Reorganize brain: projects/ top level, rename filenames, update homepage
- Moved everything from ideas/passepartout/ to projects/passepartout/ - Moved legal structures to projects/flags/ - Created missing _index.org files for all subdirectories - Stripped redundant passepartout- prefix from filenames - Rewrote root _index.org as generalized brain index (projects + concepts) - Updated Hugo nav to Projects/Concepts - Updated build script section descriptions - Deleted stale ideas/passepartout-economics.md orphan
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Hermes
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projects/flags/legal-structure-practical-setup.org
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:PROPERTIES:
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:ID: 433236a2-e5ad-41d4-a27e-4682f8bbc207
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:ID: legal-structure-practical-setup
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:CREATED: [2026-05-23 Sat]
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:END:
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#+title: Legal Structure — Practical Setup Guide
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#+filetags: :passepartout:legal:corporate:setup:action:
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Recommended structure: Delaware C-Corp (US OpCo) + BVI Business Company (IP Co). Trust layer deferred until significant personal wealth accumulates. This is a research document — exact costs and forms should be confirmed with a lawyer.
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* The Structure
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[Founders] → own equity in → [Delaware C-Corp (OpCo)]
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│
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license to use IP
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│
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▼
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[BVI Business Company (IP Co)]
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│
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owns the IP assets
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([[id:28c46769-c14b-42aa-ac7a-69d310157f8f][Passepartout]] code, gate rules,
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ACL2 libraries, [[id:1d074690-a279-59cb-b91d-e9a22ae104ad][social protocol]] protocol
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spec, trademarks, domain names)
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The OpCo pays the IP Co an arm's-length royalty for the right to use the IP in its business (compliance sales, PDS hosting, marketplace operations). The IP Co accumulates royalty income in a tax-neutral jurisdiction (BVI has 0% corporate tax). The founders own both entities under the same cap table.
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* Layer 1: Delaware C-Corp (OpCo)
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** What It Is
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A Delaware stock corporation — standard C-Corp for tax purposes. The entity that signs contracts, employs people (eventually), earns revenue, and holds liability.
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** Paperwork
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- /Certificate of Incorporation:/ Filed with Delaware Division of Corporations. Specifies the corporation's name, registered agent, authorized shares, and incorporator.
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- /Bylaws:/ Internal governance rules (board structure, meeting procedures, officer roles). Not filed with the state but must exist.
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- /Stock issuance:/ Founders purchase common stock via a stock purchase agreement. An 83(b) election must be filed within 30 days if shares are subject to vesting.
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- /Initial board resolution:/ Documents the first board meeting (elect officers, authorize stock issuance, approve bank account opening).
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** Forms
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| Form | Purpose | Where | Cost |
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|------+---------+-------+------|
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| Certificate of Incorporation | Creates the corporation | Filed with DE Division of Corps | $89 (standard, up to 5K shares). $189 for expedited 24hr processing |
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| Franchise Tax Report | Annual filing | DE Division of Corps | $225 minimum/year (based on authorized shares). Can be $175+ for small corps |
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| Registered Agent | Accepts legal service in DE | Private service (CSC, Registered Agents Inc, legalzoom) | $50-300/year |
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| 83(b) election | Tax treatment of restricted stock | Filed with IRS within 30 days of purchase | $0 (paper filing) |
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| IRS SS-4 | Employer ID Number (EIN) | IRS | Free |
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| BOI Report | Beneficial Ownership Information | FinCEN | Free (new requirement, 2024) |
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** Steps
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1. Choose a corporate name (must be unique in Delaware, include "Inc." or "Corp.")
