Equity Tokenization

Definition

Equity tokenization represents shares in a company as transfer-restricted tokens. The register is the cap table, and the rights attached — voting, dividends, pre-emption, liquidation preference — are properties of the share class rather than of the token format.

What it solves

1. Cap tables that driftMost private cap tables live in a spreadsheet that disagrees with the share register and the option ledger. One register removes the disagreement.
2. Secondary transfer frictionPrivate share transfers involve consent, pre-emption waivers and paperwork. Encoding the constraints makes the process legible even when it stays deliberately slow.
3. Shareholder communicationKnowing exactly who holds what today is the precondition for a vote or a dividend.

How it works

1. Classes are definedOrdinary, preferred and any bespoke class, each with its rights recorded.
2. Shares are issued to the registerIssuance is a movement, and the register is the authoritative cap table.
3. Corporate actions adjust itSplits, consolidations and buybacks are planned, approved and applied to every position at once.
4. Dividends pay holders of recordDeclared, computed against the record-date register, and paid per holder.

Architecture

A register with per-class positions, a corporate-action engine that plans a unit adjustment before applying it and refuses any ratio that would not divide a holding exactly, and a distribution engine for dividends.

Tokenization lifecycle

1. Incorporate and structureCompany, classes, articles and shareholder agreement.
2. IssueFounders, investors and any employee scheme.
3. Corporate actionsSplits, consolidations, buybacks, new rounds.
4. Distributions and votesDividends where declared; governance where the class carries it.
5. ExitSale, listing or wind-down.

Supported token model

Permissioned fungible token, one series per share class. Shares within a class are interchangeable; across classes they carry different rights and must not be pooled. Transfers depend on the recipient and often on consent, so on-chain restriction is required.

Asset requirements

What must be true before this can responsibly be tokenized at all.

• Articles and a shareholder agreement consistent with a tokenized register.
• Company-law recognition of the register format in the jurisdiction of incorporation.
• Clear treatment of pre-emption and consent on transfer.
• A plan for employee options and any convertible instruments.

Compliance considerations

• Share issuance and transfer are governed by company law as well as securities law, and the two do not always align.
• Pre-emption rights must be honoured mechanically or waived explicitly.
• Shareholder registers carry statutory obligations that the platform records rather than replaces.

Investor workflow

• Verify and be approved as a shareholder.
• Subscribe in a round and fund by reference.
• Hold; vote where the class permits; receive dividends where declared.
• Transfer subject to consent and pre-emption.

Issuer workflow

• Define classes and rights.
• Run rounds as offerings with allocation.
• Maintain the register through corporate actions.
• Declare and pay dividends; run votes.

Payments

Dividend pools are funded by the company, recognised as a payable to holders alongside any withholding, and paid per holder. Subscription money in a round is held as an investor liability until the round allocates.

Lifecycle servicing

Equity servicing is dominated by corporate actions. A split or consolidation rewrites every position at once, so it is planned against the record-date register, hashed into the approval, and re-checked at execution — a position that has moved since invalidates it.

Secondary transfer

Private equity transfers are deliberately constrained. Consent, pre-emption and eligibility are all expressible, and the register records the transfer only when it is confirmed.

Risks

Named plainly. An instrument whose risks are only in a footnote has been mis-sold before it has been issued.

1. DilutionLater rounds dilute earlier holders, and the mechanics must be understood before subscribing rather than after.
2. Illiquidity and minority positionA minority stake in a private company may never be saleable at any price.
3. GovernanceA class without votes has no say in outcomes that determine its value.
4. Fractional entitlementsA corporate action that does not divide a holding exactly leaves fractions, which must be paid out rather than truncated away.

How we support it

• A cap table computed in integer basis points and truncated, because a percentage held as a float and summed across a thousand holders does not reach 100.
• Unit adjustments refused outright where the ratio would not divide some holding exactly, naming the holders it fails on.
• Ownership positions rebuilt from movement history and checked against the running totals.

Questions

Next steps

Bring an instrument you are actually considering. Structuring something real is the only way to judge whether the model fits.