Utilizing the Regulation D exemption is the most straightforward path to execute a Securities Token Offering and remain in compliance with Federal and State securities rules. Regulation D Resources, with a 20 year track record of executing securities offerings under the Regulation D exemption, provides comprehensive offering preparation services for STO issuers.
Our services for the preparation of an STO offering encompass what is provided in our standard offering preparation service with a few key differences:
Our Offering Preparation and Execution Service is a $7,000 flat fee. This includes development of all investment terms and token structure, Private Placement Memorandum and Subscription document development, SEC and State filing assistance, access to Regulation D Resources broker dealer community, Token marketing guidance and tactics, and full compliance support through execution of the Offering. For additional details on payment terms or to create an account and get started on offering preparation – please visit the “Engage” section of our website.
Regulation D Resources has affiliated with a third party managed STO platform that provides for the creation, management, and launch of the Tokens onto the genesis blockchain. This includes development of the associated token smart contract. There is no fee associated with using this platform for these base level token issuance and management services.
STO’s prepared through our firm are typically be paired with a traditional security. As an example, if the client is a corporation seeking to provide a fixed return to the Token annually – we will structure the offering to have a Token Series Preferred Share of stock sold that includes an attached Token. The fixed dividend payment will still be delivered to the Token via the blockchain – but the tax ramifications will be associated with the preferred share of stock. This is, in our opinion, best practice for avoiding any tax treatment issues that would be related to selling a Token as a standalone security.
Further, most of these offerings will have a minimum offering amount that will need to be reached for the offering to be declared a success. In creating the offering, our standard practice is to add a line item in the use of proceeds for any fees related to the Token creation and blockchain launch (which will only occur once you reach the minimum offering amount and have a viable offering). If the client uses our affiliated platform – they can execute the token launch without additional expense. Should the client decide to utilize a different platform that does have fees associated with the launch, we can line item those fees into the minimum offering amount and thus the client can use funds from the offering to cover the Token launch expenses. In using this method, we keep the out of pocket costs for the client at a minimal level and still achieve full execution of the Token offering and subsequent blockchain launch.
The process for development of an STO is very similar to the preparation of an offer of traditional securities. The offering terms and Token capitalization structure is developed, PPM disclosure documentation is developed, subscription and suitability documents are drafted and finalized, and the SEC filing is then submitted through EDGAR. The offering is then ready for execution and, when the offering reaches the minimum offering amount, the Tokens can then be launched onto the genesis blockchain for distribution to Token holder’s digital wallets. Most Tokens will use the ERC20 protocol standard.
Clients typically use the Regulation D 506(c) program to allow for general solicitation of the Token offering through social media channels and direct advertising.
Selling a Token provides the holder with a security that can be traded on the blockchain assuming the holder has owned the security token long enough to satisfy the Rule 144 restrictions and the sale is made in accordance with securities rules. Tokens can also have unique revenue sharing features, dividend features, and other investment terms assigned to them through the offering and managed through the associated Smart Contract. Further, Tokens can also have utility features that, for certain companies, may allow the holder to use the Token as payment within the company’s eco-system or allow it to be used to redeem services.