1 00:00:00,000 --> 00:00:05,960 Good morning everyone. 2 00:00:05,960 --> 00:00:09,460 Sandow podcast number 59. 3 00:00:09,460 --> 00:00:16,400 Today is part three of a mini series we've been doing here on Sandow about foundation 4 00:00:16,400 --> 00:00:23,100 companies, which is the legal structure underpinning our sandbox style and our sand fam. 5 00:00:23,100 --> 00:00:26,600 Also if there's anyone from star Atlas style or eight coin down. 6 00:00:26,600 --> 00:00:31,220 Hello this is also applicable to you as you are also a foundation company within the Grand 7 00:00:31,220 --> 00:00:32,720 Cayman Islands. 8 00:00:32,720 --> 00:00:35,080 The scope of the talk today is an analysis of the facts. 9 00:00:35,080 --> 00:00:41,960 It's all about transparency, giving our Dow community more information and better education 10 00:00:41,960 --> 00:00:45,560 so that we can make smart decisions about how we run our Dow. 11 00:00:45,560 --> 00:00:50,720 I have with me here two experts in the field two very well qualified individuals, Carolyn 12 00:00:50,720 --> 00:00:52,520 and Melissa. 13 00:00:52,520 --> 00:00:57,280 The disclaimer is none of us represent the sandbox game or the sandbox foundation. 14 00:00:57,280 --> 00:00:59,200 We're not your financial legal advisors. 15 00:00:59,200 --> 00:01:01,520 Nothing we say should be taken as financial or legal advice. 16 00:01:01,520 --> 00:01:04,600 Carolyn, Melissa, do you agree with that? 17 00:01:04,600 --> 00:01:05,600 Completely. 18 00:01:05,600 --> 00:01:06,600 Absolutely. 19 00:01:06,600 --> 00:01:13,040 So if we say the word sip, we mean sandbox proposal. 20 00:01:13,040 --> 00:01:15,900 If we say the word Dow, we mean a centralized autonomous organization. 21 00:01:15,900 --> 00:01:20,280 And if we say the word sand fam, if I use the word sand fam, I'm referring to the sandbox 22 00:01:20,280 --> 00:01:21,580 community. 23 00:01:21,580 --> 00:01:26,200 Those who participate in the people, product and purpose of the sandbox ecosystem. 24 00:01:26,200 --> 00:01:28,240 That ecosystem looks a little bit like this. 25 00:01:28,240 --> 00:01:32,400 I made it out to be about three sectors, the people, product and purpose. 26 00:01:32,400 --> 00:01:37,040 They're referring the gamers to the sandbox team, the game client to the Dow, the sandbox 27 00:01:37,040 --> 00:01:39,680 white paper and everything that the leadership has commented on. 28 00:01:39,680 --> 00:01:44,000 All that goes together every day equal that ecosystem. 29 00:01:44,000 --> 00:01:49,160 Today's episode is squarely within the Dow, particularly the legal framework behind it. 30 00:01:49,160 --> 00:01:54,400 And today I have with me two individuals from Walkers Global, which is an internationally 31 00:01:54,400 --> 00:01:58,920 recognized company that provides both legal and company management services. 32 00:01:58,920 --> 00:02:01,520 Melissa, Carolyn, welcome. 33 00:02:01,520 --> 00:02:06,500 And if you would please give us a little bit of introduction about yourselves. 34 00:02:06,500 --> 00:02:08,000 Thank you so much, Shane. 35 00:02:08,000 --> 00:02:09,680 So I am Melissa Lim. 36 00:02:09,680 --> 00:02:12,760 I am a partner at Walkers. 37 00:02:12,760 --> 00:02:14,760 Walkers is headquartered in the Cayman Islands. 38 00:02:14,760 --> 00:02:16,400 It's a law firm. 39 00:02:16,400 --> 00:02:22,440 We advise on the laws of the Cayman Islands, Bermuda, BBI, Guernsey, Jersey and Irish 40 00:02:22,440 --> 00:02:23,440 laws. 41 00:02:23,440 --> 00:02:29,440 We are the largest Cayman law firm and I am the co-head of the global fintech and blockchain 42 00:02:29,440 --> 00:02:31,440 practice at Walkers. 43 00:02:31,440 --> 00:02:32,440 Wow. 44 00:02:32,440 --> 00:02:33,440 Welcome. 45 00:02:33,440 --> 00:02:34,440 Thank you, Melissa. 46 00:02:34,440 --> 00:02:42,280 Yeah, I'm not really sure how to follow that, but my name is Carolyn Kelly. 47 00:02:42,280 --> 00:02:46,680 I'm an associate in the fintech team at Walkers as well. 48 00:02:46,680 --> 00:02:51,080 Welcome to you both. 49 00:02:51,080 --> 00:02:52,080 Thank you so much. 50 00:02:52,080 --> 00:02:53,080 Absolutely. 51 00:02:53,080 --> 00:02:55,240 Very happy to be here. 52 00:02:55,240 --> 00:02:58,580 So we're going to do a quick five minute recap for those of you watching to catch you back 53 00:02:58,580 --> 00:02:59,580 up. 54 00:02:59,580 --> 00:03:06,760 Sandow 34, Sandow 56 and Sandow 57 is what led us to today, specifically Sandow 34. 55 00:03:06,760 --> 00:03:10,880 We first began piecing together what I called the relationship map, trying to figure out 56 00:03:10,880 --> 00:03:15,760 who was doing what based on Google searches, all sorts of things I could put together and 57 00:03:15,760 --> 00:03:18,520 the public domain that looked a little bit like this. 58 00:03:18,520 --> 00:03:22,600 I still know I didn't get every single bit of it right, but each day I learn more. 59 00:03:22,600 --> 00:03:26,160 I update that. 60 00:03:26,160 --> 00:03:28,800 Update that as much as I can. 61 00:03:28,800 --> 00:03:33,720 Today we're specifically focusing on also in Sandow 34. 62 00:03:33,720 --> 00:03:40,360 I also talked a little bit about where everyone was in the sandbox style, particularly the 63 00:03:40,360 --> 00:03:46,560 illegal, the company management services and how I thought it was strange at first when 64 00:03:46,560 --> 00:03:51,280 I didn't know anything, how all most of them were in the same town on the Grand Canyon 65 00:03:51,280 --> 00:03:53,760 Island, specifically Georgetown. 66 00:03:53,760 --> 00:03:59,040 And there are many different reasons. 67 00:03:59,040 --> 00:04:03,960 I thought maybe it was because it was a small town island feel, or perhaps it was just they 68 00:04:03,960 --> 00:04:08,120 were all in the same business district, or maybe they all knew each other. 69 00:04:08,120 --> 00:04:14,640 But that ended up not being the case as I moved into Sandow 56, part one of our mini 70 00:04:14,640 --> 00:04:19,280 series looking at the acts and regulations for the Grand Canyon Islands. 71 00:04:19,280 --> 00:04:22,760 I think it became a lot more clear that it wasn't just because people knew each other 72 00:04:22,760 --> 00:04:27,040 or their childhood friends or whatever the case may be, but actually there's some really, 73 00:04:27,040 --> 00:04:33,480 really good reasons why you would find a Grand Canyon Island company or law firm or management 74 00:04:33,480 --> 00:04:38,440 services to fulfill some of these roles within the foundation company and it all comes down 75 00:04:38,440 --> 00:04:45,680 to licensing requirements, all the very, very particular and professional requirements required 76 00:04:45,680 --> 00:04:50,640 for things like management services or director or secretary or legal counsel, management 77 00:04:50,640 --> 00:04:56,440 services, all these things that help make a foundation company successful. 78 00:04:56,440 --> 00:05:02,480 Some very good reasons why you might find a Grand Canyon Island company or firm to help 79 00:05:02,480 --> 00:05:05,200 provide that. 80 00:05:05,200 --> 00:05:12,440 We did a deep dive into the regulations in Sandow 56, particularly called it the Reg 81 00:05:12,440 --> 00:05:13,440 Stack. 82 00:05:13,440 --> 00:05:17,240 So we started first with the Cayman Companies Act, the Foundations Company Law, then we 83 00:05:17,240 --> 00:05:18,480 went into Companies Management Act. 84 00:05:18,480 --> 00:05:22,680 We did a reading through all of them and all the notable things that I found and a few 85 00:05:22,680 --> 00:05:35,240 others, the directors, registration licensing law, the companies, excuse me, the citation 86 00:05:35,240 --> 00:05:40,600 of acts of parliament law, the Virtual Asset Service Provider Act, which I'm very glad 87 00:05:40,600 --> 00:05:45,240 we went over because that's part of today's brief, and the Securities Investment Business 88 00:05:45,240 --> 00:05:51,800 Law, all sorts of stuff we could look into to see what does it mean to be a foundation 89 00:05:51,800 --> 00:05:53,280 company. 90 00:05:53,280 --> 00:06:00,840 And when we read our documents, such as Articles Association and Random Association, Foundation, 91 00:06:00,840 --> 00:06:05,520 Limited By Guarantee, all these keywords, these buzzwords, Subscriber, even why do we 92 00:06:05,520 --> 00:06:11,160 see $50 duty stamp on the actual articles? 93 00:06:11,160 --> 00:06:13,040 What do those words actually mean? 94 00:06:13,040 --> 00:06:15,880 That's why we went through the Reg Stack. 95 00:06:15,880 --> 00:06:22,160 And I tried my hand at what I thought it meant to actually create a company. 96 00:06:22,160 --> 00:06:26,040 And after today, I'm going to be updating it even more because I know that some of this 97 00:06:26,040 --> 00:06:27,040 is a little bit incorrect. 98 00:06:27,040 --> 00:06:30,320 So I'll need to update that after today. 99 00:06:30,320 --> 00:06:32,560 And then part two, Sandel 57. 100 00:06:32,560 --> 00:06:37,360 We talked to a practicing attorney in the United States and discussed some of the case 101 00:06:37,360 --> 00:06:39,200 law that's out there right now. 102 00:06:39,200 --> 00:06:45,480 OkieDow, BZXDow, LidoDow, and some of some other frameworks and opinions going out there, 103 00:06:45,480 --> 00:06:51,240 such as the 2017 SEC investigative report, the April 2019 framework that they put out 104 00:06:51,240 --> 00:06:58,640 as well, and how different US regulations and statutes, such as the Longarm Statute, 105 00:06:58,640 --> 00:07:04,520 Conducts and Effects Test, and the Dodd-Frank Act, how that might apply to why we see a 106 00:07:04,520 --> 00:07:14,200 US regulator suing a German company and how that applies to US people. 107 00:07:14,200 --> 00:07:23,400 We also went through the comparative nature of Dow LLCs within the US, particularly DUNAs, 108 00:07:23,400 --> 00:07:30,540 Decentralized Unincorporated Nonprofit Associations, and Limited Liability Dows, followed up by 109 00:07:30,540 --> 00:07:38,040 an opinion piece, one of which is our two authors today, Walkers Global, Cayman Islands 110 00:07:38,040 --> 00:07:42,720 Foundation Companies, are a leading vehicle for wrapping a Dow. 111 00:07:42,720 --> 00:07:44,680 So that leads to today, part three. 112 00:07:44,680 --> 00:07:50,400 We're going to hear a brief from Melissa and Carolyn about foundation companies, DOWs, 113 00:07:50,400 --> 00:07:57,880 and virtual assets, followed by a Q&A, then the allotment that we can do for the next 114 00:07:57,880 --> 00:07:59,820 40 minutes. 115 00:07:59,820 --> 00:08:07,360 So Carolyn, Melissa, all yours, the slides are ready, ready for you. 116 00:08:07,360 --> 00:08:09,560 Take it away. 117 00:08:09,560 --> 00:08:10,560 Excellent. 118 00:08:10,560 --> 00:08:12,560 Carolyn, do you want to start? 119 00:08:12,560 --> 00:08:13,560 Yeah, absolutely. 120 00:08:13,560 --> 00:08:14,560 Thanks, Mel. 121 00:08:14,560 --> 00:08:21,440 So really, I think probably a good place to start here is what is a foundation company? 122 00:08:21,440 --> 00:08:25,120 And so a foundation company is an exempted company. 123 00:08:25,120 --> 00:08:28,400 It is without share capital, which means it's limited by guarantee. 124 00:08:28,400 --> 00:08:32,160 It has no shareholders, as it has no shares. 125 00:08:32,160 --> 00:08:38,160 It can have shares, but the way we incorporate Walkers and to feed into the decentralized 126 00:08:38,160 --> 00:08:44,440 community ethos of decentralized autonomous organizations is that we incorporate them 127 00:08:44,440 --> 00:08:47,000 without having any shares. 128 00:08:47,000 --> 00:08:52,680 It has one member on incorporation, but that member immediately resigns after incorporation, 129 00:08:52,680 --> 00:08:56,000 leaving it as this memberless company. 130 00:08:56,000 --> 00:09:04,560 And the main reason we form these foundation companies is to act as legal wrappers for 131 00:09:04,560 --> 00:09:05,560 the Dow. 132 00:09:05,560 --> 00:09:10,000 It's a relatively flexible and bespoke vehicle. 133 00:09:10,000 --> 00:09:13,640 And it was actually introduced. 134 00:09:13,640 --> 00:09:18,480 You know, it didn't actually, you know, it wasn't necessarily with the intention of, 135 00:09:18,480 --> 00:09:21,360 you know, just for sort of blockchain projects. 136 00:09:21,360 --> 00:09:27,080 There was, you know, it's sort of a trust and philanthropic purposes. 137 00:09:27,080 --> 00:09:29,680 You know, that's why it was sort of introduced. 138 00:09:29,680 --> 00:09:37,280 But it's been used to for, you know, to act as a legal wrapper for decentralized autonomous 139 00:09:37,280 --> 00:09:38,280 organizations. 140 00:09:38,280 --> 00:09:41,720 And it's an incredibly popular vehicle. 141 00:09:41,720 --> 00:09:44,400 And that's because, you know, traditional corporate structures are at odds with the 142 00:09:44,400 --> 00:09:48,640 protocols community and obviously the vast majority of blockchain protocols which have 143 00:09:48,640 --> 00:09:53,240 their own custom blockchain community projects, many of them with community governance at 144 00:09:53,240 --> 00:09:54,240 their core. 145 00:09:54,240 --> 00:09:58,920 So what, you know, those traditional structures require that to be sort of a shareholder or 146 00:09:58,920 --> 00:09:59,920 a member. 