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2. Reserve the name (optional, $75, holds for 120 days)
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3. Select a registered agent
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4. File the Certificate of Incorporation online or by mail
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5. Draft bylaws (template from your incorporation service)
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6. Issue founder shares and file 83(b) election
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7. Apply for EIN (SS-4)
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8. Open a US bank account (requires EIN + Certificate of Incorporation)
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9. File the BOI report with FinCEN within 90 days of formation
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** Timeline
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| Step | Time | Note |
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|------+------+------|
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| Order incorporation | 1-2 hours online | Via legalzoom, clerky, or direct with DE |
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| State processing | 24 hours (expedited) to 2 weeks (standard) | |
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| EIN from IRS | Same day (phone) to 2 weeks (mail) | Call IRS and get it same-day |
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| Bank account | 1-2 weeks | Requires physical presence or remote onboarding |
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| Total | 1-3 weeks | Can be done entirely remotely |
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** Costs
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| Item | One-time | Annual |
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|------+----------+--------|
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| Certificate of Incorporation (standard) | $89 | — |
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| Name reservation (optional) | $75 | — |
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| Registered agent | — | $50-300 |
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| Franchise tax | — | $175-225 |
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| Bylaws (template) | $0-100 | — |
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| Total year 1 | $164-264 | $225-525 |
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| Total year 2+ | $0 | $225-525 |
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Using a formation service like clerky or legalzoom adds $100-300 but includes document templates, registered agent for the first year, and step-by-step guidance.
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* Layer 2: BVI IP Co
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** What It Is
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A BVI Business Company (IBC) incorporated under the BVI Business Companies Act (2004). The entity that owns the IP assets and licenses them to the OpCo. BVI has no corporate tax, no capital gains tax, no withholding tax on dividends or royalties. The BVI is not on the EU blacklist or greylist as of 2026 (it was greylisted 2022-2024 and was removed after reforms).
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** Paperwork
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- /Memorandum and Articles of Association:/ The constitutional document. Filed with the BVI Registry of Corporate Affairs. Similar to a DE Certificate of Incorporation.
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- /Register of Directors:/ Names and addresses of directors. Filed with the BVI Registry. /Not public/ — BVI maintains a private register.
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- /Register of Members:/ Shareholder information. Kept at the registered office. Not public.
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- /Licence Agreement:/ The agreement between the OpCo and the IP Co granting the OpCo a license to use the IP in exchange for royalty payments. This is the critical document for transfer pricing compliance.
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- /Corporate resolutions:/ Appointing directors, issuing shares, authorizing the license agreement.
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** Forms and Steps
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| Step | Where | Cost | Time |
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|------+-------+------+------|
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| Choose BVI registered agent | Private service (Harneys, Ogier, Maples, or low-cost providers) | $500-1,500/year | 1 day to choose |
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| Due diligence (KYC) | Registered agent requires passport, proof of address, source of funds | $0 | 1-5 days |
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| Name approval | BVI Registry | $0 | 1-2 days |
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| File M&A + register | BVI Registry via registered agent | $350-750 (govt fee) | 1-3 days |
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| Issue shares | Internal | $0 | 1 day |
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| Appoint director/officer | Internal | $0 | 1 day |
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| Draft IP license agreement | Lawyer | $1,500-5,000 | 1-2 weeks |
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| BVI bank account | BVI or international bank | $0-500 (account fees) | 2-6 weeks |
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| Total setup | | $2,500-8,000 | 2-5 weeks |
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** Annual Costs
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| Item | Cost |
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|------+------|
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| Registered agent fee | $500-1,500 |
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| BVI government fee | $450-1,100 (depends on authorized share capital) |
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| BVI financial statement filing | $350-500 (simple, no audit required — just a declaration) |
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| Total annual | $1,300-3,100 |
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** The IP License Agreement
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This is the most important document. It must:
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1. /Define the IP:/ List every asset being licensed — the Passepartout source code, gate rules, ACL2 proof libraries, social protocol specification, trademarks, domain names, trade secrets.
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2. /Set the royalty rate:/ Must be at arm's-length. For software/tech IP, typical royalty rates are 2-10% of gross revenue, depending on how central the IP is to the business. Verification IP is 100% central to the business (the product /is/ the IP) — rates at the higher end are defensible.
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3. /Transfer pricing documentation:/ Required under US tax law (IRC Section 482). A transfer pricing study documents that the royalty rate is consistent with what unrelated parties would agree to. Cost: $5,000-15,000 for a professional study. /Alternative:/ Use an industry benchmarking report from a database like RoyaltyStat or ktMINE. The documentation must exist in case of IRS audit.
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4. /Territory:/ Global license, exclusive or non-exclusive.
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5. /Sub-[[id:67faf52f-9126-50a7-b87e-2bedc610dac7][licensing]]:/ Whether the OpCo can sub-license. Typically no — the IP Co controls sub-licensing.
