Legality of IPOing securities on GLBSE

[Stephen Gornick]

Why should we care?

Can you put a time reference on that?


Why should we care, today, when all GLBSE's assets combined have a market cap of under a quarter million USD (wild assed guess, no clue on the true number) or

Why should we care in May 2013, let's say, when all GLBSE's asset market caps combined hit the $10 million threshold?

The exchange might be identical a year from now with what it is today, but latter of the two may make all the difference as far as why should we care.

[cbeast]

Never heard of Neopets

That means you were not aged 10 in 2004.

As at now, they have over 13,000 members online and 276 million pets - that stat is right next to their stock exchange index!

Is that where Zhoutong got his idea?

[PatrickHarnett]

I would like to provide a counter example - did you know that Neopets.com has a stock exchange?  (neopets.com was at one stage in the top five internet sites - no idea where it is now)  I had some interesting discussions with my daughter about portfolio tracking, day trading and risk when she was playing with it.  Yes, you can invest real money because people can sell neopoints.  Issuing securities to children (minors) in an unregulated exchange is far worse than GLBSE (that's mock horror by the way)

The Neopets stock exchange is nothing like a real stock exchange. The stocks are for fictional companies, and the prices fluctuate randomly according to certain probabilities per stock, without regard for actual supply and demand. It's just gambling.

IIRC Neopets has had some legal trouble involving anti-gambling laws, but it's against their ToS to buy/sell neopoints, so I guess it's legal.

Thanks for that - something I didn't know (ref the legal issues).  It's odd about the gambling comment - there were many gambling games.  However, I do know people traded points against the tos.

The point I was attempting to make was that even if it wasn't an exchange that responded to supply and demand or real companies, it existed.  Someone issued a security and people could put their money into them.

[Stephen Gornick]

What I'm becoming more curious about is how an asset can operate once it gets bigger than a solo operation.

So for instance, let's say the asset grows and needs to hire help (and pay the non-bitcoiner a salary).  Let's say this employee works in the U.S. in the same state that the asset issuer's founder is in.

Would the operator be risking penalties from the state for not withholding social security taxes?  Even if the asset wanted to do the withholding, how could it be done?  You can't get an EIN for a "project".

Does an asset need to incorporate once it grows any bigger than being a solo operation or at least before it can hire any non-contract employees?

[Stephen Gornick]

Possibly related, a post:

Judge.me - Transnational Law (or Small Claims Court for the Internet)
 - http://bitcointalk.org/index.php?topic=83981.0

[BinaryMage]

Possibly related, a post:

Judge.me - Transnational Law (or Small Claims Court for the Internet)
 - http://bitcointalk.org/index.php?topic=83981.0

How is that relevant?

[justusranvier]

What I'm becoming more curious about is how an asset can operate once it gets bigger than a solo operation.

So for instance, let's say the asset grows and needs to hire help (and pay the non-bitcoiner a salary).  Let's say this employee works in the U.S. in the same state that the asset issuer's founder is in.

Would the operator be risking penalties from the state for not withholding social security taxes?  Even if the asset wanted to do the withholding, how could it be done?  You can't get an EIN for a "project".

Does an asset need to incorporate once it grows any bigger than being a solo operation or at least before it can hire any non-contract employees?

If the owner were clever he'd incorporate in the US state and form a different corporation in another country. Then instead of the domestic corporation hiring the employees it would outsource the work to the foreign corporation, which would hire the US employees as contractors and pay them using Bitcoin. It would then be up to the contractors to take care of their tax liabilities themselves.

[Garr255]

sub

[Bitcoin Oz]

sub.

http://empireavenue.com/

and

http://www.hsx.com/

I see both of them use their own virtual currency and dont handle actual fiat. I think glbse will be ok as long as it doesnt do anything silly like get a  bank account and allow direct transfer of fiat to buy assets.

Untill you can pay tax in bitcoin then I am fairly sure it is not considered money by the government, if so which country issues it ??

[Bitcoin Oz]

sub.

http://empireavenue.com/

and

http://www.hsx.com/

I see both of them use their own virtual currency and dont handle actual fiat. I think glbse will be ok as long as it doesnt do anything silly like get a  bank account and allow direct transfer of fiat to buy assets.

Untill you can pay tax in bitcoin then I am fairly sure it is not considered money by the government, if so which country issues it ??

We should form our own nation 

We could buy an island somewhere then use wave power for the DC lol

[Stephen Gornick]

We should form our own nation 

Does anyone know anything about this?

Under the new law, for example, a board meeting may be conducted “in person or through the use of [an] electronic or telecommunications medium.” A “‘virtual company’ will be, as a legal matter, a Vermont limited liability company,” said Johnson. And other states are required to recognize the corporation as a legitimate LLC.

 - http://gigaom.com/2008/06/17/vermont-oks-the-creation-of-virtual-corporations/


The Icelandic Modern Media Initiative is a proposal that was passed by their legislature.

Highlights from the proposal:
* Virtual limited liability companies"

 - http://blog.p2pfoundation.net/icelandic-modern-media-initiative-press-release/2010/06/21

A virtual limited liability company (VLCC) is a type of legal entity that does not require a physical presence or in-person board meetings. The company type was first legalised in Vermont, USA in 2008[1] and in 2010 the Icelandic Modern Media Initiative began drafting legislation based on the Vermont law which would allow virtual companies in Iceland. The project, which was started by MP Birgitta Jónsdóttir (chairman), information activist Smári McCarthy and others was later succeeded by the International Modern Media Institute and is currently ongoing.

