An initial coin offering (ICO) is a means of raising capital through which the issuer collects funds to finance a project and, in exchange for the capital, the investor receives a token connected to certain rights in the future performance of the issuer.
An ICO in South Africa is not presently regulated through a targeted law, however, a regulatory framework is expected in the near future.
Our South African lawyers assist investors who wish to launch an ICO, as well as those interested in opening a blockchain or cryptocurrency company.
As new regulations become available, our team can provide more information about the treatment of cryptos and how they interact with traditional financial services.
If you are interested in other legal matters, such as relocation, our immigration lawyers in South Africa can assist you.
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The treatment of an ICO in South Africa
Currently, virtual currencies are not considered legal tender in South Africa.
According to the Intergovernmental Fintech Working Group (IFWG) and its Position Paper on Crypto Assets, the tokens issued within an ICO in South Africa can have different functions, which can dictate their treatment from a legal point of view.
The following are relevant:
- Security: they have an income generating feature and provide potential rights in respect to the issuer (the company launching the ICO);
- Digital asset: they have an attributed value for exchange/transactional purposes; can be used as an asset or an unit of account;
- Asset-backed: offer exposure to assets, for example, securities, cash, gold, real-estate and others;
- Utility: used for supporting the functionalities or services on a blockchain platform or a distributed ledger technology (DLT) platform.
The experts at our South African law firm can provide more details on the treatment of the ICO, as well as answer any particular questions.
Company formation in South Africa is subject to several steps, as well as the mandatory registration with the authorities. Investors who wish to launch an ICO and will do so through a newly incorporated company can rely on our complete assistance during the incorporation phase. We can also give you details about the residency permit available for qualifying foreign business owners.
Investors can also rely on our team for other solutions, such as those tailored for those who are interested in immigration to South Africa.
The business visa is one that allows company owners to remain in the country and it can be the basis for applying for permanent residency in South Africa, after a number of years. Our team can help you better understand the residence process, how you can extend your visa, how long you will need to remain in the country, and the applications you will need to submit with the authorities.
Issues to keep in mind for an ICO in South Africa
An initial coin offering (ICO) is the equivalent of an initial public offering (IPO).
The difference between the ICO and the IPO is that the object of the first is centered around cryptocurrencies.
The purpose of the ICO is to raise capital for a new cryptocurrency or product (such as software) which is connected to a certain product.
The steps below are relevant when arranging an ICO in South Africa:
- Creating the white paper: this is a comprehensive document describing the business model, allowing investors to make an informed decision;
- Platform: this will be used for raising capital; it can be implemented in the company’s website as a separate page;
- Launch: the company launching the ICO will invite individuals to invest in the project;
- Tokens: the company will effectively sell (distribute) the tokens/digital assets to the investors.
We assist investors during the initial coin offering, as well as during the process required to open a business in South Africa, which will be used for the ICO, effectively becoming the ICO issuer.
Investors who wish to move to the country before creating the company can discuss the steps with our immigration lawyers in South Africa.
According to data from 2021, the market share was distributed in the following manner among the key cryptocurrencies in the market:
- Bitcoin: 34%;
- Ethereum: 19%;
- Ripple: 9%;
- Others: 21%.
The data was provided in a guide issued by the Parliamentary Budget Office.
According to the same guide, the number of ICOs grew significantly in 2017, as well as between 2018 and 2019.
Contact us for more information about structuring and launching an ICO in South Africa.
Our team of lawyers in South Africa assists investors in many different business fields.
Investors can also rely on our team for other solutions, such as those tailored for those who are interested in immigration to South Africa. We can answer questions about the business residence permit, the conditions for applicants as well as those applicable to the business itself, if this is the residency route chosen by the applicant. If you need information about the need to apply for a visa or a residence permit for the duration of your ICO launch, our team can help you.