GmbH token: The new standard for investments
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The limited liability company, or GmbH (in German) for short, is the flagship of German company law and by far the most widespread form of corporation in Germany. And it is not only popular in Germany. There are similar forms of GmbH in most countries around the world. In the UK, for example, there is the Limited Company (Ltd.), the predecessor of the German GmbH, which was founded in 1600, or the Société à Responsabilité Limitée (SARL) in France, the Dutch Besloten Vennootschap (B.V.) or the Limited Liability Company (LLC) in the USA.
Key facts:
- Investments in German GmbHs are slow, expensive and inflexible.
- Possible forms of participation in a GmbH are: Capital increase, convertible loans, crowdinvesting via subordinated loans or ESOP and VSOP programs (employee participation).
- The GmbH token offers a fast, cost-effective and flexible alternative to traditional forms of participation. Whether private offer, employee participation or public offer (Crowdinvesting).
GmbH investments at a glance
In order to understand the advantages of the GmbH token, we will first look at the existing options for investing in German GmbHs.
We will focus on the capital increase and convertible loans, the participation of crowd investors via participatory subordinated loans and the participation of employees via ESOP and VSOP programs.
Let's take a closer look at the different forms of company participation below.
Capital increase & convertible loans
The capital increase and the associated entry as a shareholder in the commercial register is often carried out for private offers or private investments. A private investment usually means that either a private individual (business angel, friends, family) or an investment company (VC) invests in a startup. Private offers or private investments are one of the most important resources for young startups to obtain new capital and thus extend their runway.
This form of company investment is time-consuming and cost-intensive due to the notarization requirement. In addition, there are complicated and expensive individual shareholder agreements that are drafted by lawyers, which significantly increases the expense. In addition, as a shareholder, you are jointly responsible for the company and liable with the share capital that you contribute.
Due to the hurdles associated with a traditional capital increase, faster convertible loans have become established.
Investors initially make a loan to the startup and in return receive interest on their loaned money and the option to convert their investment into real company shares at a later date, i.e. to become a shareholder.
This saves time and money at the beginning of the company investment, as no company valuation has to be carried out and no notarization is required. However, if the loan is converted at a later date, a notary appointment and a company valuation are still required.
ESOP & VSOP
Another important form of company participation for founders is employee participation. It helps to find talented people, retain them in the company in the long term and motivate them. A good and motivated team is essential for startups to be successful and convince investors.
Two established forms of employee participation are ESOP and VSOP- programs. Both aim to incentivize employees over a predefined period of time.
The ESOP uses real company shares, which employees can usually claim after a certain period of time. This in turn leads to the employees being entered in the commercial register as shareholders, which causes notary costs and entails a lot of responsibility that the employees may not even want. In addition, taxes may be due from the time the option is exercised (dry income). ESOPs are often only worthwhile for employees in management positions who already have experience as shareholders.
VSOPs are an alternative. VSOPs use so-called virtual shares, which are not real company shares. They merely imitate them and are nothing more than a contract under the law of obligations that grants employees a right to payment as if they owned real shares. They are therefore not registered in the commercial register and have no problem with "dry income". However, the participation opportunities are also limited here, as they generally only receive their payment entitlement upon exit. Employees generally do not receive any dividends between the start of the participation program and the exit, nor do they have the opportunity to transfer their virtual shares.
Participatory subordinated loans (crowdinvesting)
Crowdinvesting is another interesting form of investment for limited liability companies. This form of investment has the advantage that the minimum investment is very low, so that many small investors can participate. In addition to raising capital, it can directly build a community that can provide valuable feedback.
The participating subordinated loan is a popular form of investment for public offers (crowdinvesting).
Small investors use the profit-participating subordinated loan to participate in the startup as creditors. It works like a classical loan, but unlike a classical loan, the investors do not receive a fixed interest rate for their loan, but a profit-related interest rate.
If the company makes a large profit, the interest rate on the loan will be higher; if it makes a small profit, the interest rate will be lower.
