Tokenized Limited Companies: Future Or Present?

Tokenization is one more technology that is driving the digital transformation of companies. According to the Tokenization Market report, B2B companies that adopted tokenization invested 1.9 trillion dollars in 2020, and the investment is expected to grow to 4.8 trillion in 2025. But what is tokenization? Is it possible to tokenize a limited company? In this post, we will tell you all the details.

What is tokenization?

Tokenization is the digital representation of something that can be physical or virtual. The clearest example is found in digital money (Bitcoins, Ethereum, etc.) that is used as a means of payment or as an investment. Still, there are many other things that can be tokenized, for example, debts, assets, works of art, businesses, real estate, and even people.

Tokenization is based on blockchain technology or a chain of blocks that provides security to the system and allows it to be decentralised; no bank or other entity controls it, which reduces transaction costs.

The word token is often associated with cryptocurrencies, but it is a broader term that refers to a unit of value issued by a private entity.

Effects of tokenization on companies

Tokenization is a technology that is being developed, so little by little the uses it can have will be seen. Currently, it is used for various purposes such as:

• Obtaining financing. Both the projects of startups and the launching of new products or services of already consolidated companies, in many cases, need financing since their resources are not enough. Tokenization means the possibility of finding new investors who can participate in various projects and diversify their investments.
• Market fully digital goods. Videos, digital artwork or other digital goods may be traded.
• Build customer loyalty. The use of tokenization allows interaction between businesses and their customers that helps build loyalty and attract more customers.
• Trade debt. Businesses that are in a difficult economic situation and do not obtain financing through the usual channels (bank financing, for example) can tokenize their debt to avoid the default of creditors.

The particularity of all these actions is that they are carried out without intermediaries and with a direct relationship between the companies that offer tokens and the people who demand them.

ICO (Initial Coin Offerings) and financing of business projects

To better understand the financing of business projects through tokens, it is necessary to remember that one of the most common ways of creating a project with several partners is the limited partnership. A limited company has a minimum share capital of 3,000 euros that is divided into shares owned by the partners. Initially, business projects need money and, sometimes, sources of financing such as bank loans or partner resources are not enough. That is where an ICO comes into play, which, in short, is a way of financing a business project.

Instead of looking for investors and offering its shares, the company offers virtual tokens or new cryptocurrencies. An example of this is the Brave browser. It is a browser that eliminates everything superfluous in navigation (ads, components that track, etc.) and guarantees safe browsing. Brave used a new way to find financing, created its cryptocurrency, BAT (Basic Attention Token) and sold 1 billion BATs for $ 35 million.

What advantages does the tokenization of a limited company bring?

The tokenization of a limited company can bring advantages such as the following:

• Efficiency and transparency. When the share capital of a limited company is tokenized, its efficiency and value are increased; in addition, clarity is provided in a way that generates confidence in investors and partners. On the other hand, as we said before, there are no intermediaries such as banks or brokers, which means eliminating expenses and making transactions cheaper.
• Simplicity in management. The digitisation of the government of the limited company supposes the reduction of conflicts between partners and the improvement of communication between administrators and partners.
• Ease of transmission. The transfer of securities is much simpler and has legal validity. Therefore, the entry and exit of partners are facilitated, as well as the possibility of obtaining liquidity for partners who need to sell their shares. Blockchain technology allows proving that the transaction has occurred and can serve as evidence in court.
• Carrying out operations from anywhere. The digital transformation has been accelerated by the pandemic due to COVID-19 and has meant that numerous processes have been digitised within all types of companies. Tokenization allows you to carry out operations with limited companies from anywhere, on any device and when needed.
• Traceability of transactions. The transactions that are carried out can be consulted, and backup copies are kept on various computers, which provides security, simplicity, and speed since the time spent in banking processes is eliminated with digitisation.
• Promotion of corporate social responsibility. The digital transformation that is promoted with tokenization also allows companies to develop corporate social responsibility because it avoids the use of paper, storage places and travel (with the energy consumption that they entail).

As a consequence of all the above, it is evident that the tokenization of limited companies and other companies, regardless of their size, provides competitive advantages in the creation of businesses and in the digital transformation of existing ones; it is a reality that will be developed in the future.

At ETL ILIA, we are specialists in the incorporation of companies, such as limited companies; we have created more than 1,500 limited companies, and we advise companies on investment rounds, capital increases, deeds of the constitution and all the alterations that may arise during the life of the company.