Entity architecture

Three jobs that usually want three entities

The operating company hires engineers, signs commercial contracts, holds bank accounts and pays tax somewhere real. The stewardship vehicle holds the protocol, funds public goods, and gives governance a legal personality that can sign things and be sued. The issuer is the entity that actually sells or distributes the token and carries whatever securities exposure that creates. These are three different risk profiles, and collapsing them into one company means the engineering payroll sits in the same estate as the token liability.

None of this is exotic. It is the same separation that any structured transaction uses, applied to a project whose most valuable asset is code and whose most dangerous asset is a token. The design consequence is that the underlying business, the thing that generates revenue, should not be structurally hostage to the token entity's worst outcome.

Why the wrapper exists at all: Samuels v. Lido DAO

Walkers, one of the offshore firms that does this work, is direct about the driver. Its 2024 note calls Cayman Islands foundation companies the premier vehicle for wrapping a decentralised autonomous organisation, balancing the flexibility a DAO needs with the protections of a formal corporate wrapper, and it ties that choice to developments in United States law, specifically the ruling in Samuels v. Lido DAO, which highlighted the liability risks for participants in unwrapped DAOs.¹

Read that plainly. An unwrapped group of people governing a protocol together can be characterised as a general partnership, and general partners carry unlimited personal liability for the partnership's obligations. The wrapper is not decoration. It is the difference between an entity being sued and a token holder being sued. Whether any specific wrapper achieves that in any specific case is fact-dependent and jurisdiction-dependent, and it is a question for counsel rather than a design assumption.

What each jurisdiction is actually chosen for

Cayman is chosen for the foundation company, a vehicle with separate legal personality that can operate without traditional shareholders, which is what lets a governance body sit inside a company rather than beside it.² The British Virgin Islands is chosen for a different job. Walkers describes BVI business companies as incorporable specifically for the purpose of acting as digital token issuers, and notes the jurisdiction's prominence for that role.³ Foundation and issuer are separate choices, and using one jurisdiction for both because the first lawyer you called works there is a common and avoidable mistake.

Switzerland is chosen for a third reason: a regulator that published a position. FINMA categorises tokens into payment, utility and asset types, while stating that hybrid forms are possible.⁴ The value there is not that Swiss law is permissive, it is that there is a stated framework to argue against. Compare that with a jurisdiction where the answer is unpublished, and the difference in diligence cost is significant.

Separate what is settled from what is not

Settled: foundation companies and BVI business companies exist, are formed routinely, and are described in the terms above by the firms that form them. Settled: an unwrapped DAO has been litigated in a United States court, and that case is why practitioner guidance changed.¹ Also settled: forming an entity somewhere does not exempt its activity from the securities, sanctions or consumer law of the places its users live.

Not settled: whether a given structure survives contact with a foreign court, an insolvency, or an enforcement action. The Bank for International Settlements committee on payments and market infrastructures put the general version of this in its 2024 report to the G20, describing legal risk as arising where the application of existing laws to tokens is not clear or certain.⁵ Our reading is that jurisdictional uncertainty compounds structural uncertainty rather than offsetting it, which is an argument for simpler structures with fewer entities, not more.

The failure mode we see most is form without substance. A foundation whose council is three employees of the operating company, taking instructions by group chat, is an operating company with a different letterhead. Whatever protection the structure was supposed to provide is being argued about after the fact rather than being designed in.

What we settle before a token contract is written

Five things, all of them boring, all of them cheaper now than later. Which entity owns the repository and the trademarks. Which entity receives revenue and which one pays salaries. Which entity is the counterparty on the token sale documents. What each intercompany agreement says, in writing, about grants, licences and service fees. And who sits on the foundation council, whether any of them are independent, and what happens if they disagree with the founders.

Across the 100+ projects we have advised, the pattern is consistent: the entity work is treated as paperwork to be finished in parallel with the build, and it becomes the critical path two weeks before a token generation event, when changing it is expensive. The token is infrastructure. The entities decide who owns the business underneath it and who answers for it. None of this is legal advice, and every structural question here belongs to your counsel in the relevant jurisdictions.