147 00:09:59,920 --> 00:10:03,760 If you just had a normal Cayman Islands exempted company, basically, in other words, like an 148 00:10:03,760 --> 00:10:08,760 owner, whereas foundation companies can sort of provide a solution to that problem, they 149 00:10:08,760 --> 00:10:11,640 can be structured in such a way that they don't require an owner. 150 00:10:11,640 --> 00:10:15,560 And like I said, that is because they can be memberless and instead they can be governed 151 00:10:15,560 --> 00:10:16,560 by the Dow. 152 00:10:16,560 --> 00:10:19,240 And we can perhaps get onto that a little bit later. 153 00:10:19,240 --> 00:10:23,040 But that's in essence what a foundation company is. 154 00:10:23,040 --> 00:10:30,240 And I guess why would a Dow wish to use a Cayman entity is probably the next best question. 155 00:10:30,240 --> 00:10:34,400 And I think, you know, we are very lucky in the Cayman Islands that we have, you know, 156 00:10:34,400 --> 00:10:39,240 very, you know, a crypto, a government that is fairly crypto friendly. 157 00:10:39,240 --> 00:10:42,760 There is regulatory certainty in the Cayman Islands, particularly with, you know, the 158 00:10:42,760 --> 00:10:47,720 introduction of the Virtual Assets Service Providers Act. 159 00:10:47,720 --> 00:10:49,800 It's a tax neutral jurisdiction. 160 00:10:49,800 --> 00:10:53,440 So that's also incredibly attractive. 161 00:10:53,440 --> 00:10:55,680 And you know, we're very, we are very, very fortunate. 162 00:10:55,680 --> 00:11:00,680 We have an incredible blockchain community in the Cayman Islands, which is growing all 163 00:11:00,680 --> 00:11:01,760 the time. 164 00:11:01,760 --> 00:11:07,480 And that allows for, you know, the community to provide sort of very sophisticated, become 165 00:11:07,480 --> 00:11:14,160 very sophisticated about this area, about the digital asset Web3 space. 166 00:11:14,160 --> 00:11:18,120 And what that means is we have incredibly sophisticated service providers based in the 167 00:11:18,120 --> 00:11:22,840 Cayman Islands who, and Shane, you mentioned this earlier, you know, those roles that need 168 00:11:22,840 --> 00:11:29,000 to be fulfilled, you know, that the foundation company needs to needs to fulfill. 169 00:11:29,000 --> 00:11:37,100 They can be selected from this very sophisticated group of individuals who have great knowledge 170 00:11:37,100 --> 00:11:38,100 about this space. 171 00:11:38,100 --> 00:11:41,560 So we are incredibly fortunate in that respect. 172 00:11:41,560 --> 00:11:46,440 And we've got very passionate people as well, which is obviously very helpful. 173 00:11:46,440 --> 00:11:50,640 And Cayman Islands entities can also be incorporated on the same day basis. 174 00:11:50,640 --> 00:11:54,200 And also investors just generally are quite familiar, very, very familiar with the Cayman 175 00:11:54,200 --> 00:11:59,480 Islands as it's the sort of leading offshore jurisdiction for investment funds. 176 00:11:59,480 --> 00:12:01,720 So I'll probably pause there. 177 00:12:01,720 --> 00:12:02,720 Exactly. 178 00:12:02,720 --> 00:12:09,880 And I think, Shane, you were mentioning also, you know, why are they all based in Cayman 179 00:12:09,880 --> 00:12:11,840 in terms of the service providers? 180 00:12:11,840 --> 00:12:14,720 Why are they based in Grand Cayman? 181 00:12:14,720 --> 00:12:19,520 Well, there's a little bit of geographical knowledge here. 182 00:12:19,520 --> 00:12:24,980 So the Cayman Islands is comprised of three islands, but the biggest island is Grand Cayman. 183 00:12:24,980 --> 00:12:29,480 And that is where the financial center of the Cayman Islands is located. 184 00:12:29,480 --> 00:12:30,480 I did not know that. 185 00:12:30,480 --> 00:12:31,480 Three islands, you say? 186 00:12:31,480 --> 00:12:32,480 Yes, okay. 187 00:12:32,480 --> 00:12:33,480 Exactly. 188 00:12:33,480 --> 00:12:38,160 The other two islands are very, very small with population of maybe a thousand people 189 00:12:38,160 --> 00:12:40,720 or four thousand people. 190 00:12:40,720 --> 00:12:45,720 It's only in Grand Cayman that you'll find a financial center and Grand Cayman has about 191 00:12:45,720 --> 00:12:47,880 five thousand people. 192 00:12:47,880 --> 00:12:52,400 So if you're wondering why everyone has the same addresses, it is because the financial 193 00:12:52,400 --> 00:12:53,880 center is in Grand Cayman. 194 00:12:53,880 --> 00:12:56,360 Well, how about that? 195 00:12:56,360 --> 00:12:57,360 There you go. 196 00:12:57,360 --> 00:12:58,360 Exactly. 197 00:12:58,360 --> 00:13:06,000 And then in terms of what Carolyn was mentioning before on just the extremely flexible nature 198 00:13:06,000 --> 00:13:07,600 of the Cayman Foundation. 199 00:13:07,600 --> 00:13:14,520 Well, the Cayman Foundation company was actually something that Walker's trust partners had 200 00:13:14,520 --> 00:13:20,000 worked with the Cayman government on because our trust partners work a lot on setting up 201 00:13:20,000 --> 00:13:23,360 family trusts for high net worth individuals. 202 00:13:23,360 --> 00:13:27,640 And these trust vehicles tend to be very flexible, just reflect what the family wants to do with 203 00:13:27,640 --> 00:13:30,640 their assets. 204 00:13:30,640 --> 00:13:37,160 And under Cayman law, a trust vehicle does not have what we call separate legal personality. 205 00:13:37,160 --> 00:13:42,280 So it's the trustee that conducts the operations of the trust. 206 00:13:42,280 --> 00:13:48,520 So these so there was a need from these clients for actually a corporate vehicle. 207 00:13:48,520 --> 00:13:52,960 So they wanted something like a hybrid between a trust and a company. 208 00:13:52,960 --> 00:13:58,980 So our walk trust partners then worked with the government to put in place a foundation 209 00:13:58,980 --> 00:14:05,960 company, which is a hybrid between a trust and a company, not knowing that eventually 210 00:14:05,960 --> 00:14:13,480 foundation companies will become the vehicle of choice for the Web3 ecosystem. 211 00:14:13,480 --> 00:14:19,040 So it's been quite interesting how the evolution of the use of a foundation company was initially 212 00:14:19,040 --> 00:14:27,360 meant to be for family trusts and now has become the key vehicle for Web3. 213 00:14:27,360 --> 00:14:28,880 That makes a lot of sense. 214 00:14:28,880 --> 00:14:31,380 And I'm probably not surprised to. 215 00:14:31,380 --> 00:14:36,560 So we also looked into Guernsey Purpose Trusts and how and I saw so many similarities and 216 00:14:36,560 --> 00:14:42,360 I thought that that sounds like the origination like a company and a trust put together like 217 00:14:42,360 --> 00:14:45,400 the best of both of them. 218 00:14:45,400 --> 00:14:49,160 Exactly because then you have a corporate shield because ultimately is a company is 219 00:14:49,160 --> 00:14:54,620 corporate and you have separate legal personality because you have a corporate. 220 00:14:54,620 --> 00:15:03,400 So that's been the key difference and evolution of the just typical trust structure that we 221 00:15:03,400 --> 00:15:06,440 had historically. 222 00:15:06,440 --> 00:15:07,680 Thank you. 223 00:15:07,680 --> 00:15:08,680 Thank you for sharing that. 224 00:15:08,680 --> 00:15:11,240 I did not know that Grand Cayman Islands was Three Islands. 225 00:15:11,240 --> 00:15:12,920 That makes a lot more sense now. 226 00:15:12,920 --> 00:15:17,760 There we go. 227 00:15:17,760 --> 00:15:24,800 I have now showing the why would a Dow form Cayman Foundation Company. 228 00:15:24,800 --> 00:15:25,800 Yes. 229 00:15:25,800 --> 00:15:30,320 And I think Carolyn had yes, we're moving on to that one. 230 00:15:30,320 --> 00:15:35,280 I think Carolyn, we would chat about this one as well. 231 00:15:35,280 --> 00:15:37,080 Would you like me to take this one? 232 00:15:37,080 --> 00:15:39,240 Well, I'm happy to actually. 233 00:15:39,240 --> 00:15:46,240 I think Mel has touched on it as well with what she's saying about and we've sort of 234 00:15:46,240 --> 00:15:50,160 touched on it earlier, but the Cayman Foundation fits with that decentralized ethos. 235 00:15:50,160 --> 00:15:56,600 We mentioned about community governance and one of the things is, obviously, because it's 236 00:15:56,600 --> 00:16:00,840 memberless, it's very sort of unique and flexible structure. 237 00:16:00,840 --> 00:16:08,240 So I think the key things to think about is a Dow doesn't have separate legal personality. 238 00:16:08,240 --> 00:16:14,200 And so echoing what Mel said, a Cayman Foundation Company can be used as a wrapper for that 239 00:16:14,200 --> 00:16:19,680 Dow and the Cayman Foundation Company in and of itself has separate legal personality. 240 00:16:19,680 --> 00:16:24,560 And what that means is, you know, that Cayman Foundation Company can enter into real world 241 00:16:24,560 --> 00:16:28,700 contracts that a Dow would not otherwise be able to do. 242 00:16:28,700 --> 00:16:32,520 And so that's hugely beneficial for a Dow, particularly one that is growing, has a burgeoning 243 00:16:32,520 --> 00:16:41,120 project and wants to enter into contracts with service providers and grant developers 244 00:16:41,120 --> 00:16:45,120 and lots of, you know, various different types of contracts. 245 00:16:45,120 --> 00:16:50,000 And so the Cayman Foundation Company can act as the vehicle for the Dow. 246 00:16:50,000 --> 00:16:52,600 And we say is the legal wrapper for the Dow. 247 00:16:52,600 --> 00:16:55,400 That's the sort of terminology we use. 248 00:16:55,400 --> 00:17:01,320 And then in addition to that, it has not been tested in Cayman Court yet, but it is structured, 249 00:17:01,320 --> 00:17:05,380 the Cayman Foundation Company is structured so that it provides sort of a shield of liability 250 00:17:05,380 --> 00:17:06,380 for the Dow. 251 00:17:06,380 --> 00:17:09,380 And that's the hope. 252 00:17:09,380 --> 00:17:15,040 And that's what we touched upon in the article that you read, Shane, on, you know, that the 253 00:17:15,040 --> 00:17:22,840 Walker's article on LinkedIn, because that was sort of the key, one of the key, you know, 254 00:17:22,840 --> 00:17:28,200 areas of concern for people following sort of the Uki Dow case, particularly. 255 00:17:28,200 --> 00:17:34,440 And then obviously with sort of the Lido Dow judgment as well. 256 00:17:34,440 --> 00:17:35,800 Gotcha. 257 00:17:35,800 --> 00:17:37,680 Okay. 258 00:17:37,680 --> 00:17:40,600 And next was the timeline events. 259 00:17:40,600 --> 00:17:45,760 Yeah, I think Shane, we always talk about, oh, you know, the ideal world, you know, for 260 00:17:45,760 --> 00:17:50,720 Dow is all like on-chain transactions, you don't need, you know, a real world entity 261 00:17:50,720 --> 00:17:51,720 as well. 262 00:17:51,720 --> 00:17:57,020 But ultimately, there's a lot of, you know, given that we don't actually have the infrastructure 263 00:17:57,020 --> 00:18:00,960 at this stage, a lot of stuff is still done off-chain. 264 00:18:00,960 --> 00:18:06,080 So that's really two main purposes for forming actual, you know, legal entity to represent 265 00:18:06,080 --> 00:18:07,120 the Dow. 266 00:18:07,120 --> 00:18:12,720 One for the limited liability protection and then number two for any like real world transactions 267 00:18:12,720 --> 00:18:17,720 where, you know, let's say, Ape Foundation wanted to sponsor an event. 268 00:18:17,720 --> 00:18:22,880 Well, you still need to enter into, you know, vendor agreements or sponsorship venue and 269 00:18:22,880 --> 00:18:23,880 all of that. 270 00:18:23,880 --> 00:18:29,320 But that may not necessarily be all done on-chain because you have a real world event that needs 271 00:18:29,320 --> 00:18:32,120 real world contracts to be entered into. 272 00:18:32,120 --> 00:18:36,560 Something that I was struggling through was in this bullet here, a Dow does not have a 273 00:18:36,560 --> 00:18:38,600 separate legal personality. 274 00:18:38,600 --> 00:18:42,840 Does that mean to say it doesn't inherently have like by itself a separate legal personality 275 00:18:42,840 --> 00:18:47,360 and a foundation company grants it that or is that separate legal personality always 276 00:18:47,360 --> 00:18:49,360 separate from the Dow? 277 00:18:49,360 --> 00:18:54,400 Okay, so that's what we talk about when we speak to our clients. 278 00:18:54,400 --> 00:18:57,180 What is the philosophy they want to adopt? 279 00:18:57,180 --> 00:19:03,160 Some clients, they want the Cayman Foundation Company to represent the Dow and be a legal 280 00:19:03,160 --> 00:19:05,540 wrapper for the Dow. 281 00:19:05,540 --> 00:19:15,160 By doing that, we are hardwiring all the token holder governance mechanics within the memorandum 282 00:19:15,160 --> 00:19:18,560 and articles of association of the foundation company. 283 00:19:18,560 --> 00:19:24,960 So that is, for example, what was done for Ape Foundation so that all token holder approvals, 284 00:19:24,960 --> 00:19:32,920 voting, all of that is reflected in the Cayman Foundation Company's constitutional documents. 285 00:19:32,920 --> 00:19:40,520 So it means that all actions of the Dow therefore are actions of the Cayman Foundation. 286 00:19:40,520 --> 00:19:45,560 And conversely, all actions of the Cayman Foundation are actions of the Dow. 287 00:19:45,560 --> 00:19:53,480 And that explains the extensive foundation review it goes through before it goes to vote. 288 00:19:53,480 --> 00:19:54,480 Exactly. 