Tokenize.it uses digital tokens to represent stakes in your company in the form of contractual "participation rights" on the Ethereum and Gnosis blockchains (the latter only for public fundraising/crowdinvesting). This makes it easier for all types of investors—VCs, business angels, and retail investors—to invest in your company, enabling broader participation in startups.
Since this solution was specifically designed for German/Austrian companies in the legal form of GmbH/UG (UG available in Germany only), we call this type of token a "GmbH token".
Tokens are digital units created on a blockchain that grant specific rights to their holders. GmbH tokens leverage blockchain technology to be unique and tamper-proof, making them perfect for representing participation rights in company shares. They can be easily transferred between digital wallets, significantly improving their tradability compared to traditional shares.
The GmbH tokens are minted through smart contracts we provide and follow the ERC20 standard, ensuring compatibility with virtually all wallets in the Ethereum ecosystem. All our smart contracts are open source and audited by blockchain security specialists.
Beyond their technical aspects, GmbH tokens have special legal features that place token holders on equal economic footing with "real" shareholders.
Token holders can participate in your startup's economic success, including exit proceeds, liquidation proceeds and distributed dividends. This makes GmbH tokens economically comparable to real company shares. Token holders also receive a limited right to information, fulfilled through annual reports.
A crucial legal component is the put option, allowing investors to return their GmbH tokens to your company at specified times. You retain control over how these returned tokens are settled.
The combination of profit participation right, information right and put option offers managing directors an attractive investment alternative that carries the same economic value as traditional GmbH shares, but does not include voting rights.
Unlike traditional GmbH shares, you save time and money by avoiding notary visits. The easy wallet-to-wallet transfer system makes these tokens tradable in ways traditional shares cannot match.
Tokens and rights are linked through investment contracts provided and a so-called "public award". A public award is a unilateral legal transaction under Section 657 of the German Civil Code (BGB)—a public promise of reward for specific actions. Your company publishes this promise (typically on your website), ensuring that all tokens carry identical rights and that secondary market investors need not worry about the legal validity of previous transfers. The public award is activated either by simply holding tokens or by signing transactions as a token holder in the web app.
From your company's perspective, GmbH tokens are treated as equity for commercial accounting purposes and as debt for tax accounting purposes. No VAT applies.
You can find more information on the tax treatment of GmbH tokens in our Tax Primer (available on request).
For tax purposes, investors can treat GmbH tokens as comparable to GmbH shares. However, please note that Tokenize.it does not provide legal or tax advice, and this document should not be considered as such. We recommend consulting lawyers or tax advisors for specific questions. We're happy to connect you with the experts who helped design our legal and tax structure.
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Comparison with convertible loan & classic capital increase
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