Non-fungible token (NFT) is the most discussed topic of 2022 among representatives of the global digital community. The explosive popularity growth of non-fungible tokens causes a desire to develop a business in this direction. Nowadays we are talking about an unbeaten path with many incomprehensible moments yet. But the “pioneers”, NFT startups, are starting to receive incomes of hundreds of thousands and millions of US dollars. Therefore, the idea of developing an NFT project deserves attention.

 

Experts from the Lawrange law firm are ready to provide the necessary assistance with the legal registration of an NFT project. First of all, with the registration of a company in a jurisdiction friendly to non-fungible tokens. We will help you choose the optimal business format, as well as provide the opening of a bank and trading account for the full-fledged work of the company. Lawyers who have the competence to support international NFT projects are at your service!

 

 

Areas of use for NFTs

Note! Although the non-fungible token is considered a “relative” of the cryptocurrency, this digital asset has other features. If bitcoin, ethereum, or other cryptocurrencies can be compared to fiat money, then for NFTs, the comparison with collectibles, for example, rare coins or other single artifacts, will be correct.

 

Characteristics of non-fungible tokens:

1)      NFTs are not identical to each other;

2)      each such token is unique and represents an indivisible digital asset;

3)      trade or exchange on an equivalent basis is not possible;

4)      non-fungible tokens cannot be used as a means of payment in trading transactions.

 

Since the sale of CryptoPunk, the most famous NFT tokens, there have been hundreds of ideas for using this new class of digital assets in the world. Celebrities tokenize music, computer codes, works of art, video clips, memes, avatars, logos. Then such tokens are put up in the form of lots at auctions and sold for fabulous money.

 

Interest in the NFT is growing given the fact that with a desire and with a small financial investment, a non-fungible token can be created by anyone. Also, anyone can purchase a little-known NFT token so that its cost will increase in the future.

 

Note! In 2022, NFTs are becoming part of the culture. Tokens are being implemented by such world-famous brands as Samsung, Adidas, Gucci, McDonald’s, Visa, Marvel. NFT technologies open up new unexpected opportunities for a variety of areas:

  • video games – providing evidence of the authenticity of avatars, game clothes, weapons, mounts, skins, as well as the transfer of characters from one game to another;
  • art (art industry) and music – tokenization of artistic and musical works for copyright protection, ease of purchase and sale;
  • software licensing – assigning an NFT license to increase the degree of protection against piracy;
  • investment in real estate – the creation of NFT real and virtual objects to activate the market;
  • selling tickets and subscriptions – eliminating loopholes for free access and fraud.

 

And this is only a small part of the spectrum of possibilities for using NFT tokens. The NFT project is a tool for creative and enterprising people that allows them to realize themselves by breaking into one of the fastest growing markets in the world. The scale of the project is limited only by the courage of the author of the idea, and may even involve the creation of a metaverse.

 

 

Formats for implementing NFT projects

The most popular NFT business formats are marketplaces and galleries. Consider how such companies operate.

 

 

NFT Marketplaces

They are trading platforms that operate on the principle of an auction, where lots with NFT tokens are put up for sale. Such sites charge a pre-agreed commission on each sale. As in a regular marketplace, such sites provide online storefronts and a search engine. The owners of the site take care of the thorough moderation of digital assets uploaded for sale. It also provides a clear and concise interface for sellers.

 

NFT marketplaces could be: a) universal – they offer for sale all types of non-fungible tokens (this can be either a simple pixel picture a la CryptoPunk, or a line of program code or a piece of music); b) specialized – niche projects, for example – with gifs or attributes of a sports team.

 

***Note: In addition to buying and selling, large NFT marketplaces also offer users the opportunity to mint (create) non-fungible tokens.

 

 

NFT galleries

Analogue of offline art galleries. The sale and purchase and minting of NFTs within the framework of such projects is not expected. Income can be obtained from holding exhibitions and other events at such sites. Owners put tokens on display to popularize the NFT movement in general and increase the value of their digital assets in particular.

 

Less common NFT business formats include:

 

  • NFT lending platforms are similar to pawnshops, where non-fungible assets are accepted as collateral.

The acceptance of non-fungible tokens as collateral for a loan opens up lending opportunities for those who are not interested in traditional cryptocurrencies. It also helps investors diversify their investment portfolios.

 

  • NFT brokers – since, as with regular cryptocurrencies, the prices of NFT assets are very volatile, it is possible to profit from the difference in prices.

Non-fungible assets can be compared to antiques. Antique dealers buy assets knowing that their value will increase over time. The same goes for non-fungible assets. Buying in demand lots, the ability to present them in the right light in order to profitably sell – this is what makes a broker successful.

 

  • NFT platforms for real estate investment – the use of non-fungible tokens is a way to transfer ownership of any asset, including real estate.