 - http://en.wikipedia.org/wiki/Virtual_limited_liability_companies

[Bitcoin Oz]

We should form our own nation 

Does anyone know anything about this?

Under the new law, for example, a board meeting may be conducted “in person or through the use of [an] electronic or telecommunications medium.” A “‘virtual company’ will be, as a legal matter, a Vermont limited liability company,” said Johnson. And other states are required to recognize the corporation as a legitimate LLC.

 - http://gigaom.com/2008/06/17/vermont-oks-the-creation-of-virtual-corporations/


The Icelandic Modern Media Initiative is a proposal that was passed by their legislature.

Highlights from the proposal:
* Virtual limited liability companies"

 - http://blog.p2pfoundation.net/icelandic-modern-media-initiative-press-release/2010/06/21

A virtual limited liability company (VLCC) is a type of legal entity that does not require a physical presence or in-person board meetings. The company type was first legalised in Vermont, USA in 2008[1] and in 2010 the Icelandic Modern Media Initiative began drafting legislation based on the Vermont law which would allow virtual companies in Iceland. The project, which was started by MP Birgitta Jónsdóttir (chairman), information activist Smári McCarthy and others was later succeeded by the International Modern Media Institute and is currently ongoing.

 - http://en.wikipedia.org/wiki/Virtual_limited_liability_companies

We should see about moving the glbse server to iceland. Ive been reading about them opening large data centres there because the power is so cheap.

[MatthewLM]

Are the companies listed on the GLBSE public companies? Seems like some of these "companies" aren't even incorporated. I smell illegality in all corners I'm afraid.

[PatrickHarnett]

Are the companies listed on the GLBSE public companies? Seems like some of these "companies" aren't even incorporated. I smell illegality in all corners I'm afraid.

You do not need incorporation to be a legal entity.  There is a lot of ignorance about companies, company formation and entities.  For a lot of what appears on GLBSE an unincorporated joint venture is a good vehicle.

As an aside, have you bothered to check the legality of Apple, WellsFargo or any other "company" you've done business with lately (eg - your local food mart)?

[Stephen Gornick]

You do not need incorporation to be a legal entity.

But in no jurisdictions yet is there a legal entity for a "project".  Kickstarter has projects, but no equity so the funds to the project on Kickstart are not "investments" but instead are donations (or pre-sales, in most instances).

So currently these "shares" sold on GBLSE have no legal claim against the profits from the project nor would they have any claim against any assets purchased from either those profits or from the proceeds of the IPO.

Think of "investments" in any of the current GLBSE assets as gentleman's agreements backed by reputation.  (Well, I've seen loans and bonds listed as assets, so maybe those would be the exception where it is a legal contract which could be enforced through the legal system.)

There's no reason a GLBSE asset couldn't truly be a chartered corporation or LLC though (except for how offering equity to the public in this manner is something that is illegal in certain jurisdictions).  There might be tax havens like Anguilla or Cyprus that don't have restrictions against offering equity to the public (unaccredited investors).   Iceland is looking at the concept of a VLLC which presumably would be owned by shareholders.

The reason this entity definition might be relevant has to do with the ability to claim capital gains instead of having to declare proceeds from selling shares as regular income.  Listing an asset on GLBSE as a corporation or LLC entity would probably satisfy the definition of being an equity, and thus long term investment gains would enjoy the benefit of a lower tax rate as being capital gains.  Additionally, with a corporation or LLC there is civil and crimiinal code that limits actions the issuer might consider.

[PatrickHarnett]

You do not need incorporation to be a legal entity. 

But in no jurisdictions yet is there a legal entity for a "project".  Kickstarter has projects, but no equity so the funds are not "investments" but instead are donations (or pre-sales, in most instances).

etc etc

um, well, it depends on the arrangements (and I would be better answering this tomorrow).

For some of the projects I'm involved with there is a formal document and agreement, for others, it is, as you say, a "gentleman's agreement".  Not normally a donation, but a recognition of contribution.

I agree the listed entities could be an LLC, and then there is a distinction between a company raising funds versus simply adding liquidity for existing shares.

Part of my interest in this is my having done several different entities, and being a qualified chartered secretary - so it's a bit of fun watching the evolution of this.

[sunnankar]

Part of my interest in this is my having done several different entities, and being a qualified chartered secretary - so it's a bit of fun watching the evolution of this.

I agree, it is fascinating seeing the capital formation in the BitCoin economy begin to take shape with this thriving bond market.

[Bitcoin Oz]

Does the sec regulate contracts between two parties or multiple parties ?

I dont know of any actual incorporated companies or LLC's  in the regular sense that use glbse.

What is the difference between a guy running a mining "company" and Mt Gox which is an actual corporation registered with the government ?

[Stephen Gornick]

What is the difference between a guy running a mining "company" and Mt Gox which is an actual corporation registered with the government ?

Mt. Gox isn't soliciting investment nor offering equity to non-accredited investors.

[jgarzik]

IIUC, the very basics of contract law require only agreement between legally recognized entities: a natural person, or an incorporated entity (corp, partnership, etc.)

It is doubtful that an anonymous, undefined entity ("internet nickname 'foo'" or "IP address 10.20.30.40") would be found to be a valid entity under contract law, but I would love to hear the opinion of an attorney.