Tokenizing private companies: what changes for business leaders
Securities recorded on a shared digital ledger: what it brings, what it does not change, and its limits.
“Tokenizing” a company does not create a new asset: it changes the way existing securities (shares, bonds) are recorded and exchanged. Shareholders' rights remain those set out in the articles of association and the shareholders' agreement — the technology does not replace them.
What it is
In France, since an ordinance of December 2017, unlisted financial securities can be recorded in a shared electronic recording system (a blockchain). Each security is represented there by a token linked to its owner, with the same legal status as a security recorded in a conventional account.
What it can bring a company
- Online subscription: investors subscribe without any exchange of paper documents, from KYC to signature.
- A register kept up to date automatically: every movement of securities is recorded in it, with no manual re-entry.
- Smaller tickets: the company can open its capital to its customers, partners or employees, and not only to a handful of institutional investors.
- A way to resell: holders can offer their securities on a dedicated marketplace, without waiting for the company to be sold.
What it does not change
- The company's risk: a tokenized security loses its value if the company fails, exactly like a conventional one.
- Legal obligations: capital increases, shareholder information and public offering rules remain the same.
- The need for a solid file: investors examine the company, not the technology that carries the security.
The limits to be aware of
- Liquidity is not a given: a holder can only resell if they find a buyer at the asking price, even on a marketplace.
- A larger number of shareholders calls for regular communication and suitable governance (shareholders' agreement, voting rights set out from the start).
- Not every investor is familiar with the format: plan to explain it simply, on one page, rather than assuming that the word “tokenization” is reassuring enough.
Coin District enables private companies to open their capital to a community of investors, with online subscription; a marketplace for the securities has been announced. As with any raise, each deal presents its own risks to investors, detailed case by case.