How does Odin operate from a legal perspective?
How does Odin operate from a legal perspective?
The Odin platform is legally operated by Talbot Capital (FCA-regulated firm number 489839).
Talbot Capital outsources certain unregulated administrative services to Join Odin Limited. Under this structure, payments made to the Odin platform fall under the FCA’s definition of ‘client money’, and will be processed through our client money provider, Thompson Taraz (FCA-regulated firm 226978). Our bank accounts are in their name and are held for Odin’s customers’ benefit.
Thompson Taraz also manages the safe custody of assets we hold for you and your investors, as well as the administration of governance events - a regulatory activity known as “safeguarding and administration of assets”.
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What legal structure does Odin use?
For most deals, Odin uses a United Kingdom Bare Trust to administer your investments. This structure works for investments anywhere in the world, and investors anywhere. Odin can also offer British Virgin Islands companies and UK Limited Partnerships, and you can use a different legal structure of your choosing if you prefer. If you intend to use a structure other than the Bare Trust, please contact Odin directly.
In a Bare Trust structure, a non-operating subsidiary of Join Odin Limited holds the legal title to the syndicate’s shares. Investors digitally agree to terms and conditions with Odin and a declaration of trust with this non-operating subsidiary. However, they remain the beneficial owners of the underlying assets. The structure is not, strictly speaking, a fund vehicle or a collective investment scheme.
The Bare Trust is completely tax-transparent, and in a liquidity event you, as beneficial owner of the shares, pay tax wherever you are tax resident. You do not have any UK tax liability.
The specific terms of investments in a deal, including things like carried interest payable to the Syndicate Lead, are outlined in a side-agreement for each deal. It also specifies governance and other rights.
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Detailed legal structure description
A Bare Trust is a form of British "simple trust" legal agreement in which the beneficiary (or beneficiaries) has an immediate and absolute right to both the capital and income of the trust.
The property is held in the name of an entity designated by the trustee (in this case, the trustee is Join Odin Limited, which designates a subsidiary legal entity to hold shares), but the trustee has no discretion over the assets held in trust. The trustee of a bare trust is a mere nominee, in whose name the property is held. The trustee must follow the (lawful) instructions of the beneficiary in relation to the assets held in trust.
This means that Join Odin Limited (the Trustee) and Talbot Capital (the platform operator) create a limited company that acts as a Special Purpose Vehicle (SPV) for the deal in question and holds the shares (or other assets) in trust on behalf of the investors (the beneficiaries).
For example, in the image below we have created the entity "Odin Investments Limited" - this is the entity that holds the shares.
An Odin Bare Trust can buy any shares or share-like instruments (eg. a SAFE agreement, convertible debt, some property or an LP holding in a fund).
One of the key advantages of the Bare Trust structure over something like a limited partnership or an LLP is that you can re-use the same legal entity for multiple deals in future. This reduces the administrative cost, and is one of the key reasons Odin is able to offer its services so cost-effectively.
For each deal syndicated via the Odin platform, there is a separate set of Syndicate Terms, that cover who is leading the deal, how voting, carried interest, fees, etc. will work.
You can imagine each syndicated deal you run on Odin as a separate partnership agreement between the Syndicate Lead and the Investors, that sits underneath this Bare Trust structure. Each syndicate is not a distinct body corporate, but it is a distinct, binding legal agreement specific to the asset that is being purchased.
For each deal, the Syndicate Lead is one of the beneficiaries of the trust, and the other investors:
- Agree to proxy their voting and other rights with regards to the shares to the Syndicate Lead(s), Founder of the Investee Company or the Chair of its Board.
- They may also opt to pay a share of profits on exit to the Syndicate Lead (carried interest).
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Does Odin's legal and regulatory structure comply with German (BaFIN) regulation, and other EU regulation?
BaFIN specify that investment clubs meeting specific requirements do not qualify as Alternative Investment Funds (AIFs) because they are deemed not to be raising capital from investors.
Odin’s approach to not being considered an AIF is not based on this exemption (and hence is not subject to the conditions for such exemption) but relies on another exemption: the co-management by all the investors of the SPV.
Such co-management allows an Odin Bare Trust not to be considered a collective investment undertaking (as per the meaning of the AIFMD). This means it does not qualify as an AIF, irrespective of the number of investors or the capital raised. This approach requires that all investors in the SPV be consulted for major decisions (specifically, the investment and the divestment of the asset).
In practice, Odin is the administrator of the Bare Trust and takes care of the purely administrative tasks but Odin consults with investors and acts under their instruction.
Our approach is based on the ESMA Guidelines on key concepts of the AIFMD (ESMA/2013/611, p. 5).
In addition, to avoid falling within national private placement regimes (such as the German one set out in the German Securities Prospectus Act), we require that the deal is not shared with more than 149 investors per Member State in the EEA (irrespective of the number of people actually investing in the deal).
Finally, in order for the Bare Trust to be considered tax transparent as an arrangement, it is important that investors have the legal right to exit the Bare Trust if they wish, which is permitted under our Syndicate Terms.
We further advise that the deal lead(s) do not provide any investment advice to investors (most notably ensuring that the deal description is not tailored to any given investor).
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What protections and rights does the entity holding shares for investors have? What happens if someone sues this entity?
Any Bare Trust (most common Odin legal entity) that Odin sets up to hold shares is a brainless, dormant entity existing solely for the purpose of facilitating syndicated entry into deals which would otherwise necessitate a disparate group of typically micro and small angel investors investing directly onto the cap table.
It exists for no other legal function, and other than the Syndicate Terms, the only other agreement to which it is party is any investment instrument pursuant to which it contracts and holds the shares on behalf of a syndicate. It generates no income and has no assets of its own, so there’s not really any practical reason for a claim to be brought against it.
Any claim against the entity by any third party could therefore only be made pursuant to either the syndicate agreement or the investment instrument.
So a claim could only be made by Odin (who wouldn’t pursue a claim against itself), another syndicate member, the investee company or another shareholder in the investee company (pursuant to any shareholder arrangements to which the nominee is a party).
The only party from that list where there is a remote scenario of pursuing a contractual claim against the nominee would be, in the opinion of our lawyers, the investee company, and the only type of claim we can think of, of any relevance, where the Nominee may be sued through the negligence, wilful default or fraud of an underlying syndicate member is where that syndicate member has knowingly committed proceeds of crime/laundered money as its investment funds and the entity has perhaps warranted under the investment instrument that funds committed under its name are clean.
This is a very narrow scenario indeed. In that circumstance, Talbot Capital as the platform operator would have its own direct recourse to the investor under the platform T&Cs due to a material violation of terms of use of the platform.
Notwithstanding such recourse, the entity is not able to sue the syndicate member for cash. Its sole recourse is to that member’s investment, which in the very narrow circumstances described above is justified.
Any reliance on this protection in practice from a business perspective may not necessarily be in Odin’s commercial interest, but ultimately in providing a single entity for many deals by way of business, this is a very basic, very narrow protection which remains in place for the benefit of the entity in its appointed function.