289 00:19:54,480 --> 00:20:00,000 So that's why that is the philosophy quite a few clients take. 290 00:20:00,000 --> 00:20:06,000 The other philosophy is, and it's a very good question, Shane, is that some clients will 291 00:20:06,000 --> 00:20:10,960 say, okay, we want our foundation company to be a steward for the ecosystem, but not 292 00:20:10,960 --> 00:20:15,600 represent the Dow in terms of be a legal wrapper for the Dow. 293 00:20:15,600 --> 00:20:21,080 So no token holder governance mechanics are hardwired into the constitutional documents 294 00:20:21,080 --> 00:20:22,800 of the Cayman Foundation. 295 00:20:22,800 --> 00:20:28,560 The Cayman Foundation is director led, but a director will take into consideration any 296 00:20:28,560 --> 00:20:32,560 of the approved proposals by the Dow. 297 00:20:32,560 --> 00:20:38,400 But it actually doesn't action these proposals if the directors determine not to. 298 00:20:38,400 --> 00:20:44,240 So there is some discretion there because ultimately it's a director led foundation. 299 00:20:44,240 --> 00:20:47,880 The good thing is though, for those type of foundations, typically the directors do affect 300 00:20:47,880 --> 00:20:50,040 what the token holders vote on. 301 00:20:50,040 --> 00:20:55,560 It's just that none of the token holder governance mechanics is hardwired into the constitutional 302 00:20:55,560 --> 00:21:03,200 documents of the foundation because the foundation acts separate and apart from the Dow, but 303 00:21:03,200 --> 00:21:05,760 is a steward for the Dow. 304 00:21:05,760 --> 00:21:07,560 So that's the philosophy. 305 00:21:07,560 --> 00:21:11,800 So we say to our clients, do you want the foundation to represent and wrap the Dow or 306 00:21:11,800 --> 00:21:17,060 do you want the foundation to be a steward acting separate and distinct from the Dow, 307 00:21:17,060 --> 00:21:23,160 but also furthering the ecosystem of that protocol or NFT? 308 00:21:23,160 --> 00:21:25,080 I did not understand that distinction. 309 00:21:25,080 --> 00:21:28,160 That is a very important distinction now that you say that. 310 00:21:28,160 --> 00:21:33,400 How can I tell when reading the constitution or the articles or memos? 311 00:21:33,400 --> 00:21:40,080 You can tell immediately by, if you look at the constitution, whether you have all the 312 00:21:40,080 --> 00:21:44,680 token holder governance mechanics in the constitution or not. 313 00:21:44,680 --> 00:21:49,080 So it doesn't have token holder governance mechanics in the constitution. 314 00:21:49,080 --> 00:21:54,320 It means that it's a director led foundation with a director taking into consideration 315 00:21:54,320 --> 00:21:57,560 any votes and snapshot and so forth. 316 00:21:57,560 --> 00:21:59,800 But that is the big distinction. 317 00:21:59,800 --> 00:22:04,800 So you'll see various, if you look out there, you'll find foundation companies with two 318 00:22:04,800 --> 00:22:07,540 different types of memorandum and articles of association. 319 00:22:07,540 --> 00:22:11,760 One with token holder governance and one without. 320 00:22:11,760 --> 00:22:14,320 Thank you so much for distinguishing that in my brain. 321 00:22:14,320 --> 00:22:16,320 I've been confused about that this whole time. 322 00:22:16,320 --> 00:22:17,320 No worries. 323 00:22:17,320 --> 00:22:21,800 They just answered an absolute, I call it the philosophy. 324 00:22:21,800 --> 00:22:22,800 What is your philosophy? 325 00:22:22,800 --> 00:22:32,120 And we have clients who go, they pick different approaches to this. 326 00:22:32,120 --> 00:22:37,560 And so we definitely have those clients who want this sort of steward approach and the 327 00:22:37,560 --> 00:22:43,760 ad hoc sort of token holder governance where they pass certain actions. 328 00:22:43,760 --> 00:22:49,600 But I think quite often we see them act as the legal wrapper for the Dow when we are 329 00:22:49,600 --> 00:22:55,280 incorporating the token holder governance mechanics set out in the bylaws of the bylaws 330 00:22:55,280 --> 00:22:56,600 and the foundation company. 331 00:22:56,600 --> 00:23:00,120 And then we are amending and restating the memorandum and articles of association to 332 00:23:00,120 --> 00:23:02,400 reflect that token holder governance. 333 00:23:02,400 --> 00:23:07,880 And like Mel said, the directors are sort of there to enact the will of the Dow subject 334 00:23:07,880 --> 00:23:11,040 to obviously they can't do anything that's illegal. 335 00:23:11,040 --> 00:23:17,880 So if the Dow decided for whatever reason they wanted to do something and that was sort 336 00:23:17,880 --> 00:23:22,440 of illegal and illegal action, then the directors can refuse obviously to do that. 337 00:23:22,440 --> 00:23:27,840 But generally speaking, they are there to enact the will of the Dow. 338 00:23:27,840 --> 00:23:29,640 And they're fiduciaries, correct? 339 00:23:29,640 --> 00:23:30,640 The directors? 340 00:23:30,640 --> 00:23:31,640 Indeed. 341 00:23:31,640 --> 00:23:36,520 They have fiduciary duties and obligations to the foundation company to act in the best 342 00:23:36,520 --> 00:23:39,240 interest of the foundation company to avoid conflicts of interest. 343 00:23:39,240 --> 00:23:42,160 I'm skipping ahead there. 344 00:23:42,160 --> 00:23:43,760 This is just so exciting. 345 00:23:43,760 --> 00:23:45,040 Okay. 346 00:23:45,040 --> 00:23:46,680 We left off with the timeline of events. 347 00:23:46,680 --> 00:23:48,280 I was just going to that. 348 00:23:48,280 --> 00:23:49,840 Yeah, no problem at all. 349 00:23:49,840 --> 00:23:51,880 Mel, do you want me to just take this one or? 350 00:23:51,880 --> 00:23:52,880 Yeah, sure. 351 00:23:52,880 --> 00:23:53,880 Okay. 352 00:23:53,880 --> 00:23:54,880 So the timeline of events. 353 00:23:54,880 --> 00:24:01,480 So I think, you know, from this is obviously the walker sort of timeline of events. 354 00:24:01,480 --> 00:24:05,840 So you might get sort of different approach with different legal service providers in 355 00:24:05,840 --> 00:24:06,840 the Cayman Islands. 356 00:24:06,840 --> 00:24:12,440 But in essence, we have to firstly do our sort of client KYC and onboarding checks, 357 00:24:12,440 --> 00:24:17,000 which are sort of our internal compliance and requirements. 358 00:24:17,000 --> 00:24:22,240 We would then sort of, you know, we discussed with the client, we have a kickoff call, we 359 00:24:22,240 --> 00:24:26,000 discussed with them about the types of service providers and the types of roles that need 360 00:24:26,000 --> 00:24:29,800 to be fulfilled and the service providers in the Cayman Islands. 361 00:24:29,800 --> 00:24:35,200 We are seeing sort of lots of service providers also act in the first instance and incorporate 362 00:24:35,200 --> 00:24:36,600 Cayman Foundation companies. 363 00:24:36,600 --> 00:24:42,360 But if we put that to one side and we go through the entire process from our side, you know, 364 00:24:42,360 --> 00:24:47,320 we're looking at then preparing the what once the client has been sufficiently clear by 365 00:24:47,320 --> 00:24:52,040 our compliance team and has been fully onboarded then and that's, you know, probably like the 366 00:24:52,040 --> 00:24:55,360 labs called the Devco that we would onboard at that stage. 367 00:24:55,360 --> 00:24:58,320 And we would then prepare those incorporation documents. 368 00:24:58,320 --> 00:24:59,320 And I think Mel touched upon. 369 00:24:59,320 --> 00:25:00,320 What was that? 370 00:25:00,320 --> 00:25:01,320 Devco? 371 00:25:01,320 --> 00:25:07,720 Oh, so the development company, the onshore development company or the onshore labs company 372 00:25:07,720 --> 00:25:12,240 typically would be our client of record initially when we onboard a Cayman Foundation, when 373 00:25:12,240 --> 00:25:17,920 we onboard a client of record in order to incorporate the Cayman Foundation. 374 00:25:17,920 --> 00:25:23,240 But then we prepare the incorporation documents. 375 00:25:23,240 --> 00:25:27,160 So we prepare the memorandum and articles of association. 376 00:25:27,160 --> 00:25:31,280 And then we typically they are director led. 377 00:25:31,280 --> 00:25:36,960 So that that is most of the powers best with the directors initially. 378 00:25:36,960 --> 00:25:41,800 And then at a later stage, we would then look at amending and restating if they're going 379 00:25:41,800 --> 00:25:46,120 to the Cayman Foundation company is going to act as a legal wrapper for the Dow. 380 00:25:46,120 --> 00:25:52,360 We would then look at a later stage to to to incorporate the governance mechanics that's 381 00:25:52,360 --> 00:25:53,360 set out in the bylaws. 382 00:25:53,360 --> 00:25:57,600 But in the first instance, we prepare that initial M&A along with some stage two ancillary 383 00:25:57,600 --> 00:25:58,600 documents. 384 00:25:58,600 --> 00:26:05,080 And at that point, the Cayman Foundation will need to have selected the service providers 385 00:26:05,080 --> 00:26:10,880 that it wants to appoint into the roles, which we can come on and talk about a bit later. 386 00:26:10,880 --> 00:26:15,480 So once the Cayman Foundation company has been incorporated and set up, it's then really 387 00:26:15,480 --> 00:26:22,320 led by onshore council and the client as to when token holder governance and they want 388 00:26:22,320 --> 00:26:24,040 to implement token holder governance. 389 00:26:24,040 --> 00:26:27,900 And usually that aligns with the token generation event. 390 00:26:27,900 --> 00:26:32,320 And so at that point, though, they would be one of the ones preparing the bylaws. 391 00:26:32,320 --> 00:26:35,440 So we looked onshore council to prepare those. 392 00:26:35,440 --> 00:26:39,360 And they set out that, like I said, that token holder governance. 393 00:26:39,360 --> 00:26:44,360 And then we prepare the amended and restated memorandum and articles of association, as 394 00:26:44,360 --> 00:26:47,960 I mentioned, to reflect that token holder governance. 395 00:26:47,960 --> 00:26:51,840 And this is in the example where the foundation company is acting as a legal wrapper as opposed 396 00:26:51,840 --> 00:26:54,520 to just being a steward. 397 00:26:54,520 --> 00:26:55,520 There's various commercial agreements. 398 00:26:55,520 --> 00:26:56,520 It's a stage process. 399 00:26:56,520 --> 00:26:57,520 OK. 400 00:26:57,520 --> 00:27:06,560 Within the workers' global, I guess, advice or is this always how it goes? 401 00:27:06,560 --> 00:27:09,760 Yeah, like this is this is pretty standard, right? 402 00:27:09,760 --> 00:27:10,760 This is pretty standard. 403 00:27:10,760 --> 00:27:15,400 But again, obviously, if they are not if the foundation company is not going to act as 404 00:27:15,400 --> 00:27:19,720 this sort of the legal wrapper where it's reflecting that token holder governance and 405 00:27:19,720 --> 00:27:23,440 if it's just going to be a steward, then obviously in terms of the. 406 00:27:23,440 --> 00:27:24,440 Beyond that. 407 00:27:24,440 --> 00:27:25,440 OK. 408 00:27:25,440 --> 00:27:31,680 Well, yeah, you would you might just leave it as a director led foundation company. 409 00:27:31,680 --> 00:27:37,160 So but if the intention is to have those that token holder governance baked in, then we 410 00:27:37,160 --> 00:27:42,520 would need to amend and restate at the end the articles to reflect that, you know, to 411 00:27:42,520 --> 00:27:44,100 reflect all of that. 412 00:27:44,100 --> 00:27:48,680 And so at that stage also, you know, you're looking at lots of and this sort of is goes 413 00:27:48,680 --> 00:27:51,760 alongside the whole process of what we're doing. 414 00:27:51,760 --> 00:27:54,880 But, you know, we're looking at the there's lots of commercial agreements that may need 415 00:27:54,880 --> 00:27:59,840 to be executed, certainly service provider agreements with the secretary and and secretary 416 00:27:59,840 --> 00:28:03,000 of the initial office and supervisor and the directors. 417 00:28:03,000 --> 00:28:05,040 So be looking at that. 418 00:28:05,040 --> 00:28:10,680 And also, yeah, like opening a bank accounts and we, you know, that's obviously something 419 00:28:10,680 --> 00:28:16,560 that, you know, they want to fairly quickly. 420 00:28:16,560 --> 00:28:22,000 And then, you know, we adopt the the amended and we say, these men random articles at that 421 00:28:22,000 --> 00:28:27,000 point and then adopted this launch of a native token if if that's what the you know, the 422 00:28:27,000 --> 00:28:32,720 client is intending to do, there may be also be an appointment of council members and we 423 00:28:32,720 --> 00:28:35,640 can talk a little bit more about about that. 424 00:28:35,640 --> 00:28:41,040 But that's kind of really sort of counter through the timeline of events for a Cayman 425 00:28:41,040 --> 00:28:46,560 Foundation company as we do it at Walker's. 426 00:28:46,560 --> 00:28:51,200 And I think, you know, on the next slide, I've kind of touched upon those key points 427 00:28:51,200 --> 00:28:53,640 about it being direct led articles initially. 428 00:28:53,640 --> 00:28:58,920 And therefore, you know, the directors therefore hold those key decision making powers and 429 00:28:58,920 --> 00:29:02,080 the token holder governance being set out in full in the bylaws. 430 00:29:02,080 --> 00:29:03,600 We review those bylaws. 431 00:29:03,600 --> 00:29:07,800 We put, you know, we add in our input from a Cayman Islands legal perspective. 