Investment Clubs — Legal & Compliance Framework

We’ve learned how on-chain venture clubs can facilitate your investment and provide meaningful tools you can leverage to your advantage. Platforms like Unique Venture Clubs (Unique.vc) offer the next stage in digital investment with plenty of innovations in the clubs’ governance system, voting features and financial configurations.

On Unique.vc you can either start an investment club, join one or migrate your existing DAO (decentralized autonomous organization) to the Solana-based platform. From taxation to various laws in effect — here’s an outlook on the compliance and legal implications of founding or joining an on-chain investment club.

Regulation In Digital Investment — Overview

One of the great things of on-chain investment is the freedom it provides to traders and investors. The venture for crypto assets and NFTs is a more agile endeavor than regular stock market or commodity investment. With all the innovation, founding or joining an investment club has several legal and compliance implications.

Largely, investment clubs are unregulated. But this does not mean in any way that they act outside of the law. Venture Clubs can be easily formed and funds can be pooled together fast for investing in crypto and NFTs. In this case, the club does not have to present itself as a legal entity and will be exempted from KYC (know your customer) and AML (anti money laundering) procedures.

In some cases though, the creation and management of a pool of digital assets may subject the pool, the users and the club’s creator to KYC checks or registration requirements under applicable securities or investment laws and regulations.

Unique Venture Clubs platform may house investment clubs and users from all parts of the world. Every club is limited to 99 users and venture clubs on the dApp, together with its members, are therefore not required to register with any regulatory entity.

Things may differ in other parts of the world for different investment clubs that hold stocks or physical assets. For instance, in the USA, any club with more than $25 million and bigger than 99 members is required by the SEC to register under the Investment Advisers Act of 1940.

In the United Kingdom, investment clubs are not regulated or taxed as corporations, being considered unincorporated associations. Individual members are responsible for reporting profits and losses individually. In the US, members need to file a form and a schedule K-1 each year. Across the globe, various governments might have different legal frameworks in place for on-chain investment. Being subject to such diversity, the regulatory and compliance framework remains the responsibility of users who are creating and investing within venture clubs.

What You Need to Know

Unique Venture Clubs is a fast and secure platform where users can pool their funds and make the best investment decisions together. As such, the Solana-based dApp is subject to several compliance frameworks and legal requirements designed to make the investment space safe and secure.

An important thing to keep in mind is that venture clubs do not need a legal entity, neither KYC nor AML if they are only buying and selling crypto assets or NFTs that are already on the secondary market (marketplaces, DEX, DeFi).

If a club wants to invest in venture capital, buy physical objects like real-estate, or engage in early stage investing in tokens via launchpads, it then needs to create a legal entity. In such cases, all of the club’s members need to be accredited as investors, not only the club’s founder or manager.

Depending on where you live and what the club’s purpose is, you might be subject to:

  • KYC (know your customer) checks — by providing additional specific info. For this purpose, Unique.vc is developing integrations on the platform and has partnered with Civic Technologies — a company specialized in seamless and secure digital identity operations.
  • Registration requirements under applicable securities or investment laws and regulations — might depend on the number of members and the amount of capital that you pool together.
  • Take full responsibility that your use of the Services is not prohibited by applicable law, and at all times compliant with the law in effect, including but not limited to regulations on anti-money laundering and anti corruption.

The implications of investing through a blockchain-based venture club do not stop here and as previously said, they might depend on the country of residence and the purpose of the club. Let’s find out more about how you can set up a club with the Unique.vc platform.

Providing the Best Legal Framework

Being compliant to the regulatory framework does not mean stiff procedures and sluggish bureaucracy. On the contrary, sorting out the legal aspects of your investment club can be done in a fast and efficient way.

In order to use the Unique Venture Clubs platform, you might not need a legal entity at all. Meaning that you do not need to register a company prior to investing. In some jurisdictions though, you might be asked for the KYC survey in order to acquire equity or a non-digital asset. The use cases will have their own process and regulation requirements.

If you are willing to transition your on-chain legal entity to Unique VC, there will be several methods to do so. The platform is designed so that it can accommodate various types of investment clubs and legal entities. For the best process and result — you are advised to contact your legal advisor prior to joining the platform as each individual case might be unique in nature.

Unique Venture Clubs can also offer support if you wish to create a company from an already existing club. It might be the case that after a period of time, your club will make the jump and establish itself as a legal entity. In most successful cases, this will happen rather sooner than later, to allow for a natural expansion.

Also, in case you already operate a legal entity, this can be easily transitioned to the Unique.vc platform.

Regulation & Compliance — The Future of On-Chain Venture

As blockchain native investment is gaining more traction, governments and regulatory bodies are making efforts to catch up with the tech-savvy modern investors and offer the best regulatory framework that will not only protect members but also foster growth and encourage wide-scale adoption.

At Unique Venture Clubs, there is an ongoing effort to push for transparency, security and ease of access that help investment clubs achieve superior competence. As crypto and Web3 are moving into global adoption, regulation and compliance is needed to bring transparency and legitimacy to the digital investment space. As such, Unique.vc is engaged in open-dialogue with governmental bodies and regulatory entities to pave the way for a better digital investment space.

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