Bildnachweis: Baker Tilly.
The IPO of young, innovative growth companies in Germany has hardly been successful to date, as the associated cost, publicity and transparency requirements still place a heavy burden on them. With the introduction of the electronic share through the Financing for the Future Act on December 15, 2023, the legislator intended to make it easier for young growth companies to raise capital on the capital market. The electronic share is not a new type of digital share, but a new, electronic form of issue. In future, stock corporations will be able to choose whether to securitize their shares or have them entered in a securities register instead. The shares can be registered both in a central securities register (central register share) and in a crypto securities register (crypto share), which can also be kept at the company itself.
No facilitation of raising capital
The electronic central register share in the form of a registered or bearer share leads
to process optimization from the company’s perspective. Replacing the paper form with
electronic registration is not sufficient to promote the raising of additional capital, as this
conversion does not result in any significant advantage for the investor in terms of
processing. It remains to be seen to what extent additional costs will be incurred as a
result of registration.
Potential of the crypto share
The single-entry crypto share (hereinafter referred to as crypto share) enables the
issue of registered shares on the basis of the blockchain using distributed ledger
technology (DLT). The direct transfer of crypto shares only requires agreement between
the seller and the acquirer and the corresponding entry of the change of ownership in the
crypto securities register. This eliminates the need for intermediaries such as central
securities depositaries or depositories and their costs. With the help of smart contracts,
both the DLT-supported crypto securities register and the share register can be managed
in real time, dividend payments can be processed automatically and processes relating to
the Annual General Meeting can be managed.
Groundbreaking change for growth companies
The crypto share mainly benefits companies that do not trade on the stock exchange.
However, in order to exploit the advantages of the crypto share, the shareholders must
first opt for the legal form of a stock corporation (AG). While the AG is often rejected by
founders in the (pre)seed phase due to the mandatory supervisory board, the
administrative burden and cost considerations, it is becoming increasingly important in the “start-up phase” and the “emerging growth phase” due to the attractive additional
financing options and its good “standing” on the market. The issue of crypto shares
enables the growth company to tap into additional groups of investors as part of future
financing rounds. These include investors who, for example, attach particular importance
to so-called “peer-to-peer transfers” of the crypto share within the blockchain and wish to
avoid the costs of otherwise required intermediaries. This could include, for example,
capital providers from the tech sector or as part of the operational value chain, such as
employees, suppliers and customers. Existing investors such as venture capital and
private equity funds as well as family offices will continue to be available, with the only
difference that they will also participate in the benefits of crypto shares in the future.
However, the fact that trading crypto shares on the stock exchange is generally excluded,
except in the context of temporary pilot projects, makes a subsequent exit through an IPO
considerably more difficult.
Tapping into the alternative capital market
The success of a traditional IPO essentially depends on the issuing banks’ placement
power. It is to be expected that the distribution of crypto shares to a large number of
investors will also work without the involvement of banks. Instead, they can be placed or
listed via trading platforms that are being formed on the market for this purpose and are
already established in some cases. Such OTC trading has the advantage for the
company that it is not subject to the requirements of capital market law, e.g., the German
Securities Trading Act and the Market Abuse Regulation. However, in the case of a
public offering of crypto shares in the EU via the above-mentioned trading platforms,
companies must comply with the provisions of prospectus law. A public offering is
generally subject to the obligation to draw up a prospectus, which can be avoided by a
number of exceptions with regard to the type and number of investors and the total
placement value.
Conclusion
Although the central register share leads to process optimization, it does not make it
significantly easier to raise capital. In contrast, the crypto share gives growth companies
not listed on the stock exchange access to alternative investor groups and sources of
capital outside of the traditional capital market; it creates opportunities for the use of new
markets or trading platforms and promotes digitalization.
Authors:
Heinrich Thiele, Attorney-at-Law/Certified Tax Advisor is a partner at Baker Tilly Munich. Both as a consultant and as head of the legal department at LBBW, he has extensive expertise in the areas of financing, banking supervisory law and digitalization.
Jörg Mühlenkamp; Attorney-at-Law/Certified Tax Advisor is a partner at Baker Tilly Hamburg. As a consultant, he has many years of experience in capital market law.