432 00:29:07,800 --> 00:29:12,760 And then once they're finalized, we will, you know, we will put that into the amended 433 00:29:12,760 --> 00:29:18,040 and we say to memorandum and article association and pass a resolution to adopt those articles 434 00:29:18,040 --> 00:29:21,600 and give an effect of the governance to set out in the bylaws. 435 00:29:21,600 --> 00:29:25,320 When you say token holder governance mechanics, are we talking about the Dow wrapper part 436 00:29:25,320 --> 00:29:28,120 of what you and Melissa were referring to? 437 00:29:28,120 --> 00:29:33,440 We're talking about the token holder voting, how they're going to vote, the thresholds, 438 00:29:33,440 --> 00:29:34,920 what they're able to vote on. 439 00:29:34,920 --> 00:29:37,140 And that's all set out in the bylaws. 440 00:29:37,140 --> 00:29:39,920 And then what we do, we review those bylaws. 441 00:29:39,920 --> 00:29:44,840 We and we comment on them from a Cayman Islands legal perspective. 442 00:29:44,840 --> 00:29:49,460 And then we amend and restate the initial memorandum and articles of association to 443 00:29:49,460 --> 00:29:54,020 reflect the token holder governance that is set out in the bylaws. 444 00:29:54,020 --> 00:29:59,840 So if, for example, the token holders have the rights to appoint and remove the director, 445 00:29:59,840 --> 00:30:06,560 we would reflect that in our amended and restated memorandum and articles association to show 446 00:30:06,560 --> 00:30:12,720 that token holders by token holder vote have the rights to appoint and remove directors. 447 00:30:12,720 --> 00:30:17,880 I'm just using that as an example, but you know, that's something that we would look 448 00:30:17,880 --> 00:30:22,960 to take across from the bylaws into the memorandum and articles of association. 449 00:30:22,960 --> 00:30:27,400 Yeah, and that's for the type scenario. 450 00:30:27,400 --> 00:30:31,600 As I think Shane was asking in terms of what we do this for the Dow wrapper scenario. 451 00:30:31,600 --> 00:30:34,280 And yes, that's what we would do for a Dow wrapper scenario. 452 00:30:34,280 --> 00:30:35,280 Yeah. 453 00:30:35,280 --> 00:30:40,560 So earlier when you mentioned that you have like your director led type, foundation companies, 454 00:30:40,560 --> 00:30:42,660 your Dow wrapper types. 455 00:30:42,660 --> 00:30:46,920 So if it starts as director led, because that's how you have to form the company, and then 456 00:30:46,920 --> 00:30:49,940 you transition to a Dow wrapper scenario. 457 00:30:49,940 --> 00:30:54,560 Is that token holder led on the slide that that's your transition to the Dow wrapper 458 00:30:54,560 --> 00:30:55,560 scenario? 459 00:30:55,560 --> 00:30:56,560 Yes, exactly. 460 00:30:56,560 --> 00:30:59,200 It becomes a token holder led, right? 461 00:30:59,200 --> 00:31:05,720 Because it's a Dow wrapper then, because it's wrapping the Dow and giving effect to the 462 00:31:05,720 --> 00:31:09,480 actions of the Dow or the approved proposals of the Dow. 463 00:31:09,480 --> 00:31:12,400 So that was the transition that Carolyn was talking about. 464 00:31:12,400 --> 00:31:15,160 Because obviously you think you still need to form the Cayman Foundation as director 465 00:31:15,160 --> 00:31:16,160 led. 466 00:31:16,160 --> 00:31:18,200 So you form a Cayman Foundation with this token holder led. 467 00:31:18,200 --> 00:31:20,240 It just doesn't quite work that way. 468 00:31:20,240 --> 00:31:24,640 Someone needs to set up the structure first with the director, and then you transition 469 00:31:24,640 --> 00:31:32,280 to a token holder led type foundation because you're hardwiring as Carolyn said, all the 470 00:31:32,280 --> 00:31:37,360 token holder governance into the constitutional documents of the foundation. 471 00:31:37,360 --> 00:31:42,120 Yeah, or not, depending on how your client wants to do that. 472 00:31:42,120 --> 00:31:44,360 That's so fascinating. 473 00:31:44,360 --> 00:31:49,960 John Cracker from East Special Counsel from the Star Atlas Dow, he is in the chat, he 474 00:31:49,960 --> 00:31:57,480 asked, does the director disappear from the picture entirely in a token holder led situation? 475 00:31:57,480 --> 00:31:58,480 No it doesn't do. 476 00:31:58,480 --> 00:31:59,480 No. 477 00:31:59,480 --> 00:32:08,280 You have to have a minimum of one director appointed under Cayman Islands law. 478 00:32:08,280 --> 00:32:11,560 So that is a statutory requirement. 479 00:32:11,560 --> 00:32:16,440 And so they do not disappear, and they are the ones that enact the will of the token 480 00:32:16,440 --> 00:32:17,440 holder of voting. 481 00:32:17,440 --> 00:32:24,280 Yeah, if I recall from reading that you have to have a secretary, a licensed secretary, 482 00:32:24,280 --> 00:32:27,200 you have to have a licensed director and you have to have a supervisor. 483 00:32:27,200 --> 00:32:28,200 Correct? 484 00:32:28,200 --> 00:32:38,640 We will need to clarify what you mean by licensed director because I recall that earlier in 485 00:32:38,640 --> 00:32:44,920 this episode you mentioned the Directors Registration and Licensing Act, that is not applicable 486 00:32:44,920 --> 00:32:45,920 at all. 487 00:32:45,920 --> 00:32:46,920 Cool. 488 00:32:46,920 --> 00:32:47,920 Okay, great. 489 00:32:47,920 --> 00:32:48,920 Got it. 490 00:32:48,920 --> 00:32:57,960 The Directors Registration and Licensing Act applies to SEMA regulated investment funds. 491 00:32:57,960 --> 00:33:06,720 So it doesn't apply to directors that are appointed to non-regulated Cayman entities. 492 00:33:06,720 --> 00:33:12,720 So all Cayman foundations formed to date are not regulated by SEMA, which is the Cayman 493 00:33:12,720 --> 00:33:16,440 Islands Military Authority, which is the regulator in the Cayman Islands. 494 00:33:16,440 --> 00:33:23,280 The reason why they are not regulated by SEMA is because none of them are engaging in any 495 00:33:23,280 --> 00:33:25,280 regulated activities. 496 00:33:25,280 --> 00:33:32,000 Well, I would say those that Walkers works on anyway, I can't generalize for that other 497 00:33:32,000 --> 00:33:33,680 law firms may work on. 498 00:33:33,680 --> 00:33:39,080 So we work with our clients to make sure that the activities of a Cayman Foundation are 499 00:33:39,080 --> 00:33:40,920 not regulated activities. 500 00:33:40,920 --> 00:33:50,120 And typically a Cayman Foundation's activities would be administer a grant program, hold 501 00:33:50,120 --> 00:33:59,600 a treasury of tokens, enter into these real world contracts for these grant agreements. 502 00:33:59,600 --> 00:34:08,000 You may have the engaged consultants, engaged in marketing of the ecosystem. 503 00:34:08,000 --> 00:34:15,040 So these activities are not regulated activities under Cayman law, which means that the Cayman 504 00:34:15,040 --> 00:34:20,640 Foundation does not need to be regulated under Cayman law, which means that its director 505 00:34:20,640 --> 00:34:25,440 does not need to be registered under the Directors Registration and Licensing Act. 506 00:34:25,440 --> 00:34:26,440 However- 507 00:34:26,440 --> 00:34:28,440 Thank you for clarifying that up. 508 00:34:28,440 --> 00:34:29,760 No problem. 509 00:34:29,760 --> 00:34:37,400 However, there's a slight nuance in that, in that if you are dealing with a director 510 00:34:37,400 --> 00:34:45,200 based in the Cayman Islands, and typically we have service providers in the Cayman Islands 511 00:34:45,200 --> 00:34:52,600 who provide directors to Cayman Foundations, it is Walkers view that these companies providing 512 00:34:52,600 --> 00:34:58,200 director services must be licensed under the Companies Management Act. 513 00:34:58,200 --> 00:35:08,720 So that is a separate legislative regime regulating the provision by companies of persons acting 514 00:35:08,720 --> 00:35:10,140 as directors. 515 00:35:10,140 --> 00:35:14,720 So that's a separate act, but something to bear in mind as well. 516 00:35:14,720 --> 00:35:22,200 So not the Directors Registration and Licensing Act, but the Companies Management Act is what 517 00:35:22,200 --> 00:35:23,760 we're looking at. 518 00:35:23,760 --> 00:35:25,760 Got it. 519 00:35:25,760 --> 00:35:27,480 Got it. 520 00:35:27,480 --> 00:35:35,040 And the follow-up was the, so does the role of director change during a token, token holder 521 00:35:35,040 --> 00:35:36,040 led scenario? 522 00:35:36,040 --> 00:35:37,040 Yeah, do they- 523 00:35:37,040 --> 00:35:38,040 Yes. 524 00:35:38,040 --> 00:35:44,240 Yeah, their role definitely changed because when we form a director led foundation initially, 525 00:35:44,240 --> 00:35:49,320 you know, directors has all encompassing powers conduct the business of the foundation without 526 00:35:49,320 --> 00:35:52,400 any reference to anybody. 527 00:35:52,400 --> 00:35:57,740 But once you hardwire all the token holder governance, the director is required to give 528 00:35:57,740 --> 00:36:03,480 effect to any approved proposals by the token holders. 529 00:36:03,480 --> 00:36:08,000 And the only time, I mean, the director still ultimately has a veto, right? 530 00:36:08,000 --> 00:36:14,000 Because if the token holders vote to do something that is, I don't know, illegal or vote to 531 00:36:14,000 --> 00:36:19,080 do something that is a regulated activity, then the director has the ability to then 532 00:36:19,080 --> 00:36:24,480 step in and, you know, veto that. 533 00:36:24,480 --> 00:36:30,360 Or alternatively, if it's a regulated activity, then propose that maybe a subsidiary be formed 534 00:36:30,360 --> 00:36:36,320 under the Cayman Foundation to engage in the regulated activity and keep it away and separate 535 00:36:36,320 --> 00:36:38,600 from the Cayman Foundation. 536 00:36:38,600 --> 00:36:44,560 Or alternatively structure this proposed regulated activity very clearly under a third party so 537 00:36:44,560 --> 00:36:50,120 that again, the Cayman Foundation does not need to be regulated with the Cayman Islands 538 00:36:50,120 --> 00:36:51,120 Monetary Authority. 539 00:36:51,120 --> 00:36:55,040 And you might be wondering why do we structure it this way that the Cayman Foundation is 540 00:36:55,040 --> 00:36:59,140 not regulated with the Cayman Islands Monetary Authority? 541 00:36:59,140 --> 00:37:06,360 The reason why is because so far to date, if you check the Cayman Islands Monetary Authority's 542 00:37:06,360 --> 00:37:10,320 database, there are no Cayman Foundations registered there. 543 00:37:10,320 --> 00:37:12,680 So you really don't want to be the first. 544 00:37:12,680 --> 00:37:15,120 I mean, you could be the first if you really want to be. 545 00:37:15,120 --> 00:37:21,640 But I suspect that a lot of times when SEMA is dealing with applications to be regulated 546 00:37:21,640 --> 00:37:27,280 and registered with them, they do ask a lot of questions about who is the owner, who is 547 00:37:27,280 --> 00:37:28,280 the UBO. 548 00:37:28,280 --> 00:37:34,360 And given that foundation companies have no shareholders, no owners, I think that will 549 00:37:34,360 --> 00:37:41,040 be quite a difficult concept for SEMA to, I suppose, get their heads around. 550 00:37:41,040 --> 00:37:42,040 I'm not saying it's impossible. 551 00:37:42,040 --> 00:37:46,680 It's just that no one's done it before. 552 00:37:46,680 --> 00:37:47,680 I'm blown away. 553 00:37:47,680 --> 00:37:50,680 This is awesome. 554 00:37:50,680 --> 00:37:53,880 This is the difference between reading the rules and then trying to piece it together 555 00:37:53,880 --> 00:37:56,600 and then seeing how it plays out in real life. 556 00:37:56,600 --> 00:38:00,840 I didn't notice that there were no Cayman Register entities registered with SEMA. 557 00:38:00,840 --> 00:38:03,320 Yeah, there are none. 558 00:38:03,320 --> 00:38:06,960 So yes, but yeah, you know, we're very happy to answer questions. 559 00:38:06,960 --> 00:38:15,000 Sorry, no Cayman Foundation companies, we should say, not no Cayman entities registered. 560 00:38:15,000 --> 00:38:18,000 Just to be clear. 561 00:38:18,000 --> 00:38:19,000 Yeah. 562 00:38:19,000 --> 00:38:25,280 In terms of Cayman VAPs, Registered Virtual Assets Services Providers Act regulated entities, 563 00:38:25,280 --> 00:38:30,920 there are definitely those that are regulated with SEMA, but they are typically the Cayman 564 00:38:30,920 --> 00:38:34,880 companies, not Cayman Foundation companies. 565 00:38:34,880 --> 00:38:35,880 Got it. 566 00:38:35,880 --> 00:38:39,040 Cayman companies, Cayman Corps, they have shareholders, right? 567 00:38:39,040 --> 00:38:40,800 Just like the typical corps. 568 00:38:40,800 --> 00:38:41,800 So. 569 00:38:41,800 --> 00:38:47,000 Okay, so I had the timeline events up and the next slide was what documents are required 570 00:38:47,000 --> 00:38:48,480 to form a foundation company. 571 00:38:48,480 --> 00:38:51,240 Mel, do you want to take this one? 572 00:38:51,240 --> 00:38:56,760 I feel like I've done quite a lot of the slides if you'd like to or do you want me to take 573 00:38:56,760 --> 00:38:57,880 it? 574 00:38:57,880 --> 00:38:58,880 I think yeah. 575 00:38:58,880 --> 00:39:05,840 So this is really just a documentation exercise when you are wanting to form a foundation 576 00:39:05,840 --> 00:39:06,840 company. 577 00:39:06,840 --> 00:39:11,920 So if you look on the slides, you have an affidavit that's signed by a subscriber. 