Token Sale Legal Support
Token sale without legal structure is an unregistered public offering of securities in most jurisdictions. Consequences: SEC enforcement action (fines up to $10M+), mandatory refund to investors, criminal liability for founders. Proper structure solves this.
Token Classification: Starting Point
Before any legal structuring, honestly answer: is the token a security?
Howey Test (US): token is a security if it is investment of money in common enterprise with expectation of profit from efforts of others. If project sells tokens before product launch, promises value growth, and team controls ecosystem — very likely a security.
MiCA Classification (EU): utility token (used for service access), e-money token (tied to one fiat currency), asset-referenced token (stablecoin), or security — each type has different requirements.
If token is a security, options: (1) Regulation D Exemption (US, only accredited investors), (2) Regulation S (only non-US investors), (3) Regulation A+ (up to $75M, simplified registration), (4) full SEC registration.
Jurisdictional Structuring
Standard structure for token sale:
Foundation/Association (Switzerland, Liechtenstein, Cayman Islands): non-profit structure for protocol governance and treasury management. Zug (Switzerland) — Crypto Valley, favorable regulation for foundation.
Token Issuer (Cayman, BVI, Panama): operating company that issues tokens. Structured to minimize tax exposure.
Operating Company (team country): development and operations. Receives grants from Foundation.
This structure separates risks: enforcement against one entity doesn't automatically affect others.
SAFT vs Token Purchase Agreement
SAFT (Simple Agreement for Future Tokens): tool for private sale before TGE (Token Generation Event). Buyer acquires right to receive tokens after issuance. SEC views SAFT as a security — suitable only for accredited investors.
Token Purchase Agreement (TPA): more flexible document for utility token sale. Includes: token description and its utility, rights and obligations of parties, representations & warranties, refund policy.
Whitelist and Terms of Token Sale: public document defining participation conditions, restricted jurisdictions (US, China, Iran usually excluded), KYC requirements, lockup periods.
Key Documents
Token Sale Agreement / Terms: main contract with buyers.
Privacy Policy and Cookie Policy: GDPR compliance for EU users.
AML/KYC Policy for token sale: procedures for verifying participants.
Restricted Jurisdictions List: legally necessary to explicitly exclude jurisdictions where sale is illegal or requires registration. US always on list for unregistered offering.
Lockup and Vesting Agreements: for team and advisors. Standard: 12-month cliff + 24-36 months linear vesting.
Timeline for Legal Structuring
| Stage | Timeline |
|---|---|
| Token classification analysis | 1-2 weeks |
| Jurisdiction and structure selection | 1 week |
| Foundation + Issuer registration | 4-8 weeks |
| Token documents development | 2-4 weeks |
| KYC/AML setup for sale | 2-3 weeks |
| Smart contract legal review | 1-2 weeks |
Complete token sale legal support (without US public launch): 3-4 months from start to TGE. Cost: $30,000-$100,000+ depending on jurisdictions and structure complexity.
Red Flags to Stop Before Launch
- ROI promises or "token will grow" in marketing materials — securities fraud
- Sale without KYC and whitelist — direct AML violation
- Lack of Terms of Token Sale — no legal protection from chargeback and claims
- Token sale without legal opinion on token classification — founders bear personal liability