GmbH tokens (profit participation rights) create economic equality between token holders and "real" shareholders, though without voting rights.
Token holders have the right to participate in the economic success of your start-up in the form of profit participation rights. This includes exit proceeds, liquidation proceeds and distributed dividends.
These features make GmbH tokens economically equivalent to real company shares. Token holders also receive a limited right to information through annual reports from the founders.
A key legal feature of the GmbH token is the put option, which allows investors to return their tokens to your company at specified times. You retain control over how these returned tokens are settled. This is covered in detail in the "Put option" section.
For managing directors, the combination of profit participation right, information right and put option offers an attractive investment vehicle that matches the economic value of real GmbH shares but does not include voting rights.
Unlike traditional GmbH shares, these tokens eliminate the need for notary visits, saving time and money. They can be transferred easily between wallets, making them tradable in ways traditional shares cannot be.
Tokens and rights are connected through investment contracts and a so-called "public award". An public award is a unilateral legal transaction under § 657 of the German Civil Code (BGB), representing a public promise of reward for specific actions.
Your company publishes this promise (typically on your website), ensuring that all tokens carry identical rights. This guarantees secondary market investors that previously purchased tokens were legally transferred. The award is fulfilled either by holding tokens or signing transactions as a token holder in the web app.
For your company, GmbH tokens are classified as equity in commercial accounting and as debt for tax purposes. They are not subject to VAT.
You can find more information on the tax treatment of GmbH tokens in our Tax Primer (available on request).
For investors, GmbH tokens are comparable to GmbH shares for tax purposes. Please note that Tokenize.it does not provide legal or tax advice, and this document does not constitute legal or tax advice. For specific legal and tax questions, we recommend consulting lawyers or tax advisors. If required, we will be happy to put you in touch with the experts who designed the legal and tax structure with us.
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