01 IntroductionFoundation Company - a hybrid of a trust and a company
The Foundation Company is a unique corporate form introduced in the Cayman Islands in 2017 with the passage of the Foundation Companies Act. It is specifically created as a hybrid: it has the legal personality of an ordinary company (it can own assets, enter into contracts, be a plaintiff and defendant), but is managed as a trust - through beneficiaries, supervisors and directors with fiduciary responsibilities.
This form was created with an eye to specific scenarios, where an ordinary company and an ordinary trust are not suitable separately: charity with a management structure, family office structures, where assets need to be kept in a single entity, and - what was the main surprise - as a legal wrapper for DAO.
By 2025, the Cayman Islands will have more than 1,700 crypto-foundation companies. Cayman has actually become the standard for DAO, ahead of all other jurisdictions (Switzerland, Estonia, Marshall Islands) in terms of the number and quality of registered Web3 projects.
Foundation Company is a solution for situations where the legal personality of a company is needed, but without classic shareholders with economic rights. Its goal is to “live for a purpose” and not to “bring profit to the owners.”
The main feature of Foundation Company
This is a legal entity that may have no beneficiaries at all (purpose foundation) or they may be optional. Beneficiaries can be people, organizations, or simply “goals” (for example, “development of open-source code in the field of cryptography”). The target is assigned to the Constitution and guarded by a supervisor.
02 Foundation Companies Act 2017Legal framework and key concepts
Foundation Companies Act 2017 (as amended 2023) is a separate law regulating this particular form. It works in conjunction with the Companies Act, but contains specific rules.
Key roles at Foundation Company:
- Founder - the founder who creates the fund and determines its goals
- Beneficiaries — beneficiaries (optional). There may be an individual, a legal entity, classes of persons or none at all
- Supervisor - mandatory role. A person who ensures that directors act in accordance with the Constitution and objectives. Has the right to go to court
- Directors - manage the fund, have fiduciary duties to the goals of the fund
- Members - may be, but do not have economic rights (unlike LLC members or shareholders)
What is a “purpose foundation”
This is the most unusual thing about the Foundation Company - the ability to exist without beneficiaries at all. The Constitution simply defines the purpose: “supporting open-source projects in the field of zero-knowledge cryptography”, or “funding medical research into rare diseases”, or “managing the treasury DAO XYZ”.
No individuals are entitled to distributions. There are no "owners". The target is the "beneficiary". The Supervisor ensures that directors spend funds according to purpose.
In ordinary corporate law this would be impossible - a company always has shareholders. In a regular trust, this is only possible for charitable purposes, where beneficiaries are not needed. Foundation Company has broken this dichotomy: it is now possible to have the legal personality of a company + the opportunity to live for a non-charitable purpose.
03 Properties and applicationsWhat makes Foundation Company unique
3.1. Legal personality like a company
Foundation Company can:
- Own assets (bank accounts, securities, real estate, IP, tokens)
- Conclude agreements (contracts, license agreements, service agreements)
- Be a plaintiff and defendant in court
- Receive and pay debts
- Open bank accounts in your name
In this it differs from a regular trust, which no Legal personality - the trust is “represented” by the trustee, who holds the assets on behalf of the trust.
3.2. Trust-like management
Directors of the Foundation Company bear fiduciary duties to the purposes of the fund (or beneficiaries, if any). This is not like a normal company where the directors answer to the shareholders. Here they are obliged to act in the interests of goals.
Supervisor has the right to “oversight”: he can request information, he can go to court if the directors violate the Constitution. This insures the fund against abuse by managers.
3.3. Flexibility Constitution
The Constitution Foundation Company is a flexible document that states:
- Purpose of the fund
- Beneficiaries (if any)
- Governance structure (directors, supervisor, advisory committees)
- Distribution rules
- Conditions for changing the Constitution (usually unanimity or special majority required)
- Conditions for termination of the fund
The Constitution is not submitted to the Registry (although basic information is yes). This gives privacy.
04 · Foundation as a legal wrapper for DAO
The main modern use case of Foundation Company is legal wrapper for DAO (decentralized autonomous organizations). Over the past three years, this has become an industry standard. Let's figure out why.
4.1. DAO problem without legal wrapper
A DAO is a group of people united by a protocol and a token for the collective management of something (treasury, protocol, NFT collection). Legally, in most jurisdictions, a DAO is a “general partnership” or “unincorporated association”, which means personal responsibility of all participants for DAO obligations.
If the DAO entered into an agreement with the developer and did not pay, each participant can be held liable. If the DAO violated securities laws, every participant is at risk. This kills institutional participation.