578 00:39:11,920 --> 00:39:17,080 You have your initial memorandum of association and articles of association, which is a director 579 00:39:17,080 --> 00:39:25,520 led, which is director led drafted just because you don't have token holders at that stage. 580 00:39:25,520 --> 00:39:29,800 And then we have what we call the stage two documents, which are all the ancillary documents 581 00:39:29,800 --> 00:39:32,200 associated with the formation. 582 00:39:32,200 --> 00:39:39,560 So just kind of the admin, but important admin such as what who is a director, right? 583 00:39:39,560 --> 00:39:42,840 The foundation must have a director. 584 00:39:42,840 --> 00:39:49,360 And then we also have other ancillary documents such as an undertaking from the subscriber 585 00:39:49,360 --> 00:39:57,880 to pay the guarantee on demand in order to pay for the initial share because a foundation 586 00:39:57,880 --> 00:40:05,400 company must be formed with an initial share, even though eventually via the notice of resignation 587 00:40:05,400 --> 00:40:10,900 of member, the subscriber then resigns as a member so that the foundation becomes a 588 00:40:10,900 --> 00:40:15,080 memberless company or an ownerless company. 589 00:40:15,080 --> 00:40:19,920 And then finally, you have your other ancillary document, which is a director's resolutions, 590 00:40:19,920 --> 00:40:26,920 which deals with approval of any director services agreements, approval of any registered 591 00:40:26,920 --> 00:40:31,980 office services agreements and all the usual standard incorporation formalities. 592 00:40:31,980 --> 00:40:36,720 So it's just a documentation intensive exercise. 593 00:40:36,720 --> 00:40:41,440 Then once that is done, you have your your Cayman Foundation formed ready to go in terms 594 00:40:41,440 --> 00:40:48,640 of opening bank accounts and dealing with with with counterparties. 595 00:40:48,640 --> 00:40:51,140 Exciting normally, that's the thing. 596 00:40:51,140 --> 00:40:57,240 And then once the affidavit and the memorandum of association and articles of association 597 00:40:57,240 --> 00:41:03,480 is filed with the Cayman registrar, the foundation company is formed on the date of filing. 598 00:41:03,480 --> 00:41:10,140 So you don't actually have to wait and to receive the stamp formation documents before 599 00:41:10,140 --> 00:41:11,240 you commence business. 600 00:41:11,240 --> 00:41:16,360 You can actually start conducting the operations of the foundation company upon the date of 601 00:41:16,360 --> 00:41:17,360 filing. 602 00:41:17,360 --> 00:41:21,280 But that's actually a good nuance to be aware of. 603 00:41:21,280 --> 00:41:25,440 I have so many questions and I'm going to hold them till the end. 604 00:41:25,440 --> 00:41:29,840 So I'm going to go down rabbit holes till afterward you get through it. 605 00:41:29,840 --> 00:41:30,840 All of this. 606 00:41:30,840 --> 00:41:36,000 Okay, so I think moving on to the next slide, then, where we're talking about what are the 607 00:41:36,000 --> 00:41:41,200 roles to be satisfied. 608 00:41:41,200 --> 00:41:44,840 So I think initially we had mentioned before you need a registered office and a secretary 609 00:41:44,840 --> 00:41:45,840 appointed. 610 00:41:45,840 --> 00:41:50,080 So it must be the same entity for the foundation company and that registered office and secretary 611 00:41:50,080 --> 00:41:53,160 must be licensed in the Cayman Islands. 612 00:41:53,160 --> 00:41:57,080 So effectively, the registered office provides the address in the Cayman Islands because 613 00:41:57,080 --> 00:42:01,760 a Cayman entity must have an address in the Cayman Islands. 614 00:42:01,760 --> 00:42:05,400 And the registered office deals with all the filings with the registrar of companies in 615 00:42:05,400 --> 00:42:07,160 the Cayman Islands. 616 00:42:07,160 --> 00:42:11,960 The role of the secretary is to provide a notice confirming no breach of Cayman AML 617 00:42:11,960 --> 00:42:17,120 laws prior to receipt of any donations or gifts by the foundation company. 618 00:42:17,120 --> 00:42:25,520 So that's the set out of the various roles for the formation. 619 00:42:25,520 --> 00:42:30,560 And then the other two roles, remaining roles are on the next slide. 620 00:42:30,560 --> 00:42:34,840 I'm going to hand it over to Carolyn. 621 00:42:34,840 --> 00:42:35,840 Sure thing. 622 00:42:35,840 --> 00:42:42,800 So the directors, as mentioned, there is a requirement to have one, a minimum of one 623 00:42:42,800 --> 00:42:47,800 director that there is no requirement for that director to be Cayman resident. 624 00:42:47,800 --> 00:42:49,840 And we often get asked that question. 625 00:42:49,840 --> 00:42:57,080 But obviously, wherever the director is situated in whatever jurisdiction, you know, tax and 626 00:42:57,080 --> 00:43:01,560 sort of legal advice in that jurisdiction should be sought. 627 00:43:01,560 --> 00:43:06,000 You mentioned you asked the question, Shane, earlier about whether directly, you know, 628 00:43:06,000 --> 00:43:10,600 fiduciaries and they do owe fiduciary duties to the foundation company. 629 00:43:10,600 --> 00:43:15,360 And what we typically see is we see sort of a mix of independent directors and or sort 630 00:43:15,360 --> 00:43:18,440 of founder associated directors. 631 00:43:18,440 --> 00:43:20,240 And again, it really depends. 632 00:43:20,240 --> 00:43:24,280 And you know, that sort of founder associated directors will be subject to that onshore 633 00:43:24,280 --> 00:43:28,160 legal and tax advice. 634 00:43:28,160 --> 00:43:35,400 And we then review one of our roles is to look at the director services agreement and 635 00:43:35,400 --> 00:43:42,960 to provide comments from a Cayman Islands legal perspective on that document. 636 00:43:42,960 --> 00:43:48,580 And then that's approved sort of by way of director resolution once that's been finalized 637 00:43:48,580 --> 00:43:54,560 and then entered into between the foundation company and the director. 638 00:43:54,560 --> 00:43:57,240 And then the other role that Mel was referring to. 639 00:43:57,240 --> 00:44:03,620 So this is a very unique role to Cayman Foundation companies is the role of the supervisor. 640 00:44:03,620 --> 00:44:09,820 So where a foundation company has no members and which we've established is what you know, 641 00:44:09,820 --> 00:44:15,680 the way in which we we use these entities, particularly obviously, obviously in the Web3 642 00:44:15,680 --> 00:44:18,680 blockchain space, they must have a supervisor. 643 00:44:18,680 --> 00:44:23,440 Again, there's no requirement for that supervisor to be Cayman resident. 644 00:44:23,440 --> 00:44:26,900 Again, another question we get asked quite a lot. 645 00:44:26,900 --> 00:44:33,680 If the supervisor is not based in this in the Cayman Islands, then you know, again, 646 00:44:33,680 --> 00:44:37,960 onshore legal and tax advice should be sought in relation to any such appointments in that 647 00:44:37,960 --> 00:44:39,960 particular in a particular jurisdiction. 648 00:44:39,960 --> 00:44:45,680 I'm sorry, can you repeat that sentence that that was I need to process that again. 649 00:44:45,680 --> 00:44:51,040 Yeah, no, just that if if sort of if the directors or supervisor are based in a different jurisdiction, 650 00:44:51,040 --> 00:44:55,080 then legal and tax advice should be sought in the jurisdiction in which they are based 651 00:44:55,080 --> 00:44:59,720 just to ensure that there's no sort of adverse legal or tax consequences for both world to 652 00:44:59,720 --> 00:45:04,400 supervise themselves, but also for the Cayman Foundation company. 653 00:45:04,400 --> 00:45:08,040 And that was just making the point that there's just no requirement for either the supervisor 654 00:45:08,040 --> 00:45:10,760 or the directors to be Cayman resident. 655 00:45:10,760 --> 00:45:15,480 Does it get complicated if the director and the supervisor are outside of the Cayman Islands 656 00:45:15,480 --> 00:45:20,240 and then they're then themselves are not the same jurisdiction? 657 00:45:20,240 --> 00:45:25,520 We you know, I think it becomes a little bit more complicated, I think. 658 00:45:25,520 --> 00:45:30,560 Like, you know, I think depending upon particularly we've seen sort of very anecdotally and I'm 659 00:45:30,560 --> 00:45:35,040 sort of not US law qualified, but you know, particularly if you have directors who are 660 00:45:35,040 --> 00:45:41,520 located in the US, we've seen potential, you know, potential issues there. 661 00:45:41,520 --> 00:45:46,680 But again, it's always good in these circumstances that if you are not appointing Cayman Islands 662 00:45:46,680 --> 00:45:56,520 based supervisor directors, then you should get the requisite legal and tax advice prior 663 00:45:56,520 --> 00:46:02,840 to making those appointments just to, you know, cover off any issues beforehand. 664 00:46:02,840 --> 00:46:10,000 And so, yeah, I think a lot of tax advisors have said to our clients that they prefer 665 00:46:10,000 --> 00:46:15,640 to have Cayman resident directors because they want the mine management of the Cayman 666 00:46:15,640 --> 00:46:17,720 Foundation to be in Cayman. 667 00:46:17,720 --> 00:46:18,720 Yeah. 668 00:46:18,720 --> 00:46:27,080 So, you know, a big draw of a Cayman Foundation company is that, you know, a Cayman entity, 669 00:46:27,080 --> 00:46:30,680 Cayman is a tax neutral jurisdiction. 670 00:46:30,680 --> 00:46:36,200 So if you are saying then that the mine and management of the Cayman Foundation is in 671 00:46:36,200 --> 00:46:42,920 Cayman, therefore the activities are therefore done in Cayman, then there should not be the 672 00:46:42,920 --> 00:46:49,440 ability to tax other jurisdictions to tax the Cayman Foundation. 673 00:46:49,440 --> 00:46:54,200 And the good thing is the Cayman government does not impose, you know, taxes because Cayman 674 00:46:54,200 --> 00:46:55,840 is a tax neutral jurisdiction. 675 00:46:55,840 --> 00:47:03,360 So you're trying to benefit from that tax neutral regime that we have in Cayman. 676 00:47:03,360 --> 00:47:09,840 It's starting to become a little bit more clear to me now when some of the bumper stickers 677 00:47:09,840 --> 00:47:15,640 I've seen across many Cayman Islands firms is that how strong the regulatory environment 678 00:47:15,640 --> 00:47:23,520 is and how, what were you mentioning just the tax jurisdictions, the nuance of that, 679 00:47:23,520 --> 00:47:27,360 I think is starting to become really clear as you speak through these bullet points. 680 00:47:27,360 --> 00:47:28,360 Yeah. 681 00:47:28,360 --> 00:47:31,720 Yeah, the Cayman government does not charge taxes effectively. 682 00:47:31,720 --> 00:47:35,700 So no income taxes, no capital gain taxes. 683 00:47:35,700 --> 00:47:41,360 So it's a tax neutral jurisdiction and that's why many international transactions use Cayman 684 00:47:41,360 --> 00:47:46,760 entities, not just in the Web 3 space, in the investment fund space, really any international 685 00:47:46,760 --> 00:47:50,800 financial transactions use the Cayman Islands. 686 00:47:50,800 --> 00:47:57,640 And if you have a US director, then the worldwide tax laws that US have might complicate that 687 00:47:57,640 --> 00:48:00,200 scenario a little bit more? 688 00:48:00,200 --> 00:48:06,560 So yeah, we're not tax advisors, but I think the concern that US-based directors, then 689 00:48:06,560 --> 00:48:11,600 you are then saying that the mine and management of the Cayman Foundation is in the US and 690 00:48:11,600 --> 00:48:16,560 therefore the IRS will start charging taxes on the Cayman Foundation, Treasury. 691 00:48:16,560 --> 00:48:17,560 Fascinating. 692 00:48:17,560 --> 00:48:20,400 So if that's you, consult your tax attorney. 693 00:48:20,400 --> 00:48:21,920 Yes, exactly. 694 00:48:21,920 --> 00:48:24,480 At lot of times. 695 00:48:24,480 --> 00:48:25,480 Exactly. 696 00:48:25,480 --> 00:48:29,520 And then one more quick thing I wanted to mention as well, because as Shane you had 697 00:48:29,520 --> 00:48:35,640 mentioned, directors do all fiduciary duties and a big thing is conflict of interest. 698 00:48:35,640 --> 00:48:43,720 And we have seen that for some Cayman foundations, that some Cayman lawyers actually act as directors 699 00:48:43,720 --> 00:48:47,240 to the foundations that they are Cayman lawyers to. 700 00:48:47,240 --> 00:48:53,740 That is something that Walkers does not do because we believe that is a conflict of interest. 701 00:48:53,740 --> 00:48:57,840 So we've been very clear to our clients if they do ask Walkers, oh, can you also provide 702 00:48:57,840 --> 00:48:59,920 directors to the Cayman Foundation? 703 00:48:59,920 --> 00:49:06,120 We would say no, because after all, we as Cayman lawyers at the foundation will therefore 704 00:49:06,120 --> 00:49:08,520 be acting for the Cayman Foundation. 705 00:49:08,520 --> 00:49:13,400 What if the director then breaches his or her fiduciary duties and goes up and does 706 00:49:13,400 --> 00:49:14,400 something wrong? 707 00:49:14,400 --> 00:49:21,840 Well, then we would be in a bad position where we're like, okay, we can't sue ourselves. 708 00:49:21,840 --> 00:49:29,200 So that is why Walkers will not provide directors to a Cayman foundation. 