A QUICK GUIDE FOR STARTUPS

A startup business is one that expects to grow quickly. The market for their product is large. Online businesses are available to everyone all the time and access to them is not constrained by geography or time zones. However, regulatory constraints and compliance issues specific to the industry and territories in which the startup operates, deserve early and careful consideration. Hopefully, this guide for startups will help you avoid some of the pitfalls that we often see businesses falling into before they come to us for advice.

Licences and Jurisdiction

The location you choose for the formation of your legal entity will depend on your business activities and geographical focus, and the regulatory landscape in which you operate. If you are an online gambling operator targeting regulated markets, you will need a licence in each locally regulated market. Even those who are willing to experiment in less established regulated markets or grey markets, will find it difficult to obtain payments without a gambling licence. Payment providers will more than likely require that you hold a licence from a jurisdiction which implements EU AML regulations or equivalent. The offshore online gambling jurisdictions of Malta, Gibraltar, the Isle of Man and Alderney are home to a significant cluster of the traditionally European-focused operators and supporting businesses.

If you are a business with crypto-related operations, establishing in a country where cryptocurrency is regulated under a framework (e.g. Estonia, the Isle of Man and Gibraltar) is likely to offer more certainty than other jurisdictions, provided the regulatory regime is fair and not overly complex.

THE SOURCES OF EXTERNAL CAPITAL THAT ENTREPRENEURS CAN TAP TO FINANCE THEIR VENTURE HAVE EVOLVED CONSIDERABLY IN ONLY ONE DECADE.

A country’s regulatory framework, reputability, taxation and ease of obtaining payments solutions, are important considerations when assessing your jurisdiction options. It is important to get compliance advice.

Funding

How you choose to fund your business could affect how you structure and run your business. If your startup is looking for outside investment, you might seek a loan or seed funding in return for equity in your business. However, the sources of external capital that entrepreneurs can tap to finance their venture have considerably evolved in only one decade. The most striking development is the reliance on digital platforms. From the 2010s, crowdfunding unfolded around the world, allowing entrepreneurs to raise money online from the public. Later, the years 2017 and 2018 saw an influx in projects raising substantial amounts of money from the public through ICOs. Now that the ICO bubble ebbed away, security token offerings (STOs) have emerged, allowing investment in securities recorded on a blockchain.

The regulatory framework and the categorisation of the token (whether security, e-money/payment or utility) are likely to influence the choice of location of token issuers. For all types of investment, careful consideration of the tax implications, drafting of the investment agreements and adherence to the AML/KYC requirements, will be essential.

Taxation

You will need tax advice to assess the most tax-efficient corporate structure for your business. There will be businesses that conduct numerous activities in complex and extended supply chains. Often businesses will have more than one legal entity within their corporate structure with certain activities or markets ringfenced to each entity. An accountant or tax adviser with experience working with online businesses will be worth their weight in gold.

Data Protection

Data privacy laws apply to any company that collects data on its citizens – whether the company operates within or outside of the jurisdiction. Compliance further applies to companies that process and store other companies’ consumer data – for example, cloud service providers or many SaaS companies. The rule of thumb is if you collect customer data, assume you operate under data protection and privacy laws.

Most data privacy laws have a common basis in the European Union’s General Data Protection Regulations (GDPR) which came into force in May of 2018. However, with over 100 jurisdictions enacting their own data privacy laws now, there are significant differences – in legal definitions, infrastructure requirements, compliance paths – that require jurisdiction-specific solutions. The penalties for non-compliance are stiff. If your organisation collects customer data, compliance is not optional, and a data protection impact assessment should be carried out straight away.

Hopefully, you have found this guide for startup businesses useful. Good luck with your business and if we can be of any help please get in touch.