Tokenize.it uses virtual shares to represent stakes in your company in the form of contractual "participation rights" on the Ethereum and Gnosis blockchain (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.

Technical functionality

Virtual shares are digital units created on a blockchain that grant specific rights to their holders. Virtual shares 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 virtual shares 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.

Legal functionality

Beyond their technical aspects, virtual shares have special legal features that place their holders on equal economic footing with "real" shareholders.

Virtual shareholders can participate in your startup's economic success, including exit proceeds, liquidation proceeds and distributed dividends. This makes virtual shares economically comparable to real company shares. Their 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 virtual shares to your company at specified times. You retain control over how these returned virtual shares 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 virtual shares tradable in ways that traditional shares cannot match.

Virtual shares 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 virtual shares 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 virtual shares or by signing transactions in the web app.

Legal & Tax Information

From your company's perspective, virtual shares 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 virtual shares in our Tax Primer (available on request).

For tax purposes, investors can treat virtual shares 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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Next chapter:

Comparison with convertible loan & classic capital increase

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