709 00:49:29,200 --> 00:49:32,000 I can think of at least one DAO that does. 710 00:49:32,000 --> 00:49:33,000 Yeah. 711 00:49:33,000 --> 00:49:34,000 How about that? 712 00:49:34,000 --> 00:49:35,000 Yes. 713 00:49:35,000 --> 00:49:40,600 So there are other, we are aware of this practice for other Cayman law firms, but this is something 714 00:49:40,600 --> 00:49:44,120 that we do not do because we believe it's a conflict of interest. 715 00:49:44,120 --> 00:49:45,120 Got it. 716 00:49:45,120 --> 00:49:46,120 Fascinating. 717 00:49:46,120 --> 00:49:51,320 And actually building upon that point is, you know, as we were talking about the supervisor 718 00:49:51,320 --> 00:49:57,680 and what the supervisor's role is, one of the roles of the supervisor is that it can 719 00:49:57,680 --> 00:50:01,960 bring in enforcement action on behalf of the foundation company for the enforcement or 720 00:50:01,960 --> 00:50:05,200 the duties or liabilities of the directors. 721 00:50:05,200 --> 00:50:12,080 And so when you're looking at it in that context, and what we're starting to see, which is, 722 00:50:12,080 --> 00:50:17,360 I think, can only be a good thing is the separation of the supervisor and the director roles, 723 00:50:17,360 --> 00:50:20,000 because actually in the Cayman law, they don't have to be separate. 724 00:50:20,000 --> 00:50:23,920 You could have the same person act as the director and also as a supervisor. 725 00:50:23,920 --> 00:50:28,440 But on the basis that the supervisor is the one who can bring in the enforcement action 726 00:50:28,440 --> 00:50:32,720 on behalf of the foundation company against the directors if they breach their fiduciary 727 00:50:32,720 --> 00:50:36,960 duties or they don't act in compliance with the memorandum and articles of association 728 00:50:36,960 --> 00:50:39,160 and the bylaws. 729 00:50:39,160 --> 00:50:44,480 It seems sensible to have the separation between those roles. 730 00:50:44,480 --> 00:50:48,160 And we are seeing that more and more. 731 00:50:48,160 --> 00:50:52,400 I'm sure that's going to bear that out in some way, shape or form as the case law starts 732 00:50:52,400 --> 00:50:54,680 to develop around this. 733 00:50:54,680 --> 00:50:55,680 Exactly. 734 00:50:55,680 --> 00:50:56,680 Yes. 735 00:50:56,680 --> 00:50:57,680 Exactly. 736 00:50:57,680 --> 00:51:00,680 So far, it has been untested. 737 00:51:00,680 --> 00:51:01,680 I'm tracking. 738 00:51:01,680 --> 00:51:02,680 Yep. 739 00:51:02,680 --> 00:51:06,840 So I was like, I'm high on this. 740 00:51:06,840 --> 00:51:10,480 That's so funny how all this comes together like that. 741 00:51:10,480 --> 00:51:12,080 I'm just, I'm blown away. 742 00:51:12,080 --> 00:51:13,080 Keep going. 743 00:51:13,080 --> 00:51:14,080 You're having lightbulb moments, Shane. 744 00:51:14,080 --> 00:51:15,080 I can see it. 745 00:51:15,080 --> 00:51:20,800 This is so fun and interesting. 746 00:51:20,800 --> 00:51:21,800 Okay. 747 00:51:21,800 --> 00:51:22,800 All right. 748 00:51:22,800 --> 00:51:25,800 Next slide was the bylaws. 749 00:51:25,800 --> 00:51:26,800 Yeah. 750 00:51:26,800 --> 00:51:29,480 And we've touched upon this earlier. 751 00:51:29,480 --> 00:51:33,060 So this is a separate governance document and this is what sets out those token holder 752 00:51:33,060 --> 00:51:37,480 governance mechanisms, how the directors can vote, what those thresholds are required to 753 00:51:37,480 --> 00:51:40,640 make a decision, how token holders can put forward proposals. 754 00:51:40,640 --> 00:51:46,480 Obviously, there's Snapchat, Discord, Twitter Spaces, lots of different types of communication 755 00:51:46,480 --> 00:51:47,480 channels. 756 00:51:47,480 --> 00:51:48,480 And so really that's where the meat- 757 00:51:48,480 --> 00:51:49,480 I see, you're very familiar with those. 758 00:51:49,480 --> 00:51:50,480 That's awesome. 759 00:51:50,480 --> 00:51:51,480 Yeah. 760 00:51:51,480 --> 00:51:55,440 I'm sure you and all your followers know those incredibly well. 761 00:51:55,440 --> 00:51:58,120 That's where the meat of the token holder governance is. 762 00:51:58,120 --> 00:52:01,880 If you were going to read something, that is the document you would be reading, which 763 00:52:01,880 --> 00:52:06,880 would tell you about how the token holders in a particular community are able to vote 764 00:52:06,880 --> 00:52:10,060 on things and what things they're able to vote on. 765 00:52:10,060 --> 00:52:15,760 And so they're not filed with the registrar, they're not publicly available. 766 00:52:15,760 --> 00:52:20,600 And I think we also mentioned this a bit earlier as well, but the directors of the foundation 767 00:52:20,600 --> 00:52:24,760 are bound to follow the bylaws through the memorandum and articles of association. 768 00:52:24,760 --> 00:52:29,120 And what we mean is that there is a article within the articles of association, which 769 00:52:29,120 --> 00:52:34,660 says that the directors must act in compliance with the bylaws and the memorandum and articles 770 00:52:34,660 --> 00:52:37,360 of association. 771 00:52:37,360 --> 00:52:40,640 And they must implement those approved proposals of the token holders. 772 00:52:40,640 --> 00:52:45,320 Again, we referred to that as sort of an act in the will of the Dow subject to those fiduciary 773 00:52:45,320 --> 00:52:46,920 duties and law. 774 00:52:46,920 --> 00:52:52,800 So we also mentioned that where the directors are bound to follow the bylaws and the token 775 00:52:52,800 --> 00:52:59,400 holder votes, say for if they were- the token holders had voted to do something that was 776 00:52:59,400 --> 00:53:01,720 illegal under Cayman law or any applicable law. 777 00:53:01,720 --> 00:53:06,400 So therefore the directors could have a veto right and say, no, we're not going to- we're 778 00:53:06,400 --> 00:53:10,400 not going to enact that proposal. 779 00:53:10,400 --> 00:53:15,040 And then I think we sort of mentioned about once the bylaws and the token holder governance 780 00:53:15,040 --> 00:53:19,480 is kind of finalized and we would review that from a Cayman Islands legal perspective, we 781 00:53:19,480 --> 00:53:25,520 amend and restate the articles to reflect that token holder governance so that you get 782 00:53:25,520 --> 00:53:28,360 this sort of flow through the documents. 783 00:53:28,360 --> 00:53:30,400 And that is the sort of the legal wrap. 784 00:53:30,400 --> 00:53:36,280 You're wrapping your Dow through this sort of nexus between those two documents. 785 00:53:36,280 --> 00:53:40,440 I have a question later on that this is probably a rabbit hole, but the by- I noticed that 786 00:53:40,440 --> 00:53:44,880 the bylaws are optional in the foundation company's law language. 787 00:53:44,880 --> 00:53:49,920 And now I'm fascinated to know how that connection is with the transition, but I'll hold that 788 00:53:49,920 --> 00:53:51,920 till the end. 789 00:53:51,920 --> 00:53:54,720 Okay. 790 00:53:54,720 --> 00:53:58,160 And the next one was the activities of a Cayman foundation company. 791 00:53:58,160 --> 00:53:59,160 Yeah. 792 00:53:59,160 --> 00:54:02,040 Mal, do you want to take this one? 793 00:54:02,040 --> 00:54:03,040 Yeah. 794 00:54:03,040 --> 00:54:07,680 So I think we kind of mentioned before that really a typical activities are that, you 795 00:54:07,680 --> 00:54:10,240 know, it could be governance token minting issuance. 796 00:54:10,240 --> 00:54:17,760 It could be private sales or air drops of the tokens provided that no public sales. 797 00:54:17,760 --> 00:54:20,080 Treasury management of the governance tokens. 798 00:54:20,080 --> 00:54:23,480 You have your grant programs and your bug bounty programs. 799 00:54:23,480 --> 00:54:27,520 You have your execution of sales agreements and consulting agreements. 800 00:54:27,520 --> 00:54:31,440 You have your prop trading of your treasury as well. 801 00:54:31,440 --> 00:54:35,640 So all of these activities are not regulated activities. 802 00:54:35,640 --> 00:54:40,720 And the reason why we said no public sales is because the public sales of tokens is a 803 00:54:40,720 --> 00:54:43,500 regulated activity under Cayman law. 804 00:54:43,500 --> 00:54:48,480 So as long as the foundation is limited to, you know, private sales, air drops, that's 805 00:54:48,480 --> 00:54:49,520 fine. 806 00:54:49,520 --> 00:54:54,000 If the foundation wants to engage in public sales, then we typically then drop down a 807 00:54:54,000 --> 00:55:02,680 BVI subsidiary to engage in any public sales of the tokens because the public sales tokens 808 00:55:02,680 --> 00:55:05,880 in a BVI, it's not regulated. 809 00:55:05,880 --> 00:55:06,880 So the BVI- 810 00:55:06,880 --> 00:55:07,880 And you say not regulated. 811 00:55:07,880 --> 00:55:11,520 You're talking regulated by the securities investment business law, the virtual asset 812 00:55:11,520 --> 00:55:14,160 service provider, something else? 813 00:55:14,160 --> 00:55:16,320 Or just not regulated at all. 814 00:55:16,320 --> 00:55:17,320 Okay. 815 00:55:17,320 --> 00:55:18,320 Got it. 816 00:55:18,320 --> 00:55:20,840 Under the laws of the relevant jurisdiction. 817 00:55:20,840 --> 00:55:30,500 So yeah, so in the BVI, the public sales of tokens is not regulated at all under BVI law. 818 00:55:30,500 --> 00:55:38,560 So the BVI subsidiary will therefore enter into agreements with listing platforms, exchanges, 819 00:55:38,560 --> 00:55:42,320 market making agreements, anything to do with public sales of tokens. 820 00:55:42,320 --> 00:55:48,760 And when you say grant program here, are you referring to like the voting Dow, like the 821 00:55:48,760 --> 00:55:51,080 snapshots and the proposals? 822 00:55:51,080 --> 00:55:52,080 Exactly. 823 00:55:52,080 --> 00:55:53,080 Exactly. 824 00:55:53,080 --> 00:55:54,080 These are the proposals. 825 00:55:54,080 --> 00:55:55,080 Got it. 826 00:55:55,080 --> 00:55:59,560 Where grant aid to the approved proposals. 827 00:55:59,560 --> 00:56:02,760 All right. 828 00:56:02,760 --> 00:56:10,300 So I think moving on then is actually down to the key legislative framework that may 829 00:56:10,300 --> 00:56:13,560 affect the Web3 space. 830 00:56:13,560 --> 00:56:22,040 So the next slide, we're talking about the Virtual Asset Services Providers Act and also 831 00:56:22,040 --> 00:56:25,720 any AML legislation as well. 832 00:56:25,720 --> 00:56:28,560 AML, the money laundering? 833 00:56:28,560 --> 00:56:30,400 Yeah, exactly. 834 00:56:30,400 --> 00:56:34,040 Anti-money laundering or know your client KYC legislation. 835 00:56:34,040 --> 00:56:36,040 Got it. 836 00:56:36,040 --> 00:56:38,040 Okay. 837 00:56:38,040 --> 00:56:45,760 So if a Cayman entity is engaging in virtual asset services, which we will define on the 838 00:56:45,760 --> 00:56:50,840 next slide, then that Cayman entity must be regulated with the Cayman Islands Monetary 839 00:56:50,840 --> 00:56:53,260 Authority with SEMA. 840 00:56:53,260 --> 00:56:58,680 So I think we had mentioned earlier that there are Cayman entities engaging in virtual asset 841 00:56:58,680 --> 00:57:02,400 services and they are registered with SEMA. 842 00:57:02,400 --> 00:57:12,440 So if you look at SEMA's database, you'll find that there are about 19 or 20 vast regulated 843 00:57:12,440 --> 00:57:16,920 entities and Walker's actually acts for a majority of them. 844 00:57:16,920 --> 00:57:21,920 So we know this legislation well. 845 00:57:21,920 --> 00:57:28,800 But none of these vast registered entities or regulated entities are Cayman foundations 846 00:57:28,800 --> 00:57:34,640 because the Cayman foundations are not engaging in regulated activities. 847 00:57:34,640 --> 00:57:39,520 As mentioned before, the public sale of tokens or virtual assets will require registration 848 00:57:39,520 --> 00:57:44,100 with SEMA, but no one has done it because there's no point, right? 849 00:57:44,100 --> 00:57:47,640 Knowing that you can just drop down the BVI sub to do it. 850 00:57:47,640 --> 00:57:53,960 So why ever engage in public sales of tokens out of the Cayman foundation, which will require 851 00:57:53,960 --> 00:58:00,000 registration with SEMA when you can just set up a BVI subsidiary within one or two days 852 00:58:00,000 --> 00:58:02,720 and do a public sale out of the BVI subsidiary. 853 00:58:02,720 --> 00:58:03,720 So no one's had no- 854 00:58:03,720 --> 00:58:06,920 Remind me, what was BVI? 855 00:58:06,920 --> 00:58:12,160 In BVI, the public sales of tokens are not regulated. 856 00:58:12,160 --> 00:58:13,160 BDI? 857 00:58:13,160 --> 00:58:16,160 Sorry, British Virgin Islands. 858 00:58:16,160 --> 00:58:17,720 British Virgin Islands. 859 00:58:17,720 --> 00:58:20,360 Oh, BVI, British Virgin Islands. 860 00:58:20,360 --> 00:58:21,360 Okay, got it. 861 00:58:21,360 --> 00:58:22,360 Thank you. 862 00:58:22,360 --> 00:58:24,800 BVI, deviating things. 863 00:58:24,800 --> 00:58:30,480 We have an office there as well, Shane, and so we have colleagues there where this is 864 00:58:30,480 --> 00:58:36,080 a pretty simple and very well trodden path with Cayman foundation companies. 865 00:58:36,080 --> 00:58:45,080 They will just instruct our BVI team to incorporate a BVI subsidiary as a public token issuer. 866 00:58:45,080 --> 00:58:47,800 Got it. 867 00:58:47,800 --> 00:58:50,000 And start to come together. 868 00:58:50,000 --> 00:58:51,000 Okay. 869 00:58:51,000 --> 00:58:52,000 Yeah. 870 00:58:52,000 --> 00:58:58,120 So it's become marked the standard now to have a Cayman foundation company and then 871 00:58:58,120 --> 00:59:02,400 sitting underneath it is the BVI subsidiary that engages in public sales. 