When a company considers fundraising, issuing stocks is often the first option that comes to mind. However, stocks are not the only form of securities available. Companies may explore alternative instruments, including bonds, derivatives, and even digital assets like virtual currencies. But can a company legally issue virtual currency to raise capital? What rules apply, and is an official prospectus still required? This article breaks down the types of securities under relevant laws and explains the implications of using virtual currency for fundraising.
Understanding Securities Under the Securities Law
Securities are financial instruments that represent value, possess investment characteristics, and are tradable. They are regulated to protect investors and ensure market transparency. Under the Securities Law, securities include not only stocks and bonds but also other instruments approved by the regulatory authority.
Common Types of Securities
The Securities Law categorizes securities into several types:
- Government bonds
- Corporate stocks
- Corporate bonds
- Other securities approved by the regulatory authority
This list is not exhaustive. Additional instruments, such as subscription rights certificates, payment vouchers for securities, and certificates representing ownership, are also considered securities. The regulatory body has the authority to recognize new types of securities as financial markets evolve.
Approved Securities by Regulatory Authorities
To prevent regulatory gaps, the Securities Law adopts a "limited enumeration with general authorization" approach. This means that besides explicitly listed securities, the regulatory authority can approve other financial instruments as securities. Currently approved securities include:
- Foreign stocks, corporate bonds, government bonds, and investment certificates traded or serviced within the jurisdiction
- Taiwan Depositary Receipts (TDRs)
- Investment contracts for overseas fundraising by华侨 or foreigners
- Beneficiary certificates issued by securities investment trust enterprises
- Warrants issued by third parties
- Split coupons from corporate bonds
- Beneficiary certificates for futures trust funds
- Index investment securities issued by securities firms
- Virtual tokens with securities characteristics
Notably, virtual tokens with securities characteristics are recognized as a form of security. This means that companies can issue digital currencies as securities, provided they comply with regulatory requirements.
What Are Virtual Tokens with Securities Characteristics?
Virtual tokens with securities characteristics refer to digital assets that use cryptography and distributed ledger technology (or similar technologies) to represent value. These tokens are stored, exchanged, or transferred digitally and exhibit liquidity and investment properties. The regulatory authority evaluates whether a virtual token qualifies as a security based on four criteria:
- Investment of Money: Investors provide funds to acquire the token.
- Common Enterprise: The funds are pooled into a common business or project.
- Expectation of Profits: Investors anticipate earning profits from their investment.
- Efforts of Others: The profits primarily depend on the efforts of the issuer or a third party.
If a virtual token meets these criteria, it is classified as a security and subject to securities regulations.
Implications for Companies Issuing Virtual Tokens
If a company issues virtual tokens that meet the above criteria, it must comply with securities laws. This includes providing an official prospectus to investors. The prospectus must disclose relevant information about the offering, such as financial details, risks, and terms of the investment. Failure to do so may result in legal penalties.
However, if the virtual token lacks investment characteristics—for example, if it is solely a commemorative item with no profit expectation—it is not considered a security. In such cases, no prospectus is required.
Additional Considerations for Issuing Virtual Tokens
Virtual tokens with securities characteristics are high-risk investments due to their technological complexity and market volatility. As a result, only professional investors—such as banks, insurance companies, and securities firms—are permitted to purchase them. Companies cannot offer these tokens to the general public.
Issuers must also ensure transparency and accountability. This includes maintaining accurate records, conducting audits, and providing regular updates to investors. 👉 Explore more strategies for compliant fundraising
Frequently Asked Questions
What defines a security under securities law?
A security is a financial instrument that represents value, is investable, and tradable. It includes stocks, bonds, and other instruments approved by regulatory authorities. The key is whether the instrument involves an investment of money with an expectation of profits derived from others' efforts.
Can virtual currency be considered a security?
Yes, if it meets the four criteria of investment: money investment, common enterprise, profit expectation, and reliance on others' efforts. Such virtual tokens are classified as securities and must comply with relevant regulations.
Do companies always need to provide a prospectus when issuing securities?
Yes, for securities offerings, companies must provide a prospectus to inform investors about the investment details, risks, and terms. Exceptions apply only if the instrument is not classified as a security.
Who can invest in virtual tokens with securities characteristics?
Only professional investors, such as financial institutions and qualified entities, are allowed to invest in these high-risk instruments. General public participation is prohibited.
What happens if a company issues virtual tokens without complying with securities laws?
Non-compliance may result in legal actions, fines, or invalidated offerings. Companies must adhere to regulatory requirements to protect investors and maintain market integrity.
Are there non-security virtual tokens?
Yes, virtual tokens without investment characteristics—such as utility tokens or commemorative items—are not considered securities. They are not subject to securities regulations.
Conclusion
Companies exploring virtual currency for fundraising must carefully evaluate whether their tokens qualify as securities. If the tokens exhibit investment properties, issuers must comply with securities laws, including providing a prospectus and limiting offerings to professional investors. Understanding these regulations helps companies navigate fundraising options while ensuring legal compliance and investor protection.