We believe our research on the best practices for Web3 founders should be freely accessible for everyone. However, please note that we are not lawyers. We just want to get this information out there so you have a starting point before seeking legal council.
The first step in establishing a legal structure is registering an initial entity, the Developer Company. Once the initial teams and founders have started working on the project, the development starts in a centralized development which requires an entity to for protecting the founders, collecting intellectual property, signing contracts, renting office space, and raising funds when starting a decentralized network.
This company is usually set up within the first 3-5 months of a project's development.
Purpose & Responsibilities
The main purposes of the Developer Company are:
Protection for founders
- By creating a legal entity, the founders of the project can separate their personal assets from the assets and liabilities of the business. This can provide some protection for the founders in case the project runs into legal or financial difficulties.
Start decentralized development of the protocol
- Hold a FIAT bank account
- Create a work environment and operational structure
- Hire employees and pay salaries
- Rent an office
- Own and protect rights to intellectual property
- All intellectual property created is owned by the company
- Hold trademark rights and own assets such as graphics, etc.
- Sign NDAs / NCA agreements with employees and contractors
- Pre-Seed / Early Seed: Raise funds at early fundraising stages via equity + (optional: future tokens via converting equity into tokens)
- Investment Documents : SAFE/Convertible Instrument + Token Side Letter
- Fundraising responsibilities by the Developer Company: Fulfill due diligence for investors; IP ownership is secured, developers are employed, etc.
Development Stage Detail
- Start developing the protocol
- Develop proof of concept
- Start developing Tokennomics
- Initial marketing & media:
- Twitter, blog posts
- Brand building
- Develop business and revenue model
- Develop GTM strategy
- Finalize pitch deck
- Finalize Equity Cap Table & Token Cap Table
Testnet Launch & Validator Bootstrapping
- Finalizing Tokenomics
- Finalizing Whitepaper
- Finalizing Genesis File
- Launching Devnet
- Launching Private Testnet + Incentivized Testnet
- Bootstrapping Validators who will deploy Mainnet
Later Stage Purpose
At a later stage, after the network has launched, the developer company is intended to receive funds in the form of grants or service agreements with the foundation to execute, further develop, and maintain the protocol.
Jurisdiction / Entity Type
The jurisdiction of this entity is typically the country where the founders and the majority of the team members are based. According to the team’s location this could be a GmbH in Germany, or a SARL in France.
If the founders and team are globally spread and the company can function without a traditional bank account (for instance, if it can be paid in stable coins), then it may be feasible to establish the company in an island-based jurisdiction such as a Cayman Islands LLC or a BVI company.
The following examples give rough estimates and can vary widely based on a number of factors, including the complexity of the structure, the location of the entity, and the fees charged by service providers or lawyers. It's important to do your research and consult with a professional to determine the specific costs and timelines for your situation. But generally speaking, Since this is a "conventional company," it is relatively easy to set up in most jurisdictions, usually taking no more than 3-4 weeks. The owner(s) of this entity are usually the founders of the project.
The examples give a brief outline according to:
- Jurisdiction and entity type
- Set-up time
GmbH in Germany
SARL in France:
Crypto / tech friendly examples
Estonian Company (OÜ):
Isle-bases/off-shore examples (internationally distributed teams)
Cayman Islands LLC