In addition to real estate, virtual real estate is being put up for sale. New companies arise and offer development, rental, and property management services in the metaverse.

 

***Note: The Metaverse (from the Greek μετά – “between, after, through” and the words universe) is a virtual space in which people interact through avatars (virtual twins).

 

 

Legal aspects in the implementation of the NFT project

To launch an NFT marketplace or other business project related to non-fungible tokens, you need to create a legal entity. Further, if this is a marketplace, the following package of documentation and policies arises:

 

  1.     Smart contract

A digital algorithm on the blockchain designed to identify and transfer ownership of NFTs.

 

  1.     Code of Conduct

Given the prevalence of user-generated content and transactions on NFT marketplaces, legal restrictions in the form of codes of conduct are used to regulate interactions on the platform.

 

  1.     Platform Terms of Service

Regulate relations between the operator of the NFT trading platform and clients, as well as between buyers and sellers of NFTs presented on the platform. A well-thought-out terms of service agreement can help protect an organization from various legal issues and contains provisions that limit the company’s overall liability.

 

  1.     Terms of Sale

Merchants or creators listing NFTs on the marketplace may wish to impose additional terms of sale on buyers of their NFTs, especially if the platform’s terms of service do not adequately address the risks to the merchant or creator.

 

  1.     Intellectual property protection

It is vital to verify the intellectual property rights of each participant at every step of every NFT transaction. Intellectual property rights are shared between creators/artists, buyers/collectors and other parties involved.

 

The ownership of the original work belongs to the creator (author) of this work. If the NFT is created and sold, the buyer will receive a set of intellectual property rights from the creator as part of the ownership of the NFT. The NFT seller determines the rights accompanying the NFT. 

 

This should take into account the rights of auxiliary parties, for example, a record company, studio, franchise owner, and so on, which have the right to participate in the monetization of content.

For example, the tokenization of a music recording and the subsequent sale of NFTs may entail royalty flows to record labels, agents, libraries and artists. In this case, payments can be made both at the initial sale and at each subsequent resale on the secondary market. It is important to analyze every contract related to content monetization, it is necessary to carefully monitor every transaction in the metaverse.

 

  1.     Consumer rights Protection

Most jurisdictions have consumer protection laws in place. Therefore, care should be taken to properly inform customers about what they are buying and the risks associated with it. Cybercriminals can use NFTs for financial gain. Therefore, NFT platforms should implement KYC policies, anti-money laundering and other regulatory requirements.

 

  1.     Data privacy

Transparency in the collection and use of data plays a big role. Many jurisdictions require platforms to disclose their data practices in a privacy policy. Penalties for privacy violations can be significant.

 

Important! The regulatory environment in all jurisdictions has not kept pace with changing in response to the rapidly evolving metaverses that use digital assets. During the development of this space by investors, startups and fintech companies, problems arose. Like the cryptocurrency space, NFTs attract unscrupulous individuals. In particular, we are talking about the risks of laundering funds obtained by criminal means and the financing of terrorism.

 

At the slightest suspicion, an NFT company may fall under government sanctions. The only right step to prevent such negative consequences for business is highly professional legal support at all stages of the development of an NFT project.

 

 

In which country to launch an NFT project?

Minting, as well as the sale and purchase of NFTs, is not yet regulated by laws anywhere. However, in some jurisdictions, the issuance and sale of NFTs is regulated similarly to securities. This imposes on the company many responsibilities that are difficult to fulfill. Also, the peculiarities of taxation of income from the NFT business may become an unfavorable moment.

 

Important! To avoid negative consequences, you should choose a jurisdiction based on the potential risk of qualifying NFTs as securities in that country, and also take into account the current tax regime for legal entities.

There are several states in the world that are becoming an attractive place with a friendly ecosystem for startups in the field of NFT. Lawrange lawyers are constantly monitoring the legal environment for NFT projects. Therefore, we are ready to offer the best options to our customers.

 

 

NFT company incorporation in the UK

The United Kingdom aims to become a global market leader in cryptocurrencies and other digital assets with a developed financial services industry. NFT tokens are legal in the UK. Moreover, in the summer of 2022, the government of the country is issuing its own NFTs. But for now, NFT tokens (collectible and non-collectible) in terms of the laws of the country are unregulated digital assets.

 

Important! In Britain, any digital assets are treated as legal property. And it plays a decisive role for many entrepreneurs.

 

However, the NFT business in the UK (as well as the cryptocurrency business) is subject to AML/CTF requirements. Any company carrying out such activities must be registered with the Financial Conduct Authority, FCA. In fact, this replaces the procedure for obtaining a license.

