The information below is an opinion piece and should not be construed as legal advice. Please contact an Security Tokens Attorney for a full legal opinion. The information is based exclusively on USA regulations.
STOs Conducted Under Exemptions:
With careful review STOs can be structured under one of the following exemptions from registration offered by the US Securities Act.
- Regulation A+
- Regulation D
- Regulation S
- Regulation CF
It should be noted that even if the issuance of the token is exempted from needing to be registered with the SEC, in order to qualify for this exemption the STO needs to be performed with full compliance of US securities laws.
What are these exemptions exactly?
- Raise up to $50 million in a 12-month period using a “public solicitation” of its shares and have the offering be exempt from SEC and state securities law registration.
- Confidentially submit its offering memorandum to the SEC and enjoy the opportunity to “test the waters” before pursuing a mini-IPO/STO.
- Enjoy a streamlined, expedited review process where the company is required to make its offering memorandum public just 21 days before SEC qualification and the beginning of its roadshow.
- Combine public funding (through Reg A+) with private funds from venture capitalists to create a larger round of fundraising.
Rule 504 of Regulation D exempts from registration the offer and sale of up to $5 million of securities in a 12-month period. A company is required to file a notice with the Commission on Form D within 15 days after the first sale of securities in the offering. In addition, a company must comply with state securities laws and regulations in the states in which securities are offered or sold.
The following companies are not eligible to use Rule 504: Exchange Act reporting companies; investment companies; companies that have no specific business plan or have indicated their business plan is to engage in a merger or acquisition with an unidentified company or companies; and companies that are disqualified under Rule 504’s “bad actor” disqualification provisions.
This regulation implies that STOs must “lock” tokens for a year before trading can commence.
The SEC has written”“Equity securities placed offshore by domestic issuers under Regulation S will be classified as “restricted securities” within the meaning of Rule 144, so that resales without registration or an exemption from registration will be restricted for a one-year period.”
Attorneys are interpreting this statement differently, and you should consult a legal professional.
This is adequate for smaller raises, but may not be adequate for larger raises.
In order to rely on the Regulation Crowdfunding exemption, certain requirements must be met. This includes a maximum offering amount of $1,070,000.
A company issuing securities in reliance on Regulation Crowdfunding (an “issuer”) is permitted to raise a maximum aggregate amount of $1,070,000 in a 12-month period. In determining the amount that may be sold in a particular offering, an issuer should count:
- the amount it has already sold (including amounts sold by entities controlled by, or under common control with, the issuer, as well as any amounts sold by any predecessor of the issuer) in reliance on Regulation Crowdfunding during the 12-month period preceding the expected date of sale, plus
- the amount the issuer intends to raise in reliance on Regulation Crowdfunding in this offering.
An issuer does not aggregate amounts sold in other exempt (non-crowdfunding) offerings during the preceding 12-month period for purposes of determining the amount that may be sold in a particular Regulation Crowdfunding offering.
Investors are subject to the following limits:
Individual investors are limited in the amounts they are allowed to invest in all Regulation Crowdfunding offerings over the course of a 12-month period:
- If either of an investor’s annual income or net worth is less than $107,000, then the investor’s investment limit is the greater of:
- $2,200 or
- 5 percent of the lesser of the investor’s annual income or net worth.
- If both annual income and net worth are equal to or more than $107,000, then the investor’s limit is 10 percent of the lesser of their annual income or net worth.
- During the 12-month period, the aggregate amount of securities sold to an investor through all Regulation Crowdfunding offerings may not exceed $107,000, regardless of the investor’s annual income or net worth.
Spouses are allowed to calculate their net worth and annual income jointly. This chart illustrates a few examples of the investment limits:
Greater of $2,200 or 5% of $30,000 ($1,500)
Greater of $2,200 or 5% of $80,000 ($4,000)
10% of $107,000 ($10,700)
10% of $200,000 ($20,000)
10% of $1,200,000 ($120,000), subject to $107,000 cap
While this breakdown may offer some clarity on the subject, as can be seen SEC regulations are complicated and it is important to hire a legal professional. The information on this page is for entertainment purposes only and is not meant to be construed as legal advice.
Should you choose to launch an STO you may choose to fall under one of the above exemptions, or structure your STO in a different legally compliant way.
Below is a list of companies that are currently assisting with this process:
|BX3 Capital||www.bx3.io||261 Madison Avenue New York, NY 10016|
The Nu+ Company – Sustainability with Chocolate and Trees
Not every STO needs to revolve around a billion dollar tokenization. One of the draws towards the digital securities sector is the ability to open capital generation opportunities for companies of all sizes. A young start-up has recognized the potential benefits they stand to experience by turning to this new way of raising capital.
