Blockchain utility o security token (Estonia)

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Iurisblockchain is working on a project related to the emission of a IEO (Initial Exchange Offering)

Under the Estonian legislation. Iurisblockchain is specialized in blockchain and new technologies.

We are expert lawyers and consultants in issuing ICO, IEO, STO in Estonia. We have headquarters in Tallinn, and qualified personnel.

 

Security or utility token

We are drawing up a report concerning the tokenization of the company, in order to determine the features of the token: utility or security.

Blockchain Spain. Blockchain Lawyer Spain.

 

Objective of the IEO

The company (our client) intends to raise fund from investors through an initial exchange offering of Token(s), for the sole and/or primary purpose(s) of, develop the blockchain proyect.

Blockchain Spain. Blockchain Lawyer Spain.

 

Rights associated with the tokens

The tokens only give the following and respective rights, entitlements and/or functions:

  1. Being “able to share in the profits” of the company in the way specified in the White Paper.
  2. Or being able to shop in the marketplace incorporated in the business model.
  3. And being able to exchange tokens for gift vouchers.
  4. If agreement is concluded, being able to use Tokens in Crypto to Fiat card systems in the VISA and MASTERCARD network.
  5. If agreement is concluded, being able to go to the exchange.

Blockchain Spain. Blockchain Lawyer Spain.

 

The Estonian Supervisory Authority regulatory position in relation to digital token offering(s) in Estonia

The Estonian Financial Supervisory Authority (EFSA) is of opinion that tokens in terms of the offerings, depending on their structure, might be considered as securities according to the definition set forth in the current Securities Market Act (SMA) as well as in the Law of Obligations Act (LOA).

In assessing whether or not securities laws apply, the EFSA states that substance should be considered over form.

 

Every ICO is unique and should be assessed on its own characteristics.

The EFSA explains that tokens which give investors certain rights

-in the issuer company or

-whose value is tied to the future profits or success of a business are likely to be considered securities in the meaning of § 2 of the SMA.

 

Therefore, the offering of such tokens may constitute as the issue of securities

And, depending on its exact nature, be governed by the rules that of public offering as prescribed in § 12 of the SMA.

That being the case, it is required to register a respective prospectus in the EFSA.

Blockchain Spain. Blockchain Lawyer Spain.

 

The EFSA notes that ICOs may also be governed by the Credit Institutions Act (CIA).

This might be in the case where the main activity of the business is to provide loans on its own name and account and such activity is being financed through the repayable funds received from the public in the form of an ICO.

Regarding trading cryptocurrencies, it is important to mark that according to the judgement of the Estonian Supreme Court RKHKo 3-3-1-75-15 (available in Estonian), trading Bitcoins as business activity corresponds to the provision of services of alternative means of payment.

This means that persons trading with virtual currencies in the course of their business activities may be considered to offer virtual currency services as provided in the Money Laundering and Terrorist Financing Prevention Act (MLTFPA) § 2 (1) points 10 and 11. Conclusively, the respective persons should apply for authorisation pursuant to MLTFPA § 70 (1) point 4 or 5.

To conclude with, the EFSA states that although a new technology is involved, and what is being sold is referred to as a token instead of a share or equity, a token may still qualify as a security as set forth in the Estonian legislation. Businesses should complete an analysis on whether a security is involved. Professional advice may be useful in making this determination[1].

This can happens if, for example, the tokens (being proprietary right, obligation or contract) can be transferred on the basis of an at least unilateral expression of will or if they provide voting or decision making rights in the issuer or give the investor a certain return expectation regarding their investment (e.g. a right to a part of the issuer’s profit, regular cash flows, or any other promise about future profit), regardless of whether the funds raised are repayable by maturity date or no maturity date exists (e.g. a perpetual bond)[2].

 

 Tokens are shares

If they grant their owners rights to a holding in the company, rights to a share of profit, or voting rights in corporate matters.

Blockchain Spain. Blockchain Lawyer Spain.

 

Under the Estonian Commercial Code (148 (5); 226)

Shares grant shareholders:

-the right to participate in the management of the company and in the distribution of profit and of remaining assets on dissolution of the company;

-Or the right to participate in the general meeting of shareholders, and

-other similar rights prescribed by law or other articles of association.

 

[1]https://www.fi.ee/en/investment/aktuaalsed-teemad-investeerimises/virtuaalraha-ico/legal-framework-initial-coin-offering-estonia

[2]https://www.fi.ee/en/investment/aktuaalsed-teemad-investeerimises/virtuaalraha-ico/information-entities-engaging-virtual-currencies-and-icos

Blockchain Spain. Blockchain Lawyer Spain.

Iurisblockchain is specialized in blockchain and new technologies.

We are expert lawyers and consultants in issuing ICO, IEO, STO in Estonia. We have headquarters in Tallinn, and qualified personnel.

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