ASIC’s view on the legal status of initial coin offerings (or ‘ICOs’) in Australia has recently become clearer with the release of AISC’s Information Sheet 225 (available here: http://asic.gov.au/regulatory-resources/digital-transformation/initial-coin-offerings/).
ICO’s are a means for businesses to raise funds through the sale of ‘coins’ or ‘tokens’ to investors online (typically using cryptocurrencies such as bitcoin). Businesses will generally use the capital raised from an ICO to develop blockchain-based projects and services.
The rights attached to the coins purchased by investors will vary for each ICO. Accordingly, rather than attempting to introduce a catch-all provision, ASIC has indicated that an ICO’s legal status will depend upon its structure and operation, as well as the rights attached to the offered coins.
The new Information Sheet provides guidance on what obligations may apply to an ICO under the Corporations Act. ASIC has outlined when an ICO may be considered an offer of a:
• managed investment scheme;
• share in a company;
• derivative; or
• non-cash payment facility.
If an ICO falls within any of these categories, then a number of obligations under the Corporations Act must be complied with. For example, ICO’s that are held to be offers of shares will require the preparation of a prospectus setting out all of the information investors reasonably require to make an informed investment decision.
Therefore, although ASIC has clarified how it will treat an ICO, due to the huge differences in features of an ICO, the legal status of the ICO will depend on those features – and careful advice needs to be sought to understand those legal obligations.
We have been speaking to a number of technology companies looking into ICOs as well as the more traditional crowd sourced equity funding. The combination of our expertise in traditional corporate/financial capital raising structures and our broad industry knowledge in the technology sector has placed Motus Legal in a unique position to help clients wanting to explore this space.
Get in touch with us at Motus Legal if you want to know more.
The team at Motus Legal