Token Capital Issuance: A Legal Guide for Startups

Introduction:

Issuing equity with tokens has become an increasingly popular option for startups in the digital age. In this article, ILP Abogados offers you a comprehensive guide to carry out this process safely and effectively.

What is token equity issuance?

Token equity issuance is a process whereby a company issues digital tokens representing shares or units of the company. These tokens are issued through an underlying technology, commonly blockchain, which ensures the security, immutability and transparency of transactions. The digital tokens are decentralised and stored in nodes on the blockchain.

What are its characteristics?

• Technological innovation: Equity token issuance leverages blockchain technology to create and manage digital assets in a decentralised manner, eliminating the need for traditional intermediaries. The blockchain ensures transparency, security and immutability of transactions, providing confidence to both issuers and investors.

• Token diversity: Issued tokens can represent a variety of rights to the company. In addition, there are different types of tokens, such as security tokens or utility tokens.

• Global Access to Finance: Token issuance allows companies to access a broader base of potential investors, who can participate in the token offering from anywhere in the world.

• Agility and Efficiency in Financing: The token issuance process is more agile and efficient compared to traditional funding methods. Transaction costs and times are reduced, as intermediaries are eliminated and processes are automated.

• Enhanced liquidity and tradability: Digital tokens are easily transferable and tradable on specialised exchange platforms. Buying and selling tokens on secondary markets is facilitated, allowing investors to diversify their portfolios and manage their risk more effectively.

• Flexibility and Adaptability: Token issuance offers flexibility in terms of structuring and design of the offer, allowing companies to tailor it to their specific needs.

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What is the process of issuing equity with tokens?

• Planning and Preparation

• • Assessment of the financing strategy: First, the company’s financial situation must be analysed, including its short, medium and long-term capital needs. Such planning involves an assessment of available financing alternatives and the identification of the specific objectives to be achieved through the issuance of tokens, such as financing product development, expanding the scope of the business or acquiring strategic assets.

• • Definition of objectives and terms: Clear and measurable goals for the token issuance should be established, including the amount of capital to be allocated to the token offering and the expected time period for the transaction. Furthermore, the terms and conditions of the offering should be determined, such as the price of the tokens, the percentage of ownership offered and the rights associated with the ownership of the tokens, considering important aspects such as the liquidity of the tokens, lock-up periods and transfer restrictions.

• • Strategic planning: It is important that a strategy is developed to promote the issuance of tokens and attract potential investors. To this end, the most appropriate distribution channels should be identified. Finally, it is important to have a detailed calendar with key dates for the issuance process.

• • Risk management and compliance: There are certain risks associated with the issuance of tokens that must be assessed, such as market volatility and applicable regulation. To mitigate these risks, internal control and risk management measures must be implemented to mitigate threats and ensure the security of the funds.

Issuing equity with tokens can be a powerful tool for the growth and financing of your startup, but it is crucial to approach it from a solid legal perspective. At ILP Abogados we are here to guide you through every step of the process.

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