Business Equity Sale Model
The Business Equity Sale Model enables an issuer to sell a fractional stake in their business by issuing security tokens representing equity ownership. This approach allows businesses to raise capital from investors without taking on debt while providing investors with a share of profits, dividends, or future appreciation.
Tokenization follows the same principles as traditional stock offerings but enhances accessibility through fractional ownership, global investor participation, and blockchain-based transparency.
Use Case Examples
Growth-Stage Startup – A tech company tokenizes 15% of its equity to raise expansion capital from global investors without diluting existing shareholder control.
Established Business Seeking Liquidity – A profitable manufacturing company tokenizes 25% of its business, allowing early investors to cash out while maintaining business continuity.
Franchise Expansion – A restaurant chain tokenizes a portion of its business, raising funds to open new locations while offering investors a stake in the company’s profits.
Distressed Asset Reconstruction – A real estate developer tokenizes ownership in a commercial property needing renovation. Raised funds are used to repair and modernize the building, which is later leased or sold for a profit. Investors receive rental income and capital gains upon asset sale.
How Tokenization Works in This Model
Token Minting Strategy: Pre-Minted vs. Dynamic Minting
Pre-Minted Fixed Supply
A fixed number of tokens is created upfront to represent a portion of the business.
The issuer holds their own tokens and distributes them to investors upon purchase.
Double balance issue: All tokens exist before capital is received, potentially causing a mismatch in valuation.
Dynamic Minting Upon Investment (Recommended Alternative)
The issuer mints tokens as investments are received, ensuring a clear balance sheet and accurate token supply.
The issuer retains their stake in tokenized form, while new investors receive newly created tokens.
Eliminates the double balance issue, keeping capitalization aligned with actual investment inflows.
Investor Participation and Token Distribution
Investors buy tokens directly from the issuer, gaining ownership rights proportional to their stake.
Depending on the minting strategy, tokens are either transferred from a pre-minted supply or generated dynamically.
Investors receive equity benefits, such as voting rights, dividends, or revenue-sharing.
Capital Raising & Revenue Flow
The company raises capital from token sales, using the funds for business growth, distressed asset recovery, or operational expansion.
Investors receive returns through dividends, revenue-sharing, or long-term appreciation of company value.
Exit & Liquidity Options
Investors can sell their equity tokens on regulated security token exchanges or via secondary markets.
The issuer may introduce buyback programs, repurchasing tokens to maintain control.
Investor Returns
Dividend Payments – Investors receive periodic dividend distributions based on company performance.
Capital Appreciation – If the business grows in value, token holders can sell at a higher price, generating capital gains.
Governance & Voting Rights – Some tokenized equity models allow investors to vote on company decisions proportional to their stake.
Revenue from Asset Reconstruction – If funds are raised for a distressed asset, investors may receive rental income, revenue-sharing, or proceeds from an eventual asset sale.
Benefits of the Business Equity Sale Model
Non-Dilutive Fundraising – Founders can sell a portion of their business while maintaining strategic control.
Access to Global Investors – Tokenization enables borderless fundraising, expanding beyond traditional capital markets.
Fractionalized Ownership & Liquidity – Investors can purchase smaller stakes, enhancing accessibility and liquidity.
Blockchain-Based Transparency – Smart contracts ensure secure, immutable ownership records and reduce fraud risks.
Capital for Asset Reconstruction & Growth – Businesses and distressed asset owners can efficiently raise funds to renovate, expand, or restore value.
Flexible Minting Options – The issuer can choose between pre-minted tokens or dynamic minting to align with their capitalization strategy.
Drawbacks of the Business Equity Sale Model
Potential Loss of Control – Selling too much equity may reduce the issuer’s influence over key decisions.
Regulatory Complexity – Equity tokenization must comply with securities regulations in every jurisdiction where tokens are sold.
Market Volatility & Liquidity Risks – Tokenized shares may be subject to price fluctuations and limited secondary market liquidity.
Execution Risk in Asset Reconstruction – If funds raised for a distressed asset are mismanaged or redevelopment plans fail, investor returns may be lower than expected.
Token Minting Strategy Can Impact Valuation – If all tokens are pre-minted, it may create valuation mismatches before capital is fully raised. Dynamic minting mitigates this risk by ensuring the token supply aligns with actual investment inflows.
Conclusion
The Business Equity Sale Model is an effective capital-raising strategy for growth-stage businesses, distressed asset recovery projects, and entrepreneurs seeking liquidity. By tokenizing equity, issuers can attract a global investor base, increase liquidity, and maintain compliance through structured governance.
For businesses with distressed assets, this model offers an alternative to traditional financing, enabling issuers to raise funds for reconstruction, lease or sell the restored asset, and generate investor returns.
By implementing dynamic minting, issuers can optimize capitalization, prevent token supply mismatches, and ensure a clear investment structure—creating a transparent, compliant, and efficient tokenized equity offering.
Last updated
Was this helpful?