Tokenizing company shares? And now?
In a world first, Audacia Group tokenized their whole share capital on the Ethereum blockchain last spring. Here’s a deeper look into this type of innovation within the digital finance industry.
Initiating the Private Equity democratization
The increasing public interest in cryptocurrencies and blockchain technology has also further highlighted the process of tokenizing things. This entails creating a digital representation of an asset, in the form of a token, and storing it on a blockchain. In our case, the tokens represent the entire share portfolio of the company.
In February 2021, the Swiss law on Decentralized Ledger Technology (DLT) was introduced. Since then, Taurus’ TDX platform has become the world’s first regulated marketplace for digital assets. By digitizing all of their shares in the form of tokens, which was enabled through the TDX platform, Audacia wanted to pave the way and democratize private equity, i.e. investment in unlisted companies. This practice has raised interest and many people are curious about it. It’s definitely only a matter of time before other companies take the plunge as well.
Learn more about the benefits of tokenizing company shares here.
What are the steps of the tokenization process?
Before deciding to go ahead and digitize company shares, a few elements have to be taken into account. These are things such as the number of company shareholders, whether or not to include voting rights in the shares, the appropriate use of legal and technical professionals, but also compliance with foreign laws concerning public offerings of securities (publication of a prospectus, approval by the relevant authority).
Adapting the company’s governing documents: One of the first steps is to ensure that the bylaws of the issuing company contain the necessary provisions for tokenization. In particular, the company must be able to issue shares not embedded in physical certificates, remove the right of shareholders to request delivery of physical certificates, delegate to the board of directors the responsibility for defining the rules for transferring tokens and exercising voting rights, and prohibit the right to register shares in the name of nominees.
Preparation of the Smart Contract: This is an essential part of the tokenization process. It’s necessary to establish the functions of the “Smart Contract”, which is based on computer code and whose terms and conditions are forgery-proof. This will be used to create and manage the tokenized shares on the blockchain. We used the CMTA-20 Smart Contract, an extension of the ERC-20, created by the CMTA. The issuing company must also create a blockchain address and verify that the Smart Contract works before issuing the shares.
Preparing marketing materials: A presentation of the offer (in our case, a landing page on our website, intended for investors) needs to be created, which contains all the information about the company, as well as the admission criteria for trading its tokenized shares.
Issuing the shares: Before being digitized as tokens, the shares must be underwritten by an individual or a company, paid for in line with the requirements of Swiss Company Law and registered in the Local Trade Register.
Deploying the Smart Contract on the blockchain: After a final approval from the board, to only recognize the holder of the token as the owner of the associated share, the Smart Contract can be deployed on the blockchain (Ethereum in Audacia Group’s case). Treated as a transaction, this deployment must be initiated from an existing blockchain address, controlled by the issuer. As the investors’ blockchain addresses have been collected earlier, the tokens can be allocated to their holders once they’ve been acquired.
The beginning of a revolutionary digital process
Audacia Group’s tokenized shares represent 10,000,000 tokens, one share being equal to one token. As fundraising was not the main objective, only a very small amount of tokens was admitted for trading. As mentioned earlier, the main goal was to break new ground in the digital finance field and to pave the way for other companies wanting to do the same thing. Less than 0.5% of the tokens have been sold and Audacia’s share price is currently at CHF 30. Note that the shares are tokenized in Swiss francs and are therefore not just tradeable with cryptocurrencies. If there’s ever a need to increase Audacia’s capital, it will be a simple case of offering new tokens for sale on the TDX platform.
As Audacia doesn’t necessarily want to sell, there’s a lower volume and then more demand than supply. Many people are inquiring about this innovative process, which seems to be generating plenty of interest. At Audacia, we’re now giving a lot of thought to everything related to tokenization, such as digitizing shares of companies acquired and integrated into the group. Even though we’re still in the early stages of what can be achieved with decentralized ledger technology, Swiss companies should embrace the efficiencies gained by tokenizing shares.
For more information: see the Capital Markets & Technology Association’s blueprint on share tokenization.
Content & Communication Manager at Audacia Group
With a Bachelor and Master degrees in Linguistics and Communication in the pocket, Adrien had the opportunity to work as a redactor, freelance journalist and web journalist. He’s now working as a Content & Communication Manager at Audacia Group where he writes content and manages communication for both Group and companies acquired.