The Nu+ Company, a German company with a focus on healthy and sustainable food practices, have announced their intent to raise funds through tokenization platform, NeuFund. The company specializes in their line of chocolate bars, which tout unique characteristics.
While full details of their anticipated raise have not yet been divulged, the company has made their pitch deck available for interested parties to peruse.
As this capital generation event is being structured as a security token offering within Liechtenstein, strict compliance measures will most likely be put in place. This means access to accredited investors only, along with typical AML & KYC practices – although, as stated, structuring of the event has yet to be confirmed.
A large part of the appeal behind a company such as The Nu+ Company, is the ideology which drives them. This fact is not uncommon in many companies which have sought out the benefits of blockchain. As the technology has the ability to afford ease of access to capital – while driving new levels of efficiency in many company operations – tokenization through Neufund is right up The Nu+ Company’s alley.
Another example of a company utilizing blockchain, in a means of attaining their goals for bettering our impact on the earth, is Almond. This London based start-up has developed an intuitive app, designed to incentivize sustainable purchasing habits. Much like The Nu+ Company, Almond will plant trees to offset carbon footprints, based on user activity. Make sure to check out the following articles to learn more about how Almond intends on affecting change.
Health Conscious Chocolate
The Nu+ Company has developed various chocolate bars, to date. These products were designed with the health of both, the environment and the human body, in mind. They are vegan, nutrient rich, and touted to contain 65% less sugar than a traditional a chocolate bar.
Currently, The Nu+ Company has a product line with three flagship products.
- nucao white
- Small on the surface, big change underneath
To date, these products have totaled over 1.5million sold, resulting in over €2 million in revenue last year.
The Nu+ Company is more than just their product. While their chocolate has been engineered with health and sustainability in mind, the team did not stop there. What is the point of developing such a product, only to package the chocolate in a traditional fashion?, ie. plastic.
This led the team to recently establishing a deal with a company called Futamura. In doing so, The Nu+ Company will make use of a Futamura product called ‘NatureFlex’. This is a new form of packaging, which has the potential to replace plastic. The following are a few key traits of what NatureFlex has to offer.
The aforementioned ideology, which drives The Nu+ Company, is not simply for show. The team behind the project fully intend to act on their idea of sustainability. This is most evident in their promise to do their part in re-establishing forestry within the island nation of Madagascar.
The promise, on behalf of The Nu+ Company, is that for every bar sold, the company will fund the planting of one tree. More specifically, they will plant mangrove trees – known for their ability to consume high levels of CO2.
Madagascar is like no other place on Earth, and has captivated humans for decades, due to the unique wildlife found within its forests. Unfortunately, it is believed that roughly 97% of dry forests in the country have been decimated – primarily due to human activity. For those that subscribe to Netflix, an original production was produced under the title ‘Our Planet’. There is an illuminating episode found in this series, discussing the scope of this issue, which continues to plague Madagascar.
While the team at The Nu+ Company numbers over 40, including advisors, it is the vision of a trio of cofounders which got the company off the ground.
Each of these individuals boast degrees in Industrial Engineering – a profession typically based on maximizing the efficiency of systems and products. This is something that should serve the team well, as this start-up looks to really get off the ground.
Looking At You
The Nu+ Company is in the fortunate position of following up another recently successful campaign, hosted through Neufund. GreyP is a Croatian tech company, set on transforming the mobility sector, with an influx of ‘smart features’. They also held their STO in Liechtenstein, much like the upcoming STO discussed here today. Their process and experiences should act as a rough blueprint, moving forward, for The Nu+ Company, as they look to replicate the success of GreyP.
Swiss Regulators Approve First Tokenized Incorporation – Overfuture
This week marks another important first for the EU security token sector after the Swiss IT solutions and industrial systems provider, Overfuture received final approval from regulators to list its articles of incorporation on a public blockchain. The news marks the first time a company received approval to carry out such a task in Switzerland. As such, the approval marks an important milestone for the entire Swiss blockchain community.
News first broke of the approval via a press release from the STO advisory firm Andriotto Financial Services. In the release, the firm explained in detail some of the attributes of the plan. The report stated that Overfuture will tokenize their Initial Public Offering (IPO) in order to offer investors access to tokenized class A shares.
