Is the Singaporean Company Limited by Guarantee a good vehicle for an ICO or TGE?

Singapore is often mentioned as an alternative to the Swiss Foundation for ICO/TGE purposes, with its “Foundation” used by a fair number of ICO/TGE sponsor teams. In addition, arguably as a result of the perceived vagaries of its securities laws, Singapore is seen as a good jurisdiction to offer coins or generate tokens.

However, here too some misunderstandings need to be cleared out of the way.

First and foremost, Singapore does not have a Foundation.  It has what is called a “Company Limited by Guarantee” (CLG) which is traditionally set up for charitable purposes, hence its similarity with the non-profit Swiss Foundation.

A legal memorandum from one a major English lawfirm obtained by Otonomos highlights some shortcomings of the Singapore CLGs:

1. First, a CLG is a public company in Singapore.  This has a number of consequences, including ensuring compliance with additional requirements on the maintenance of a register and index of members, company administration and accounts, additional requirements regarding the qualifications of a company secretary, and a longer notice period for holding a general meeting.
2. A CLG, as a public company, is subject to more stringent audit requirements. Whilst this may be perceived as a benefit to having a CLG as a vehicle for token offerings compared to a Singapore-incorporated private company limited by shares, an audit is expensive and often painful as legacy auditing firms use rather antiquated techniques and have no reference framework when dealing with tokens as assets of a company.
3. Finally, there is the perception that a CLGs are non-profit. However, as a legal matter, there is in fact no requirement that CLGs are not for profit entities: Using a CLG as a vehicle for a token offering would not address token holders’ concerns on restrictions on distribution of capital to members (shareholders) of the CLG, as a CLG may still distribute profits to its members.  If CLGs would wish to become a “registered charity” in Singapore to come closer to a Swiss Foundation, it would add significantly to its governance burden. Most prohibitively, its purpose would have to “wholly or substantially” “to the community in Singapore”…

In summary, it seems that setting up a Singapore CLG, which seems fashionable amongst many mainland Chinese ICO teams forced to conduct their token sale outside of China following the recent ban, may be doing so on the basis of misguided advice they received.

That said, Singapore should definitively be considered by ICO teams as a base for their operational entity: A simple limited company can be set up within two days and then funded with token sales proceeds to start doing work in the real world, like paying invoices and hiring people.

However, the local talent pool in Singapore remains relatively shallow for quality blockchain-related work and foreign hiring is not so easy.  The Government maintains an unarticulated but nonetheless quite strictly observed rule that for every non-local you hire, you will need to hire a local to balance your employee pool.

Also, there are some tax caveats when it comes to token sale proceeds.

Finally, despite Singapore’ apparent regulatory embrace, on the ground, banks are increasingly recalcitrant to open fiat accounts for companies funded by ICO proceeds working on crypto-related projects.

All in all, upon closer analysis, Singapore may be less suitable for an ICO or TGE than often believed.