Security Tokens — What are my Rights?

San Francisco, CAAugust 20th, 2018

A key tenet of being a shareholder in a company is that a share gives you access to voting rights. Having access to a token in a company also gives people rights that are part of a “decentralized governance” structure. Unlike equity, these rights are unrelated to issues such as whether a company will accept an acquisition offer or whether a company will choose to overthrow its CEO. Utility token holders have traditionally been given rights to vote on more tactical decisions, such as which company will list its token an exchange such as Binance via the community vote.

I have spent most of my career in hedge funds and see activist takeovers all the time. Funds acquire minority or majority stakes in companies and sometimes take companies private in order to improve operations and financials from within.

This being said, once a company issues a security token offering, what is stopping outside parties from acquiring all of the security tokens outright of any given company? If this happens, what rights will this give to the firm or individual acquiring these security tokens?

On a separate note, will early-stage companies who wish to pursue security token offerings be disincentivized in launching with low hard caps in fear of a hostile activist acquiring all of their tokens?

What are your thoughts on the rights that should be associated with security tokens? What do you think will happen to a company issuing security tokens that can automatically be bought by external parties on the secondary markets?. Please let me know your thoughts in the comments below.

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Disclaimer: These opinions are solely my own and do not represent the opinions of Sharespost or any companies that I may advise or invest in.

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