You have your real contract, you have your tokens sorted out, now you are ready to go for an ICO. Right? Wrong!
Although there is still much work to be done in tech, you need as much legal work, in order not to get yourself in trouble with your ICO. And there is one single reason for that: your ICO should not be the same thing as an unregistered IPO.
IPO vs ICO: Is there a difference?
Yes. Huge difference. In an IPO the offer is for investment securities - which is a regulated activity - while in an ICO the offer is for non-investment tokenised gizmos, that may or may not have monetary value. So, if your token represents a share of stock or a fraction of a share of stock, this is a no-no. If it represents a bond, it's a no-no. If it represents a warrant, it's again a no-no.
Of course, you can take the path of registering your ICO with the SEC or another national similar authority (in most cases, you can do that some time - up to a month - after you have completed your ICO, provided that you didn't advertise your ICO to the general public). Or, in some cases, you may have the right for an exemption from registration, especially if you are looking to raise a small amount of money, from a small number of people.
Is there another way, though? Yes, there is! Two ways actually.
ICOs that are not IPOs
There are two types of contracts that although may be represented through tokens, do not constitute an offer for securities. The two types of those contracts are so common, that you may have already involved in one of them, or even in both: a) the peer-to-peer loan contract and b) the revenue share contract.
The peer-to-peer loan contract is a contract where you borrow money from another natural or legal person, and you pay them some interest. At the end of the contract, you pay back the principal amount you originally borrowed, to the lender. Regardless of whether at the end of the contract you offer the option to the lenders to have their principal amount converted into shares of stock in the company, the contract you offer participation into is a loan one. Best case scenario in this, would be the conversion to take place at the same time with the company IPO.
The revenue share contract is a contract where participants pay you a certain amount of money to take a fraction of that revenue share scheme. Although it's similar to a loan contract, the terms on repayment do not correspond to a defined amount of money, but rather to a defined percentage on annual sales - that percentage may not be the same for the length of the contract/scheme. At the end of the contract there is no amount to be repaid, so payments made throughout the length of the contract represent both the principal amount and any interest paid. However, if the percentage paid, or annual sales for the length of the contract are low, the lender bears the risk of losing part of their capital, even if the company is active. Similarly to the peer-to-peer loan contact, at the end of the contract you may offer some free shares to the participants in the revenue share scheme.
There are two tricks in these types of contracts - that both need to be used. The first is to have all participants entering the contract at the same time. The second is to disconnect the offering of securities from contract entry, and even if an offer of securities is involved, participants need to be given the option to opt-out, or receive those securities (at least technically) for free.