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Estonia’s Limited Liability companies now possess the right to tokenize

Photo of: Dennis Ramos
by Dennis Ramos

Estonia has earned a reputation of being a ‘Blockchain country’ thanks to the mushrooming of some of the most promising blockchain start-ups and government-led policy to give adoption a boost. Estonia is currently a nation that can be emulated chiefly for the manner in which it has embraced the concept and now adding a feather to its cap, it has made a path-breaking amendment to a law concerning the share ownership transfers of limited liability companies (LLCs) that became effective August this year. 

It is now possible to transfer LLC share ownership through any means which can be reproduced in writing. Though a legal document will ensure more honesty in the proceedings, a company for instance can also transfer ownership of some of its shares to an investor through an email, a written letter, or even a text message. The new amendment to the law doesn’t directly say but it is also allowing for the Estonian LLCs to be tokenized. 

What needs to be noted is that this law is applicable only to LLCs that have a registered capital of at least 10,000 euros and have decided to forgo the notarization requirement in their articles of association. It is clear that cryptocurrency token transactions come under ownership transfers which can be reproduced in writing, and that the transfer of crypto tokens representing ownership of shares in LLCs is both legal and valid.

LLCs in Estonia now have the option to issue blockchain-based security tokens that can be utilized for borderless fundraising for easy ownership share transfer. It will also enhance transparency around LLC ownership.

There are two methods to be used to tokenize, one is to build a blockchain network in-house or use a third-party service provider. Companies wishing to build their own network blockchain to issue its own security token. The option opens doors for great customization efforts but will surely prove to be an expensive affair. Creating a blockchain also will not be an easy ball game as it is time-consuming. Choosing a team also can be a herculean task hence tokenizing on a third-party platform could be a much better option. 

Third-party token issuers will charge a fee to develop and launch tokens. If a firm launches ERC-20 tokens for its clients, those tokens can be traded on Decentralized Ethereum exchanges. Tokens issued by a third party can be traded exclusively within the company’s inherent system. Now that the law has been modified, tokenization is possible for Estonian LLCs, and companies can immediately take advantage. But the new scale of amendments will be applicable only to LLCs. 

The law states that an LLC’s shareholders register or cap table need not necessarily be kept with CSDs. They hold records of newly issued securities in the book-entry systems in addition to providing and maintaining security accounts for their customers.

The opportunity tokenization should be seized by Estonian LLCs as it can prove to be a catalyst in changing the standards of the industry. The companies have been given a golden opportunity to grant access to a global pool of capital with hitherto was not available.