 

So, to set up a company in the UK for an NFT project, you need to go through the following path:

  1. register a legal entity in this country;
  2.  open a bank account in one of the British banks;
  3. collect documents and submit applications to the FCA for registration of the relevant activity.

 

In order to approve the application by the FCA, it is important to develop the necessary internal company documentation – AML / CTF policies, anti-corruption and anti-bribery, complaints handling, confidentiality (on data protection), financial promotions, as well as a basic risk assessment document.

 

The development of these and other documents, as well as the process of supporting the registration of the FCA, are ready to take on the representatives of LA Lawrange. If you want to start your NFT business in one of the most respectable and stable jurisdictions in the world, please contact us – we will help bring your ideas to life.

 

 

Launch of an NFT project in the UAE

Important! On February 28, 2022, the Emirate of Dubai passed the Virtual Assets Regulation Act No. 4 (“VAL”) and established the Regulation of Virtual Assets (“VARA”). Establishing the legal basis for businesses related to virtual assets, including non-fungible tokens (NFTs), this landmark law reflects Dubai’s ambition to become one of the leading jurisdictions for entrepreneurs and investors in the field of blockchain technology.

 

Any individual or entity offering virtual asset services may only do so if: 1) has received a license from VARA; 2) operates in the emirate of Dubai; 3) has a trade license from the relevant commercial authority in the Emirate of Dubai.

 

Note! In the free zone of Abu Dhabi (Abu Dhabi Global Market, ADGM), it is also planned to introduce the legal regulation of NFT. On March 21, 2022, a corresponding consultation document was published, which proposes to allow companies licensed by the financial regulator of the free zone to trade NFT.

 

So, NFT activities in the UAE are gradually becoming regulated. Launching an NFT project in this jurisdiction will include:

  1. registering a company in the UAE (including obtaining a tax resident visa);
  2. opening a bank account;
  3. obtaining a license for activities related to virtual assets (in the Emirate of Dubai – obtaining a license from VARA).

 

The Emirates has traditionally been and remains one of the most cryptocurrency and NFT-friendly jurisdictions. The introduction of legal regulation of this business area will make it possible to further improve the status of companies registered in this country. Accordingly, you can qualify for the target audience of VIP-category clients. And with the support of LA Lawrange, you can register an NFT company in the UAE quickly and without complications.

 

 

Company for an NFT project in Hong Kong

The Hong Kong NFT project Monkey Kingdom has become world famous. Today, experts call Hong Kong one of the most favorable countries for the development of innovative business areas. The only nuance of this country that you have to pay attention to is the expected accession to the PRC in 2047. But so far, the norms and traditions of doing business in Hong Kong are closer to European ones than to Asian ones.

 

Note! Hong Kong has not enacted any specific laws or regulations prohibiting NFT trading. Therefore, this business is flourishing in the country. Collectors and investors willingly choose Hong Kong marketplaces to buy non-fungible tokens.

 

The only nuance to operating an NFT company in Hong Kong is the correct drafting of smart contracts in order to prevent them from being identified as securities or other categories regulated by the Hong Kong Securities and Futures Ordinance. Otherwise, NFT trading platforms may be subject to securities laws and regulations.

 

So, company incorporation in Hong Kong for an NFT project involves:

  1. registration of a legal entity, in particular – company limited by shares;
  2. opening a corporate account.

 

 

NFT company incorporation in Portugal

Portugal has become one of the most cryptocurrency and NFT-friendly jurisdictions in the world. Lisbon organizes international conferences dedicated to purely non-fungible tokens.

Under Portuguese law, a non-fungible asset cannot serve as a medium of exchange, but may be considered an investment under certain circumstances.

 

Important! Based on this, any individual or legal entity that provides for the exchange, transfer or storage of NFTs is required to register with the regulatory body. Such registration is carried out within the framework of procedures for the prevention of money laundering and the financing of terrorism AML / CFT. The regulatory body that registers NFT companies is the Central Bank of the country (Banco de Portugal, BdP).

 

With the assistance of representatives of LA Lawrange, incorporation of a company in Portugal for an NFT project is as follows:

  1. registration of an LDA  (Limited Liability Company) or SA (joint stock company);
  2. obtaining the status of an NFT organization – registering with Banco de Portugal as a virtual asset service provider (VASP);
  3. bank account arrangement.

 

 

Conclusion:

The system of legal regulation of business activities in the field of NFT is just beginning to take shape. However, it is quite possible to choose a jurisdiction with a climate friendly for virtual assets. You can successfully start with an NFT marketplace in Portugal or Hong Kong, the UK or the Emirates. Other options may be considered if desired.

 

Lawrange specialists are ready to accompany the legal turnkey registration of a NFT project, including the development of the necessary internal regulations and company policies for successful registration with the regulatory body of the chosen jurisdiction. Welcome to the big NFT world!

 

 

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