In the report, Andriotto Financial Services called the accomplishment a “huge revolution for the financial industry.” Importantly, the report explains why allowing firms to launch an IPO and coordinate secondary market transactions without the use of banks is a game-changer. For example, a traditional IPO requires the use of multiple financial intermediaries. These firms can include broker-dealers, central depositary systems, notaries, and investment managers, just to name a few.
Removing these third-parties from the equation brings about some serious benefits. For one, it lowers the overall cost of conducting business. Additionally, it reduces the friction encountered by both firms and investors looking to participate in public crowdfunding strategies.
Overfuture Strategic Partnerships
In order to make the Overfuture IPO a reality, the firm made a number of strategic partnerships. For its part, the Swiss-based European Digital Assets Exchange, EURO DAXX programmed the smart contracts that ensure each share remains compliant throughout its lifecycle. Smart contracts remove the need for multiple third-parties because the regulatory compliance mechanisms become part of the token’s core protocol.
Andriotto Financial Services provided the necessary financial advice surrounding the entire project. Andriotto is well-known in the space as a financial service advisory. The decision to utilize the firm definitely expedited the project. Additionally, Andriotto Financial Services ensured full compliance with Swiss regulations.
Two Audit Firms – Overfuture
As a regulatory compliant tokenized IPO, Overfuture decided on the use of dual auditing firms. The firm hired Swiss-based auditors, PKF Certifica SA, as well as, Studio Mariotti & Capelleti. The latter is an Italian auditing firm that has been in operation since 2011.
According to Overfuture’s investor prospectus, the firm intends to offer a total of 8,399,000 common equity shares. Importantly, these tokenized shares will live on the Ethereum blockchain. Ethereum-based tokenization protocols are by far the most popular standards in use today in the sector. Notably, each share will cost €1.25 ($1.38). Notably, the IPO is only available to Non-US residents.
Overfuture Looks Bright
Overfuture is an IT solutions and industrial systems provider. The firm provides advanced systems to large enterprises globally. As such, the company remains on the cutting edge of information tech and innovative technologies. Given the company’s network, timing, and technical know-how, you can expect to see the Overfuture IPO go off without a hitch.
MEDsis Partner WTIA to Launch Kfinancial
The next-generation blockchain financial platform, MEDsis International announced a strategic partnership with Korean-based WTIA this week. The partnership is part of a broader strategy focused on the launch of the highly-anticipated Kfinancial platform. Importantly, the launch is set to coincide with the company’s upcoming STO.
The partnership and expansion strategy carried out by MEDsis isn’t a complete surprise. The firm announced plans for such a deal way back in December 2018. In the announcement, the company expressed a desire to develop a custom blockchain. In the end, the company decided it was more cost-effective and an overall better approach to partner with the WTIA Korean blockchain to accomplish its tasks.
Interestingly, the partnership strategy continues to take shape. Company officials stated that contracts, financials, strategies, pilot program results, funding, and strategic partnerships will continue to see expansion as the program develops. According to company officials, all of this information will become publicly available through the upcoming KFinancial White Paper.
Discussing the new strategy, Joshua Dax Cabrera, CEO of MEDsis spoke on the years of planning the firm has put into the expansion. The new partnership will provide unprecedented reach for the MEDsis platform moving forward. Cabrera explained that the new approach brings MEDsis’ global payment opportunities to the masses. Additionally, he touched on how the maneuver strengthens the firm’s current partnerships as well.
MEDsis – KFinancial White Paper
The release of the new joint White Paper associated with the STO will shed some light on the project moving forward. For its part, KFinancial will become the stand-alone payments and fintech division of the new joint venture company KFIN WTIA PTE. The new firm will operate out of Singapore. Importantly, Singapore is one of the most blockchain-friendly countries in the world currently.
Billions in Revenue
The merger will bring investors and token holders the direct rights to more than $3 billion in projected revenue. Uniquely, the STO will assign revenue and not equity toward the STO. In this way, investors receive direct access to revenues without previously anticipated equity dilution.
Discussing the merger, WTIA Chairman Keun Kim, explained the motivation behind the decision to partner with WTIA. Kim described the immense benefits obtained through the merger. He explained that the new platform brings the partnership to the world. Additionally, this new level of market confidence will help to further security token adoption globally. He ended his interview discussing the importance of job creation in the markets the firm intends to expand into first. These markets include “Argentina, Brazil, and beyond.”
A Company on the Move
The MEDsis payments ecosystem gained strong positioning in its perspective markets with this latest maneuver. The decision by company executives to focus on the underserved Latin American markets could prove to be pivotal in the space. For now, MEDsis prepares to see their products and services go global as the firm’s STO is set for a May 1, 2020 launch date.