4.2. Foundation Company solves the problem
Cayman Foundation Company:
- Has legal personality - can enter into contracts on behalf of the DAO
- Protects DAO participants from personal liability
- Can own treasury (including crypto assets)
- Maybe there is a “purpose foundation” - its goal is precisely “the functioning of the XYZ protocol”
- Has no shareholders, like the DAO itself
- Managed by directors, who are formally responsible for goals (which include “execution of on-chain voting results”)
This is a clean, legally protected wrapper for DAO. Token holders retain their anonymity on-chain, executive directors bear formal fiduciary responsibility, and treasury is protected.
4.3. Real structures
Most major DeFi protocols use this structure. No names (NDA), but among our clients there are:
- L1-protocol foundation with treasury $400M+
- DEX protocol foundation coordinating governance of 80,000 token holders
- NFT-collection foundation for a premium project
- Cross-chain bridge foundation with royal using
- Privacy-protocol foundation with a grant program
4.4. Operational mechanics: how foundation interacts with on-chain governance
Foundation Company exists in the off-chain legal world, DAO - in the on-chain world of smart contracts. The connection between them is through the Constitution and operational procedures. Standard scheme:
- On-chain governance — token holders vote through governance smart contract. Solutions become “on-chain proposals”
- Foundation directors formally execute decisions that do not have on-chain automatic execution: signing contracts with developers, hiring team members, payment service providers, opening bank accounts
- Treasury management — most of the treasury is in smart contracts, but fiat transactions (salaries, expenses) go through the foundation bank account
- Multi-sig integration — foundation directors are often signatories of multi-sig wallets and act in accordance with the on-chain mandate
The Constitution prescribes the binding effect on-chain governance decisions for directors. That is, a director who ignored the on-chain decision violates the Constitution and can be removed by supervisor.
4.5. Token issuance via foundation
The Foundation can issue tokens - but this requires careful structuring under applicable laws. Distinct paths:
- Utility tokens with a real function in the protocol (governance rights, fee discount, staking) - usually not considered securities in most jurisdictions, can be issued freely
- Tokens with investment characteristics (profit sharing, dividend-like distributions) - likely securities, require compliance with the securities laws of the relevant jurisdictions
- NFT collections with royalty mechanics - generally not securities, but may fall under consumer protection regulations
In Cayman, token issuance itself is not licensed (unless it is a VASP service). But responsibility for compliance in target market jurisdictions lies with the foundation. US, EU, UK, Singapore - all have their own regimes.
In one large project that we led in 2024, the foundation became a “sandwich layer” between on-chain DAO governance and off-chain commercial reality. Token holders voted for strategic direction, foundation directors executed operational decisions, supervisor (law firm) monitored compliance with the Constitution. This triple architecture is an emerging best practice for serious DAO with substantial treasure.
— Partner lawyer, specialist in DAO structures05 Registration processFrom Constitution to Certificate
Registration of a Foundation Company takes 5–10 business days. The difficulty lies in the preparation of the Constitution, which requires careful work.
Step 1. Analysis of purpose and structure
This is the most important stage. What exactly does foundation do? Who is the supervisor (often an independent company or lawyer)? Will there be benefits or is this a purpose-only foundation? Who are the original directors? These questions define the entire Constitution.
Step 2. Constitution
Main document. Prepared individually. It states:
- Precise purpose statement
- Governance structure
- Powers of directors
- supervisor permissions
- Beneficiaries and their rights (if any)
- Distribution rules
- Conditions for changing the Constitution
- Terms of termination
Step 3. KYC and registration
Standard KYC for founders, directors, supervisor. Submission to Registry. Obtaining a Certificate of Incorporation.
Step 4. Tax Exemption and BO register
Similar to other Cayman entities. Foundation can obtain TEC, must maintain BO register.
- The purpose of the fund is clearly stated
- Supervisor selected and agreed upon
- Constitution ready and tested
- Initial directors are appointed and have passed KYC
- Certificate of Incorporation received
- BO register is full
- TEC issued (if required)
06 · CostHow much does Foundation Company cost?
Setup year 1:
- Constitution preparation and registration: $6,500
- Government fees: ~$1,100
- Registered Office: $2,400
- Tax Exemption Certificate: $2,500
- Supervisor service (if we appoint): $4,000 - 8,000 / year
Total setup - about $12,500 – 16,500. It is more expensive than Exempted Company due to the need for Constitution and services supervisor.
Annual:
- Annual fees: $1,100
- Registered Office: $2,400
- Supervisor services: $4,000 – 8,000
- BO + ES + corporate compliance: $1,500
Annual content— about $9,000 - 13,000 / year.
DeFi protocol with $80M treasury: Foundation launch
The DeFi protocol development team reached $80M in treasury (derived from protocol fees) after launch and decided to formalize governance through a DAO. Without a legal wrapper, the risk of personal liability for the team was unacceptable.
