Security Token Offering Lawyers (Plus The Legal Structure of a Security)
As the cryptocurrency market continues to tokenize more securities, existing financial structures continue to get more and more complex, making it difficult for businesses to interpret and apply the information correctly.
This information gap has simply made it difficult for a lot of people to participate in this lucrative trade.
The thing is, sometimes it can be difficult to eliminate the role of a middleman in your fundraising activities. And some middle people, at times, end up making away with a huge chunk of your investment in the form of fees.
As much as it may sometimes be justifiable to spend a lot in pursuit of a better financial future, be sure to obtain the value for whatever you’re paying for, especially in crucial things such as legal matters.
A lot our readers have been experiencing challenges sourcing the right legal advice, and we thought we should put together a guide on some of the best security token offering lawyers to help point you to the right direction. And since we’re here, I also thought I should highlight the four main security token structures that all token issuers need to be aware of.
Structures of a Security Token
Tokenized VC Funds
These funds provide the holders of a token with a form of a certainty that’s meant to serve as their share of the fund. Each token issued will represent a share of the rights for an investor.
And when it comes to the sharing of profits, it can be done in a couple of ways. One such way can be through a direct or indirect buyback mechanism, which is when an investor exits or considers other investment options.
Unlike other types of funds, tokens are easily tradable and highly liquid – this means that an investor who wishes to recoup his or her investment won’t have to wait years before it materializes. In the US, it takes a maximum of 12 months for a security token to liquidate.
Moreover, investor funds can be allocated flexibly – for example, they can choose to disperse the capital through mutual funds, or through smaller capital disbursements.
Funds that have been tokenized are also subjected to some form of regulation under the Investment Company Act. The Act dictates that such funds be limited to only 99 US investors, and 2000 other investors from across the world.
A lot of people ask themselves whether they could issue tokens on the blockchain – but then, the question seems more theoretical than you may imagine. With Share-like tokens, investors can participate in the voting process of a company, receive a share of their profits, receive dividends, and much more during the lifetime of an entity.
In this mode of tokenization, the ownership of a company can be fractionalized, which means there can be a layered share of rights, greater liquidity, longer operating periods, and automated compliance among other things.
Despite there not being many tokenized debt facilities, there are a couple currently in the works. Just like bonds, debt tokens feature the promise of a future fixed income.
However, there are still uncertainties surrounding the issue of whether debt tokens can prevail over equity in terms of repayment, or if it can alter the accreditation requirements.
But despite these uncertainties, using a cryptocurrency bond enables users to bypass tedious registries and brokers such as banks or lending institutions, ultimately reducing the repayable amount and time.
These types of tokens are dependent on real-world assets such as land, art, or even property and equipment. Asset-backed tokens are common in real estate projects, as well as infrastructure related activities.
In addition, these tokens can also be issued in relation to fungible or non-fungible assets, and such assets may need an abstraction layer. Such layers group together related and unrelated assets, in the same way, a group of mortgages can be bundled together to form a security.
Two quick pros of asset-based tokens include the means to split large asset groups into smaller ones, as well as the ability to develop unique and well-diversified portfolios.
Well, there you have it. These are the core structures that a security token can take.
That said, let’s get into the next part of this post.
The Importance of Engaging an STO Lawyer
Like I mentioned earlier, it is normal for an average person to not know all that much about laws and regulations relating to a certain investment, especially if they are not a member of the bar. The same way, it’s totally normal to have a CEO of an IT company who knows not a single computer code. So, yes, at some point, we need to engage other experts for us to realize the full potential of our ideas.
For instance, in the video below, I watched a corporate lawyer speak about security tokens for less than 10 minutes and realized how a lot of people (myself included) overlook a lot of things that are covered under certain laws.
Here’s the video:
Well, that’s the law… But why are these knowledgeable friends so important to our tokenization journey?
The simple and straightforward answer is obvious; lawyers understand the law, and it is only fair to involve them where matters of law are involved.
But you already knew that…
Security token lawyers are trained to legally maneuver their way around the most complex of laws regarding security tokes – being a long process, it is easy to overlook certain key elements of the process that may end up being costly to your project.
These are the core areas that security token offering lawyers focus on:
- Legal compliance (locally and internationally)
- Structuring of an ICO or STO
- Advice on the most favorable jurisdiction for the project
- Token pricing
- Risk evaluation
Due to the complexity of these, you’ll certainly need to get the input of some of the most experienced professionals in the industry regarding your project.
And speaking of experienced professionals, I managed to compile a list of some of the most experienced STO lawyers in the crypto ecosystem. Take a look below:
Notable Security Token Offering Lawyers
James G. Gatto, Sheppard, Mullin, Richter & Hampton LLP
Deborah S. Thoren-Peden, Pillsbury Winthrop Shaw Pittman LLP
James A. Mercer III, Sheppard Mullin, Richter & Hampton LLP
Richard B. Levin, Polsinelli LLP
J. Dax Hansen, Perkins Coie LLP
Kyle Wood, Perkins Coie LLP
Margaret N. Rosenfeld, Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP
Michael McGrail, Cooley LLP
Grant P. Fondo, Goodwin Procter LLP
Pratin Vallabhaneni, White & Case LLP
Curtis L. Mo, DLA Piper
Heyward D. Armstrong, Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP
James J. Thompson, Sheppard Mullin, Richter & Hampton LLP
Adam T. Ettinger, FisherBroyles LLP
Charles A. Gelinas, Dentons
Patrick Murck, Cooley LLP
Robert H. Rosenblum, Wilson Sonsini Goodrich & Rosati
Marc Boiron, FisherBroyles LLP
There you have it!
You now have a wide variety of lawyers to choose from. Just make sure to review a law firm’s reputation prior to engaging them.
They Say a Good Lawyer Walks You To Success…
An attorney is meant to guide you through the process while also exposing you to the industry tricks (legally) to enable you to achieve better success.
Here are a few stages that an attorney may take you through to help you succeed in your tokenization journey:
- A good lawyer will analyze a security token with you to ensure that it is well-structured in terms of legal standards and industry requirements.
- If the structure of a token is not found to be of good standards, he/she should initiate the process or restructuring it accordingly, which will enable it to appeal to investors and other stakeholders.
- The lawyer should keenly evaluate the token’s smart contracts to ensure that every little detail of the contract is captured therein.
- Your lawyer should also draft all legal documents, including the placement of the memorandum and investment agreements.
- And finally, ensure that your lawyer crafts the know-your-customer policies and the STO support document as well.
The above can be considered as a checklist just to ensure that you’re getting value for the services you’re paying for.
As you can see from this post, security token offering lawyers can play a key role in the success of your token. It is not enough to simply have an idea and decide to tokenize it, other players are equally important.
As we come to a close, remember that it is every lawyer’s duty to help shape the law and not just react to it, so, don’t be shy to engage them. You’ll be surprised at how some would love to be a part of your history in the making while charging very low fees.
Until then, all the best in your search for an STO lawyer!