872 00:59:02,400 --> 00:59:07,920 So that is why we work so closely with our BVI office. 873 00:59:07,920 --> 00:59:13,600 So just to reiterate, the private sale of virtual assets do not require registration 874 00:59:13,600 --> 00:59:14,600 with SEMA. 875 00:59:14,600 --> 00:59:20,440 So it means that the Cayman foundation can enter into token purchase agreements and all 876 00:59:20,440 --> 00:59:29,320 of that SAFs with counter parties because that is a private sale because you have pre-identified 877 00:59:29,320 --> 00:59:33,640 the purchaser because you're entering into agreements with them. 878 00:59:33,640 --> 00:59:38,600 So that's fine at the foundation company level. 879 00:59:38,600 --> 00:59:43,440 I should also mention that with the Virtual Assets Services Providers Act, it was implemented 880 00:59:43,440 --> 00:59:46,240 in 2020 for the Cayman Islands. 881 00:59:46,240 --> 00:59:53,040 So we have that regulatory certainty since 2020 and the lawyers here are very familiar 882 00:59:53,040 --> 00:59:54,040 with it. 883 00:59:54,040 --> 01:00:00,320 And so we can advise on it because it's been around for a long time in the Web3 space since 884 01:00:00,320 --> 01:00:01,320 2020. 885 01:00:01,320 --> 01:00:02,320 Yeah, I know. 886 01:00:02,320 --> 01:00:07,600 Five years is like ancient in the Web3 world. 887 01:00:07,600 --> 01:00:10,520 Ancient. 888 01:00:10,520 --> 01:00:17,200 And so the Virtual Assets Services Providers Act in Cayman is actually divided into two 889 01:00:17,200 --> 01:00:18,200 stages. 890 01:00:18,200 --> 01:00:23,120 The first stage is the registration with SEMA and the second stage is a more comprehensive 891 01:00:23,120 --> 01:00:29,320 licensing regime, which has not been implemented yet, but is expected to be implemented later 892 01:00:29,320 --> 01:00:30,320 this year. 893 01:00:30,320 --> 01:00:31,320 Got it. 894 01:00:31,320 --> 01:00:38,040 But that licensing regime is meant to be slightly more onerous in that it will be applying to 895 01:00:38,040 --> 01:00:40,920 like custodians and exchanges. 896 01:00:40,920 --> 01:00:45,680 So probably not applicable to our audience here, but just something to be aware of that 897 01:00:45,680 --> 01:00:52,040 there will be a licensing regime that would be expected to be slightly more onerous, but 898 01:00:52,040 --> 01:01:01,040 we don't really expect it to be two oners starting later this year for custodians and 899 01:01:01,040 --> 01:01:02,040 exchanges. 900 01:01:02,040 --> 01:01:11,640 And then finally, we always ask to advise on our AML sanctions laws and our regulatory 901 01:01:11,640 --> 01:01:19,120 team is very well versed in this and has helped a lot of our clients go through this process. 902 01:01:19,120 --> 01:01:23,200 I would add that, again, because the Cayman foundations are not regulated in the Cayman 903 01:01:23,200 --> 01:01:37,840 Islands, they are not engaging in any relevant financial business that requires Cayman foundations 904 01:01:37,840 --> 01:01:43,400 to be complying with the full Cayman AML regime. 905 01:01:43,400 --> 01:01:49,880 However, Cayman foundations are still subject to the sanctions laws. 906 01:01:49,880 --> 01:01:56,000 So we advise our clients that, okay, the Cayman foundations do not need to run KYC checks 907 01:01:56,000 --> 01:02:01,960 on token holders or anything like that, because it's not subject to the full Cayman AML regime. 908 01:02:01,960 --> 01:02:08,800 But at the very least, though, any counterparties the foundation enters into, and any counterparties 909 01:02:08,800 --> 01:02:16,840 agreements that the foundations entered into, you need to run sanctions screening because 910 01:02:16,840 --> 01:02:21,560 a Cayman foundation should not be dealing with a sanctioned person, otherwise penalties 911 01:02:21,560 --> 01:02:22,560 will apply. 912 01:02:22,560 --> 01:02:26,920 And I mean, that's a similar thing to what's already done in the US as well. 913 01:02:26,920 --> 01:02:29,840 Sanction screening is an important thing to do. 914 01:02:29,840 --> 01:02:33,680 And again, we have providers in the Cayman Islands and outside of the Cayman Islands 915 01:02:33,680 --> 01:02:39,480 who can do the sanction screening of the counterparty. 916 01:02:39,480 --> 01:02:46,800 And then moving on to regulatory, would you like to jump in, Carolyn, or I can continue? 917 01:02:46,800 --> 01:02:47,800 You continue, Mel. 918 01:02:47,800 --> 01:02:50,280 I was, yeah, I can. 919 01:02:50,280 --> 01:02:56,960 I was looking through those two slides because you were mentioning the VASP and then AML. 920 01:02:56,960 --> 01:02:59,080 So I was slipping through as you were speaking. 921 01:02:59,080 --> 01:03:00,080 Yes, exactly. 922 01:03:00,080 --> 01:03:03,080 I was getting ahead of myself getting very excited. 923 01:03:03,080 --> 01:03:04,080 That's okay. 924 01:03:04,080 --> 01:03:05,080 Love the passion. 925 01:03:05,080 --> 01:03:06,080 Yes. 926 01:03:06,080 --> 01:03:07,080 Fine, then. 927 01:03:07,080 --> 01:03:13,000 I mentioned, you know, Cayman entities engaging in a virtual asset services must be regulated 928 01:03:13,000 --> 01:03:14,800 by CMON. 929 01:03:14,800 --> 01:03:20,440 So virtual asset services is defined to mean the public sales of tokens, as well as the 930 01:03:20,440 --> 01:03:29,920 business of providing one or more of the following services on behalf of others. 931 01:03:29,920 --> 01:03:32,520 So these are the businesses. 932 01:03:32,520 --> 01:03:37,600 That is the exchange between virtual assets and fiat currencies, the exchange between 933 01:03:37,600 --> 01:03:44,440 one or more other forms of convertible virtual assets, the transfer of virtual assets, the 934 01:03:44,440 --> 01:03:50,800 custody of virtual assets, or the participation in or provision of financial services related 935 01:03:50,800 --> 01:03:54,880 to a virtual asset issuance or the sale of a virtual asset. 936 01:03:54,880 --> 01:03:58,480 So that was the definition of virtual asset service. 937 01:03:58,480 --> 01:04:02,920 Again, typically a Cayman Foundation is not engaging in any of these activities. 938 01:04:02,920 --> 01:04:09,040 Therefore, a Cayman Foundation, it's not required to be registered with CMON. 939 01:04:09,040 --> 01:04:16,920 We always recommend to our clients that, you know, we have that it is a good idea to get 940 01:04:16,920 --> 01:04:21,840 a regulatory analysis done anyway to confirm that the Virtual Asset Services Providers 941 01:04:21,840 --> 01:04:23,780 Act does not apply. 942 01:04:23,780 --> 01:04:28,720 And a lot of directors on island, independent directors on island, like to have that regulatory 943 01:04:28,720 --> 01:04:34,640 analysis done in the form of a memo so that they have that in their pocket. 944 01:04:34,640 --> 01:04:41,200 Another one that actually a lot of our clients do ask for is a memo or regulatory analysis 945 01:04:41,200 --> 01:04:45,760 that the tokens are not securities under Cayman law. 946 01:04:45,760 --> 01:04:48,200 So we're able to provide that memo as well. 947 01:04:48,200 --> 01:04:50,440 Some listing platforms ask for that. 948 01:04:50,440 --> 01:04:56,800 I know in the US, no one will ever give memo, but in Cayman, we are able to give such memo 949 01:04:56,800 --> 01:04:59,400 because we have that regulatory certainty. 950 01:04:59,400 --> 01:05:05,240 And it's very clear most of the time that these tokens are not securities under Cayman 951 01:05:05,240 --> 01:05:06,240 law. 952 01:05:06,240 --> 01:05:08,040 So a lot of our clients love that memo. 953 01:05:08,040 --> 01:05:12,040 Then they'll just hand it over to whoever they're dealing with, whether it's Binance 954 01:05:12,040 --> 01:05:14,840 or anywhere else, to say, hey, here you go. 955 01:05:14,840 --> 01:05:20,640 Our tokens are not securities under Cayman law. 956 01:05:20,640 --> 01:05:22,880 That's been hugely popular as well, actually. 957 01:05:22,880 --> 01:05:24,880 I can imagine it would be. 958 01:05:24,880 --> 01:05:25,880 Yeah. 959 01:05:25,880 --> 01:05:26,880 Yeah. 960 01:05:26,880 --> 01:05:30,720 I think that's a lot of work coming through. 961 01:05:30,720 --> 01:05:34,560 And then just moving on to the other regulatory regimes that may be relevant. 962 01:05:34,560 --> 01:05:39,280 So we talked about AML, Anti-Money Laundering Regime. 963 01:05:39,280 --> 01:05:45,080 Although in this case, because Cayman foundations are not regulated, then the AML regime actually 964 01:05:45,080 --> 01:05:48,480 does not apply to them. 965 01:05:48,480 --> 01:05:52,240 But sanctioned screenings would be recommended because you don't want to be dealing with 966 01:05:52,240 --> 01:05:53,520 a sanctioned person. 967 01:05:53,520 --> 01:05:56,520 Otherwise, penalties will apply. 968 01:05:56,520 --> 01:06:02,240 Another legislative regime that may be applicable could be the Securities Investments Business 969 01:06:02,240 --> 01:06:06,880 Act, if the foundation is dealing with securities. 970 01:06:06,880 --> 01:06:13,480 But again, most of the time, they're not because the tokens are not securities. 971 01:06:13,480 --> 01:06:22,120 So it's unlikely that Securities Investments Business Act will apply to Cayman foundations 972 01:06:22,120 --> 01:06:24,720 as well. 973 01:06:24,720 --> 01:06:29,140 Another one to look at that we get a lot of questions about is the Cayman Islands Economic 974 01:06:29,140 --> 01:06:37,360 Substance Regime, which is targeting various activities which will require what we call 975 01:06:37,360 --> 01:06:39,960 substance in the Cayman Islands. 976 01:06:39,960 --> 01:06:42,920 And this was really driven by the OECD. 977 01:06:42,920 --> 01:06:46,740 The OECD was very worried about the offshoring of IP. 978 01:06:46,740 --> 01:06:54,680 So if a Cayman entity is engaging in the monetization of IP, then the OECD is requiring that the 979 01:06:54,680 --> 01:06:59,120 Cayman entity must have substance in Cayman. 980 01:06:59,120 --> 01:07:01,880 So there are various... 981 01:07:01,880 --> 01:07:05,040 So we advise a lot on that. 982 01:07:05,040 --> 01:07:08,320 What's OECD? 983 01:07:08,320 --> 01:07:13,120 Oh gosh, I've abbreviated it so much that I cannot remember. 984 01:07:13,120 --> 01:07:15,160 Carolyn, can you remember? 985 01:07:15,160 --> 01:07:22,720 I think it's the Office of Economic Cooperation and Development, the Organization for Economic 986 01:07:22,720 --> 01:07:25,480 Cooperation and Development. 987 01:07:25,480 --> 01:07:26,480 Yes. 988 01:07:26,480 --> 01:07:27,480 Yes. 989 01:07:27,480 --> 01:07:34,600 So the OECD introduced this economic substance regime across the board. 990 01:07:34,600 --> 01:07:39,800 I mean, the last I saw over 90, even over a hundred jurisdictions have adopted this 991 01:07:39,800 --> 01:07:41,600 economic substance regime. 992 01:07:41,600 --> 01:07:43,720 So there is no way in a way to... 993 01:07:43,720 --> 01:07:45,320 Well, not no way. 994 01:07:45,320 --> 01:07:52,280 So that the whole offshoring of IP then should be minimized. 995 01:07:52,280 --> 01:07:54,080 But that's been a big thing. 996 01:07:54,080 --> 01:07:57,840 This regime was introduced in Cayman, gosh, I can't remember, about maybe eight years 997 01:07:57,840 --> 01:08:00,120 ago now. 998 01:08:00,120 --> 01:08:06,120 And yeah, about over a hundred jurisdictions have implemented this OECD requested economic 999 01:08:06,120 --> 01:08:08,180 substance regime. 1000 01:08:08,180 --> 01:08:11,240 So we advise a lot on monetizing IP. 1001 01:08:11,240 --> 01:08:16,560 We advise a lot on lending because all these activities falling under the economic substance 1002 01:08:16,560 --> 01:08:22,560 regime, which may require substance in Cayman. 1003 01:08:22,560 --> 01:08:26,160 And then finally, we also have a beneficial ownership regime. 1004 01:08:26,160 --> 01:08:30,440 But typically the way a foundation company is structured, there are no beneficial owners. 1005 01:08:30,440 --> 01:08:37,580 So it'll be a register stating no beneficial owners. 1006 01:08:37,580 --> 01:08:43,600 And then finally, just to close it off, we talked about, will a foundation company ever 1007 01:08:43,600 --> 01:08:48,080 be SEMA registered in terms of being a VAS? 1008 01:08:48,080 --> 01:08:51,760 No, because of the typical activities of a foundation. 1009 01:08:51,760 --> 01:09:00,680 We had in some instances seen a proposed foundation company trying to act as an investment vehicle. 1010 01:09:00,680 --> 01:09:07,200 And if so, in terms of investment club dials, if so, we probably need to have conversations 1011 01:09:07,200 --> 01:09:12,600 with the client on whether it falls within the investment funds regime, which is a private 1012 01:09:12,600 --> 01:09:16,560 funds act or the mutual funds act of the Cayman Islands. 1013 01:09:16,560 --> 01:09:20,840 And just to close this off, so far, no foundation companies have been registered as mutual funds 1014 01:09:20,840 --> 01:09:24,520 or private funds as yet. 1015 01:09:24,520 --> 01:09:28,640 So for all the ones that are grants programs, they fall outside of this framework? 1016 01:09:28,640 --> 01:09:31,480 Yeah, because they're not investment clubs. 