are in breach of the beneficial ownership regime, obviously penalties
will apply and the restrictions notice will also be given.
However, as mentioned before, typically a Cayman Foundation does not have a beneficial
owner.
So it literally should be very easy to file that it does not have.
So please don't put yourself in a position where you're in a, you know, you might be
at risk of penalties and restrictions notice and so forth.
Got it.
Okay, we are at pretty much the end of the hour here.
So I will speed on through to the very end where we just got through part three, professional
law firm input from our Melissa and Carolyn from Walkers Global.
That concludes part three and Carolyn, Melissa, thank you so much for your time.
I thoroughly enjoy speaking with the two of you and it's clear that anyone who is doing
a foundation company through Walkers Global is clearly in good hands.
Thank you.
Thank you, Shane.
We really enjoyed this too and yeah, appreciate all your kind words.
It was a very fun podcast to be doing.
Yeah, thanks very much.
Shane is great.
Thanks for inviting us.
Love it.
Thank you both for your time and to all my Star Atlas dial, Apecoin dial and Sandbox
dial people listening, please take a look at this.
This what Melissa and Carolyn just did was give some very valuable insight and knowledge
into how dials are run.
Again, thank you everyone for your time and have a great day.