Can a company issue "shares" that have no right to equity based on donations?

This might sound like a weird question but the application is using the ethereum blockchain to create Tokens which would be given to people who donate to the company and would not be traditional shares as there would be no right to dividends or equity.

  • What value would the tokens have?
    – phoog
    Apr 11, 2017 at 19:48
  • The company would be owned by a trust. The tokens would be able to cast votes, for example electing board members. When the company profits the profits will go to the trust and token holders will be able to claim a portion. Basically how an ownerless coop works, but with the entity owning a company.
    – Anon
    Apr 11, 2017 at 20:08

1 Answer 1


If the "donations" give someone "tokens" that could ultimately give someone a right to share in profits at some point in the future, then the "tokens" are a security and the request for investments must be made pursuant to a 1933 Securities Act registration as a public offering unless it comes within an exception, the most notable of which is the exception for offerings under $1,000,000 in the aggregate raised.

Pretty much any investment that can be the basis for a potential return based upon the amount invested is a "security" for purposes of state and federal securities laws.

Cooperatives are distinguished from investor owned businesses because any return is based upon the volume of business done with the cooperative, not upon an amount invested in a cooperative. Distributions from cooperatives are basically price adjustments.

If the "tokens" gave only a right to vote and not a right to any economic benefit, it could be a charitable solicitation which is not subject to SEC regulation. Typically, to qualify as a charity, it would have to have provisions in its charter specifying that any unused funds upon termination would go to some other charity and would not be returned to any private person associated with the entity.

  • So basically what I am talking about is a cooperative and the tokens would have to represent shares and thus be subject to SEC regulation?
    – Anon
    Apr 11, 2017 at 22:50
  • Basically yes. The term "security" which is what is regulated is defined in a manner much broader than shares of a corporation. See Section 2(a)(1) of the 1933 Securities Act. sec.gov/about/laws/sa33.pdf which includes, e.g. any "certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate . . . or any certificate of interest or participation in, temporary or interim certificate for, receipt for . . .any of the foregoing."
    – ohwilleke
    Apr 11, 2017 at 23:08

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