1017 01:09:31,480 --> 01:09:37,920 They're not like, I suppose an investment vehicle is where you have investors coming 1018 01:09:37,920 --> 01:09:45,560 in and they get to participate in any profits and losses of the underlying assets of the 1019 01:09:45,560 --> 01:09:46,560 Cayman entity. 1020 01:09:46,560 --> 01:09:54,040 A Cayman foundation with a grant program, they might be giving grants, but they're not 1021 01:09:54,040 --> 01:10:03,320 expecting anything in return other than meeting perhaps milestones set in the grant agreement. 1022 01:10:03,320 --> 01:10:09,960 But you wouldn't say that any token holders has, well, technically token holders merely 1023 01:10:09,960 --> 01:10:11,200 have governance rights. 1024 01:10:11,200 --> 01:10:18,480 They're not entitled to have any say or any share in the profits and losses of the Cayman 1025 01:10:18,480 --> 01:10:19,480 foundation's assets. 1026 01:10:19,480 --> 01:10:28,080 So I suppose any token that accrues to the token holder would be the value of its tokens 1027 01:10:28,080 --> 01:10:30,880 increasing in value, I suppose. 1028 01:10:30,880 --> 01:10:33,920 But the foundation itself is not an investment vehicle. 1029 01:10:33,920 --> 01:10:40,480 It's not as if the token holders are saying, hey, I have a share to the foundation's assets. 1030 01:10:40,480 --> 01:10:41,480 Okay. 1031 01:10:41,480 --> 01:10:42,480 Okay. 1032 01:10:42,480 --> 01:10:46,320 So that ends our presentation. 1033 01:10:46,320 --> 01:10:47,320 Okay. 1034 01:10:47,320 --> 01:10:54,280 We have nine minutes before both of us need to conclude. 1035 01:10:54,280 --> 01:11:01,080 So let's pick out the most important questions that still are on my mind. 1036 01:11:01,080 --> 01:11:04,480 Pentek, okay. 1037 01:11:04,480 --> 01:11:06,880 Are these the only conditions? 1038 01:11:06,880 --> 01:11:12,600 Oh, let's go with phase one to phase two. 1039 01:11:12,600 --> 01:11:19,640 When you go from a director led to token holder led, bylaws are optional, correct? 1040 01:11:19,640 --> 01:11:27,360 Yes, but we would say that if you're going to a token holder led, it probably makes sense 1041 01:11:27,360 --> 01:11:35,120 to hardwire the token holder governance in the bylaws because you don't have to file 1042 01:11:35,120 --> 01:11:39,880 the bylaws with a Cayman registrar while you have to file the memorandum and articles with 1043 01:11:39,880 --> 01:11:40,880 the registrar. 1044 01:11:40,880 --> 01:11:47,240 So it becomes a bit more inflexible if you have to keep making filings while a bylaws 1045 01:11:47,240 --> 01:11:49,280 can evolve. 1046 01:11:49,280 --> 01:11:52,240 Because it's not filed with the Cayman registrar. 1047 01:11:52,240 --> 01:11:53,840 Okay. 1048 01:11:53,840 --> 01:11:58,400 So you have a lot more flexibility in being able to issue them, change them, whereas if 1049 01:11:58,400 --> 01:12:02,440 it's a memo or an article, then memory serves. 1050 01:12:02,440 --> 01:12:04,720 You have to get that changed. 1051 01:12:04,720 --> 01:12:09,120 So the secretary has to get involved, then you have to report it. 1052 01:12:09,120 --> 01:12:12,240 You have to file it with the Cayman registrar. 1053 01:12:12,240 --> 01:12:21,480 So if you start off with a director led situation, first of all, are they always, always director 1054 01:12:21,480 --> 01:12:26,000 led in the beginning or can they be token holder led from the beginning? 1055 01:12:26,000 --> 01:12:34,360 They can be token holder led, Shane, but typically we see a more protracted route to decentralization 1056 01:12:34,360 --> 01:12:40,800 so that, and we at Walker's, if a client comes to us and says, hey, we've got all of our 1057 01:12:40,800 --> 01:12:44,880 token holder governance finalized, we want to do it from day one, which I'm not even 1058 01:12:44,880 --> 01:12:47,480 sure I've ever really seen. 1059 01:12:47,480 --> 01:12:53,280 Then obviously they can incorporate with token holder governance at the start rather than 1060 01:12:53,280 --> 01:12:55,800 director led governance. 1061 01:12:55,800 --> 01:13:02,880 But typically the way we do it is it's director led, so the powers best with the directors. 1062 01:13:02,880 --> 01:13:04,840 And some of that has to do with speed as well. 1063 01:13:04,840 --> 01:13:08,200 So you want to get the foundation company incorporated. 1064 01:13:08,200 --> 01:13:14,720 So if token holder governance is not finalized, then the quickest way to do it to get the 1065 01:13:14,720 --> 01:13:18,640 entity incorporated is to incorporate with director led articles. 1066 01:13:18,640 --> 01:13:19,640 Got it. 1067 01:13:19,640 --> 01:13:24,560 And the subscriber, what compels them to resign? 1068 01:13:24,560 --> 01:13:28,960 What requires them to resign? 1069 01:13:28,960 --> 01:13:35,400 It's because, well, the subscriber typically would be a company management entity that 1070 01:13:35,400 --> 01:13:41,760 would be the subscriber because you need to have a subscriber to form a Cayman Foundation 1071 01:13:41,760 --> 01:13:42,760 Company. 1072 01:13:42,760 --> 01:13:50,240 So they know that they need to resign because a foundation company is meant to be memberless. 1073 01:13:50,240 --> 01:13:53,760 So the subscriber is the member, initial member. 1074 01:13:53,760 --> 01:14:00,320 And you're dealing with a professional corporate services provider that understands that they 1075 01:14:00,320 --> 01:14:04,280 have been paid to be the registered office and secretary and subscriber. 1076 01:14:04,280 --> 01:14:10,500 They would do that, form the Cayman Foundation, and then they will resign as a member. 1077 01:14:10,500 --> 01:14:15,840 So you're relying on their professional understanding and the whole reason why you have them in 1078 01:14:15,840 --> 01:14:18,400 that role to begin with to fulfill that. 1079 01:14:18,400 --> 01:14:25,840 But what I'm hearing is that if someone decides to go off the rails and subvert those expectations, 1080 01:14:25,840 --> 01:14:28,720 there isn't anything requiring them to do that. 1081 01:14:28,720 --> 01:14:29,720 Correct. 1082 01:14:29,720 --> 01:14:33,760 That's nothing requiring them to resign. 1083 01:14:33,760 --> 01:14:38,200 And that's why you need to pick your service providers carefully. 1084 01:14:38,200 --> 01:14:45,520 We highly recommend that you speak to them, interview them if you're wanting to work to 1085 01:14:45,520 --> 01:14:46,520 set up a Cayman Foundation. 1086 01:14:46,520 --> 01:14:50,240 You're going to be working with them. 1087 01:14:50,240 --> 01:14:54,440 And why is it so important to become memberless? 1088 01:14:54,440 --> 01:14:58,800 I think it really reflects the whole decentralized ethos you're trying to achieve because you 1089 01:14:58,800 --> 01:15:01,880 don't want to be identifying, well, who is the shareholder of this foundation? 1090 01:15:01,880 --> 01:15:02,880 Okay, okay. 1091 01:15:02,880 --> 01:15:03,880 Got it. 1092 01:15:03,880 --> 01:15:06,800 That's the magic word that I was, okay, not connection made. 1093 01:15:06,800 --> 01:15:11,240 So the shareholders, got it. 1094 01:15:11,240 --> 01:15:12,280 Okay. 1095 01:15:12,280 --> 01:15:17,700 And you already answered, are directors required to be licensed? 1096 01:15:17,700 --> 01:15:18,700 Thank you. 1097 01:15:18,700 --> 01:15:25,440 That was in my brain after reading the registration, licensing law, and all that. 1098 01:15:25,440 --> 01:15:30,560 And supervisors, they seem like the eyes and ears of, in this case, the Dow members. 1099 01:15:30,560 --> 01:15:35,200 Would you say that's a fair way to characterize it? 1100 01:15:35,200 --> 01:15:42,640 I would say it's, yes, in an obvious sense that they have the enforcement powers to take 1101 01:15:42,640 --> 01:15:47,080 actions against the directors for breach of fiduciary duties and noncompliance with the 1102 01:15:47,080 --> 01:15:48,760 articles and the bylaws. 1103 01:15:48,760 --> 01:15:58,280 But typically, and this can change depending upon the client's wishes, but a supervisor 1104 01:15:58,280 --> 01:16:00,880 is a sort of quite passive role. 1105 01:16:00,880 --> 01:16:05,800 So it's director led articles, so the powers vested with the director, the supervisor takes 1106 01:16:05,800 --> 01:16:11,960 it to passive sort of backseat role other than obviously they have the right to bring 1107 01:16:11,960 --> 01:16:16,760 enforcement action and certain statutory rights, such as the rights to attend and vote at general 1108 01:16:16,760 --> 01:16:18,120 meetings of the company. 1109 01:16:18,120 --> 01:16:20,460 But it's typically passive. 1110 01:16:20,460 --> 01:16:24,680 And so when you say the eyes and ears of the Dow in the sense of that they can bring enforcement 1111 01:16:24,680 --> 01:16:28,720 action against the directors for breach, then yes. 1112 01:16:28,720 --> 01:16:34,480 But they're not sort of there to sort of monitor token holder governance and to make sure any 1113 01:16:34,480 --> 01:16:42,400 of that's passed correctly in accordance with the bylaws on the token holder side. 1114 01:16:42,400 --> 01:16:48,640 You sort of look to a Dow administrator to sort of, or the project itself to sort of 1115 01:16:48,640 --> 01:16:52,600 to organize all of that. 1116 01:16:52,600 --> 01:16:58,760 So I would say sort of the answer to that is it depends that typically passive. 1117 01:16:58,760 --> 01:17:01,000 Are we relying on their professional understanding again? 1118 01:17:01,000 --> 01:17:04,520 Or is there something that compels them to be passive? 1119 01:17:04,520 --> 01:17:07,260 Let's say we get a very enthusiastic supervisor. 1120 01:17:07,260 --> 01:17:12,000 Is there something that compels them to be passive or not? 1121 01:17:12,000 --> 01:17:16,300 Well it's the articles of association set out the rights and who has powers to carry 1122 01:17:16,300 --> 01:17:18,900 out the activities of the foundation company. 1123 01:17:18,900 --> 01:17:20,560 And so they best with the directors. 1124 01:17:20,560 --> 01:17:24,560 So then by virtue of the fact that the powers best with the directors, they don't best with 1125 01:17:24,560 --> 01:17:26,560 the supervisor typically. 1126 01:17:26,560 --> 01:17:32,080 So they take on a sort of, well I was going to say take on a passive role since it seems 1127 01:17:32,080 --> 01:17:33,080 them oxymoronic. 1128 01:17:33,080 --> 01:17:36,200 But in effect, that's what it is. 1129 01:17:36,200 --> 01:17:41,040 So that the powers are, the foundation company is led by the directors until such time as 1130 01:17:41,040 --> 01:17:43,200 token holder governance is in place. 1131 01:17:43,200 --> 01:17:47,640 And therefore we move from that director led into token holder governance. 1132 01:17:47,640 --> 01:17:52,760 In order to that, I read about the restrictions notice power that corporate services providers 1133 01:17:52,760 --> 01:17:53,760 have. 1134 01:17:53,760 --> 01:17:57,440 It was in section 265 of the Companies Act. 1135 01:17:57,440 --> 01:17:59,840 Is that related to this at all? 1136 01:17:59,840 --> 01:18:02,840 Yes, it is. 1137 01:18:02,840 --> 01:18:05,800 The restriction notice relates to the beneficial ownership regime. 1138 01:18:05,800 --> 01:18:13,120 So effectively if you are in breach of the beneficial ownership regime, obviously penalties 1139 01:18:13,120 --> 01:18:19,080 will apply and the restrictions notice will also be given. 1140 01:18:19,080 --> 01:18:27,200 However, as mentioned before, typically a Cayman Foundation does not have a beneficial 1141 01:18:27,200 --> 01:18:28,200 owner. 1142 01:18:28,200 --> 01:18:32,080 So it literally should be very easy to file that it does not have. 1143 01:18:32,080 --> 01:18:37,140 So please don't put yourself in a position where you're in a, you know, you might be 1144 01:18:37,140 --> 01:18:40,640 at risk of penalties and restrictions notice and so forth. 1145 01:18:40,640 --> 01:18:41,640 Got it. 1146 01:18:41,640 --> 01:18:46,000 Okay, we are at pretty much the end of the hour here. 1147 01:18:46,000 --> 01:18:54,040 So I will speed on through to the very end where we just got through part three, professional 1148 01:18:54,040 --> 01:18:59,880 law firm input from our Melissa and Carolyn from Walkers Global. 1149 01:18:59,880 --> 01:19:06,920 That concludes part three and Carolyn, Melissa, thank you so much for your time. 1150 01:19:06,920 --> 01:19:13,280 I thoroughly enjoy speaking with the two of you and it's clear that anyone who is doing 1151 01:19:13,280 --> 01:19:18,920 a foundation company through Walkers Global is clearly in good hands. 1152 01:19:18,920 --> 01:19:19,920 Thank you. 1153 01:19:19,920 --> 01:19:20,920 Thank you, Shane. 1154 01:19:20,920 --> 01:19:24,120 We really enjoyed this too and yeah, appreciate all your kind words. 1155 01:19:24,120 --> 01:19:26,320 It was a very fun podcast to be doing. 1156 01:19:26,320 --> 01:19:28,200 Yeah, thanks very much. 1157 01:19:28,200 --> 01:19:30,000 Shane is great. 1158 01:19:30,000 --> 01:19:31,000 Thanks for inviting us. 1159 01:19:31,000 --> 01:19:32,000 Love it. 1160 01:19:32,000 --> 01:19:36,360 Thank you both for your time and to all my Star Atlas dial, Apecoin dial and Sandbox 1161 01:19:36,360 --> 01:19:40,480 dial people listening, please take a look at this. 1162 01:19:40,480 --> 01:19:45,720 This what Melissa and Carolyn just did was give some very valuable insight and knowledge 1163 01:19:45,720 --> 01:19:48,480 into how dials are run. 1164 01:19:48,480 --> 01:20:06,880 Again, thank you everyone for your time and have a great day.