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* Layer 3: Founders' Ownership
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Both the OpCo and the IP Co must be owned by the same people to avoid attribution issues.
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** Mirror Ownership
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- OpCo founders own 100% of OpCo common stock
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- Same individuals own 100% of IP Co shares (same percentages)
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- Documented in both entities' records
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The two entities are related parties. The IRS will scrutinize transactions between them. Mirror ownership is standard and expected — the key is the documentation of the license agreement and the arm's-length royalty.
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** Individual Asset Protection
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The founders' personal assets are protected by the corporate veil of both entities. This is /not/ the trust-level protection of Structure D — if both entities are owned by the founders directly, a judgment against the founders (personal liability) could reach the shares in both entities. But a judgment against the OpCo (business liability) cannot reach the IP in the IP Co — that's the point.
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* Layer 4: Trust (Deferred)
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Not set up now. The trust adds $15-30K setup + $5-10K/year and makes investor fundraising nearly impossible. Defer until:
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- Personal wealth (across all assets) exceeds $2-5M, /or/
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- The IP Co's accumulated value (IP appraisal) exceeds $5M, /or/
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- A specific liability risk emerges (lawsuit filed, regulatory investigation)
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When the threshold is reached, the structure becomes: Founders → Irrevocable Cook Islands Trust → owns BVI IP Co → licenses to Delaware OpCo.
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* Complete Timeline and Cost Summary (Year 1)
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| Item | Timeline | One-time | Annual |
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|------+----------+----------+--------|
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| Delaware C-Corp | Week 1-2 | $200-500 | $225-525 |
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| BVI IP Co | Week 2-5 | $2,500-8,000 | $1,300-3,100 |
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| IP License Agreement | Week 3-6 | $1,500-5,000 | — |
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| Transfer pricing documentation | Week 4-8 | $0-15,000 | $2,000-5,000 (update) |
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| US bank account (OpCo) | Week 2-4 | $0 | $0-200 |
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| BVI bank account (IP Co) | Week 4-10 | $0-500 | $0-500 |
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| Total year 1 | 4-10 weeks | $4,200-29,000 | $1,525-4,325 |
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| Total year 2+ | — | $0 | $1,525-4,325 |
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The wide range depends on whether you use a DIY formation service ($400 Delware + $2,500 BVI) or a full-service law firm ($5,000 Delaware + $8,000 BVI + $15,000 transfer pricing study).
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* What Must Be Done by a Professional
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Some things can be DIY'd, some cannot:
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| Task | DIY possible? | Recommendation |
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|------+---------------|---------------|
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| DE Certificate of Incorporation | Yes (clerky, legalzoom, or direct filing) | DIY ($100-300) |
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| DE Bylaws | Yes (template available) | DIY or included with service |
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| 83(b) election | Yes (one-page IRS form) | DIY |
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| BVI incorporation | Via registered agent | Agent handles government filing |
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| IP License Agreement | /No/ | Must be a lawyer (transfer pricing + IP specialist) |
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| Transfer pricing study | /No/ | Must be a tax professional |
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| BVI bank account | Can apply remotely | Some agents offer bank introduction |
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* The Bottom Line
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Minimum viable setup (DIY Delaware, basic BVI, lawyer for license agreement): ~$5,000 one-time, ~$1,500/year ongoing. Timeline: 4-6 weeks from start to both entities operational.
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Full professional setup (law firm for everything + transfer pricing study): ~$25,000 one-time, ~$4,000/year ongoing. Timeline: 6-10 weeks.
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The IP transfer must happen /before/ the IP has significant value. Incorporating both entities now (before the first compliance sale) means the IP assigned to the BVI Co has negligible appraised value. Waiting until Phase 1 means the IP may have significant value and the transfer triggers a taxable gain.
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* References
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- [[id:0a4e0b8f-25e0-4b78-9633-fc37d03cefe9][Asset protection structures — options analysis]]
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- [[id:98364e9d-a8a9-42b7-a9dc-b643fd2ccc4b][Outbound sales compliance — data protection law]]
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- [[id:d28adac8-08a1-40c4-ae43-b5d8d7b1743f][Combined growth strategy — Passepartout]]
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