Solution: Cayman Foundation Company with a purpose statement about “supporting the operation and development of protocol XYZ.” Three directors: technical, ops, legal. Supervisor is an independent Cayman trust company. Treasury foundation is conveyed through legal opinion and public objection. Token holders have maintained governance through on-chain voting, foundation directors execute voting decisions.
07 · Foundation vs other formsWhen to choose what
| Parameter | Foundation Co. | Trust | Exempted Co. |
|---|---|---|---|
| Legal personality | Yes | No (via trustee) | Yes |
| Beneficiaries | Optional | Mandatory | Shareholders |
| Possible for DAO | Best option | With restrictions | Only parent |
| Can own assets in his own name | Yes | No | Yes |
| Defaults shareholders profit | No | No | Yes |
| Setup cost | $12 500 — 16 500 | $8 000 — 14 000 | $8 000 — 12 000 |
| Privy Council appeal | Yes | Yes | Yes |
08 · Risks and nuancesWhat is important to understand
8.1. Legal regulation of token issuance
Foundation Company is not a license for activities. If a foundation issues tokens that can be classified as securities, this requires a separate analysis under the applicable jurisdictions (US, EU, Asian markets). Foundation Company simply provides a legitimate wrapper - but does not solve the issue of compliance with securities laws.
8.2. Substance requirements
Foundation Companies often fall under the “relevant activity” definition in the Economic Substance Act, especially if they receive income from IP rights, holding activities or fund management. This may require substance on the islands.
8.3. Constitution Difficulty
A poorly written Constitution creates huge problems later. For example: what if the supervisor dies or resigns from the role? What if all the directors left? Who decides that the foundation has achieved its goal and should be liquidated? These questions should be written down in advance.
8.4. DAO regulation is still emerging in many jurisdictions
Cayman Foundation Company gives legal status in Cayman. But if token holders or directors live in the USA, US legislation applies. If the protocol is available to European users, MiCA can be used. Foundation is part of structure, but not a silver bullet.
09 FAQFrequently asked questions
Can a Foundation Company have members?
Yes, but it's rarely used. Members in a Foundation Company are something between “association members” and “honorary stakeholders”. They may participate in supervisor elections or have voting rights on certain issues, but have no economic rights (do not receive distributions, do not have a share upon liquidation). Most Foundations exist without members.
Who can be the supervisor?
Any person other than the directors of the fund themselves. In practice, it is usually either an independent professional (lawyer, auditor) or a licensed Cayman trust company. Supervisor plays the role of “watchdog” - does not participate in operations, but has the right to investigate violations and go to court. This role is often paid by an annual retainer.
Is it possible to change the purpose statement after registration?
Yes, through changing the Constitution. But the requirements are strict: usually you need the unanimity of the directors, the consent of the supervisor and the approval of CIMA or Court, depending on the Constitution. If the Constitution stipulates that the purpose “cannot be fundamentally changed without judicial approval,” this is often implemented that way.
What is the taxation for a Foundation Company?
In the Cayman Islands - 0% (as for all other entities). Foundation can receive TEC. But tax liability at the donors/contributors/beneficiaries level is determined by their tax residence. If a US person contributes assets to the Foundation, US gift tax rules may apply. If the Foundation pays something to a beneficiary in the EU, the tax is in the EU.
Can Foundation Company issue tokens?
Technically, yes, like any Cayman entity. But if these tokens can be classified as securities in specific jurisdictions, compliance with the relevant laws is required. There is also a separate issue of VASP-licensing: if the release of tokens is accompanied by custody, exchange or public issuance services, a VASP license may be required. Most DAO foundations issue utility tokens with carefully thought out legal opinions.
10 ConclusionWhen Foundation Company is the right choice
Foundation Company is a relatively young, but already mature structure that solves specific problems that cannot be solved by either an ordinary company or an ordinary trust.
Suitable if:
- You are building a DAO and need a legal wrapper that protects token holders
- Create a family office or charitable structure with legal personality
- Need an orphan structure for PTC or other trust vehicles
- The goal is to “live for a purpose” and not to bring profit to the owners
- Budget allows $12k+ for setup and $9k+ annually
Not suitable if:
- Need a simple corporate structure - Exempted Company is simpler and cheaper
- Beneficiaries are specific people with economic rights (then a regular trust)
- Budget is limited (Foundation is not the cheapest option)
Each Foundation project is unique. Constitution is prepared individually, and the success of the entire structure depends on its quality. We have been consulting on such projects since 2018 and have registered more than 50 Foundation Companies - for DAOs, family offices and charitable structures. A lawyer partner will analyze your case and offer the optimal solution at a free first meeting.