In recent years, various platforms have established themselves that specialize exclusively in crowdinvesting. These platforms often provide the contractual framework and support for the crowdinvesting campaign. There may be different fees for using these platforms. A percentage of the investment amount is often used, but fixed fees such as setup fees are also common. Crowdinvesting platforms often have a so-called threshold. This means that a certain goal is set as the minimum investment amount for the campaign. If this amount is not reached, the funds raised up to that point are returned to the investors.
The GmbH token
The GmbH token enables all the above-mentioned target groups (friends, family, business angels, VCs, retail investors and employees) to participate via one asset.
Whether private offer, employee participation or public offer (crowdinvesting), the GmbH token can realize everything in combination with our standard contracts and our platform in a cost-effective, fast and flexible way.
With the GmbH token, the days of lengthy financing rounds and expensive notary appointments are over. Founders can continuously raise capital or involve employees - completely digitally and with just a few clicks.
In addition, the GmbH tokens can be easily transferred due to their technical properties, which makes the company participation tradable.
What is the GmbH token?
The GmbH token is a digital representation of company shares in the form of contractual profit participation rights. Since Tokenize.it has developed this concept exclusively for German companies in the legal form of a GmbH, we call this type of token "GmbH-Token".
What are tokens?
Tokens are digital units that are stored in a blockchain. A blockchain is a tamper-proof data structure. In the context of GmbH tokens, it can be understood as a digital commercial register that securely documents the shareholding structures. Once an entry has been made, it is unalterable and cannot be falsified by anyone.
What are profit participation rights?
Profit participation rights in limited liability companies are a flexible form of financing that grants investors the right to participate in the economics success of the startup without giving them voting rights or co-determination rights. These economical rights include, dividends, liquidation proceeds and exit participation. The GmbH token digitally maps these rights on a blockchain, creating digital ownership structures and enabling the tradability of company shares.
To summarize: GmbH tokens represent digital participation rights and thus enable a particularly fast and flexible form of company participation. We want to make it easier for investors (friends, family, small investors, business angels, VCs) to invest in your company and thus enable everyone to participate in startups.
The following summarizes the legal and technical features of the GmbH token.
Legal functionality:
The GmbH token grants its holders certain rights, making GmbH tokens economically equivalent to GmbH shares.
- Right to participate in economic success, such as exit proceeds, liquidation proceeds, dividends.
- Limited right to information for token holders (access to the annual financial statements).
In addition to these basic rights, there is a so-called put option, which includes the following:
- Right for investors to return GmbH tokens to the company at certain times (once per quarter).
- The company decides on the type of payout, either in euros at the current market value or through an offer of shares.
These rights must of course be secured with every transfer of the GmbH token. This legal security is guaranteed as follows:
- Standardized investment contracts and a public reward (in German: “Auslobung”) connect tokens and rights.
The standardized contract templates are made available via our platform and were created in collaboration with established legal experts.
Technical functionality:
We use blockchain technology for the technical implementation of GmbH tokens. This ensures their transferability and immutability. For the private offer and employee participation, we use the Ethereum blockchain. For crowdinvesting, the Gnosis blockchain.
Creation and standardization of GmbH tokens:
- Creation of GmbH tokens through smart contracts ("minting").
- Based on the ERC20 standard.
- Compatible with almost all wallets in the Ethereum ecosystem.
To ensure security and transparency, all smart contracts have been audited by auditors specializing in blockchain applications. In addition, all our smart contracts are open source.
What does Tokenize.it offer you?
With our platform, you can create your own GmbH tokens and issue them to investors and employees.
Our platform offers you:
- Creation of private offers, employee participation programs and public offers (crowdinvesting).
- A GmbH token that can be used for all of the above use cases.
- Standardized set of contracts.
- Quick and easy onboarding (Google login) for founders, investors and employees.
- Clear dashboard for the management of GmbH tokens
If you would like to find out more about GmbH tokens and our products, please visit our website.
You are also welcome to ask us your questions personally via our contact form. We look forward to your inquiry!
Published on
July 16, 2024
