In my previous article, I went through some possible legal frameworks to run an STO in the US and Europe. Now let's dig into the preparation of your security.
What is a security?
As I mentioned in the first part of that series, a security is a financial asset that can be debt, equity, or even derivatives.
It is time to chose what you want to tokenize. For the rest of the article, I am going to use the example of Exordium. The company with we are currently running an STO.
What is our security?
Our security offers two advantages to the holders. One is a share of 20% of the annual net income of the company. Another one is a share of 100% of the company's equity.
How to decide what amount of annual net income you should payout? In traditional finance, these are called dividend payout ratio. And on average among the S&P500 companies in the recent years, it was around 30%. For small and growth companies, it can go as low as about 10%. So I would recommend you pick a value between 10% and 30% by taking into consideration the risks it can bring to your growth.
Regarding equity, you can notice that we are distributing the entire equity of the company to the security holders. To do that, we had to change our articles of association. This document is the constitution of a corporation and defines how a company is governed. It states also the roles of the directors, shareholders, etc.
What did we edit in our articles of association?
In order to give 100% of our equity to the security holders, we first redefined our stocks. From a unique class of stocks, we switched to two classes. One for the voting shares and only. Those shareholders will appoint the board of directors. And another one for the combination of the equity and the 20% share of the net income. Hence our security is matching one to one of this second class of stocks.
You don't have to distribute 100% of your equity, it is really up to you and how much you want to offer to your security holders.
Again this is something you need to run by legal counsel to make sure you are complying with your jurisdiction. After that, your corporation should be ready to start with one or multiple of the legal framework presented in the previous article of the series.
In a future article, I will go through the last technical part of running an STO.
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