Setting Up a Company Using Bitcoin Denominated Contributions in Kind – What You Should Know
In the last few years cryptocurrencies have been steadily gaining in importance. Especially bitcoin, the most famous of cryptocurrencies, has more and more found its way into everyday life. Here the role of harbinger has been assumed by the city of Zug. It was the first state authority worldwide to accept bitcoin as a legal tender. Since 1 July 2016 it has been possible to pay fees of the residents’ registration office of up to 200.00 francs with bitcoins. Now the Canton of Zug is going even further. As STARTUPS.CH has been informed, from now on companies in the Canton of Zug can be established using contributions in kind denominated in cryptocurrencies.
What Are Cryptocurrencies?
Bitcoins are often wrongly understood to comprise all cryptocurrencies. In addition to bitcoin, however, there are many other cryptocurrencies such as bitcoin cash or ether. From the conceptual point of view, all cryptocurrencies do operate in a very similar way. Well, they are digital currencies. The currency itself is created by using the processing power of private computers. This takes place within an enormous global network. Users of this network control each other. There are no government bodies or authorities that would have any supervisory function or sovereign influence. Hence, the unit price of a cryptocurrency such as bitcoin depends on demand only. This generates stronger exchange rate fluctuations than it is usually the case with national currencies.
Cryptocurrencies as Contributions in Kind
Using contributions in kind to establish a company is called qualified incorporation. Compared with (regular) cash, contributions in kind are more difficult to valuate, so higher requirements are applied here. In practice, you need a contribution in kind agreement, an incorporation report or an audit certificate to create a company using contributions in kind. Such documents have to be filed with the Commercial Register, where they are put through verification.
As mentioned before, cryptocurrencies are subject to partially strong fluctuations. This may present a challenge for capital funding. The value of the contribution in kind, which in this case is denominated in a cryptocurrency, is converted into Swiss francs when registering it with the Commercial Register. If, due to exchange rate fluctuations, capital funding is insufficient, no incorporation can be done. For this reason, it is not possible to determine beforehand a premium, or that part of the paid-up capital that exceeds the face value of shares. As the paid-up capital is determined during incorporation, it is only then when the premium can also be exactly quantified.
For the time being the Commercial Register of the Canton of Zug is the first one to accept contributions in kind denominated in cryptocurrencies. Currencies such as bitcoin, bitcoin cash and ether are honoured by the Commercial Register of the Canton of Zug just like that. For other cryptocurrencies, some more information on their value and usability has to be submitted. Based on such information, the Commercial Register decides whether a contribution in kind is acceptable or not. According to official data, however, no company has so far been established in the Canton of Zug using contributions in kind expressed in cryptocurrencies. The Swiss Commercial Register would have first to approve such an application. It will be interesting to follow when and how other cantons get around this topic.