Launching a Security Token Offering (STO) is not an easy process. Unlike traditional token offerings like Initial Coin Offering (ICO), STO requires the United States Securities and Exchange Commission (SEC) compliance for the US-incorporated companies. Good news is, there are a few STO exemptions available and here is what you should know before launching it.
The most common ways to launch an STO while complying with the SEC guideline is to apply specific exemptions outlined in the Securities Act of 1933. This act governs decisions and rules of securities in the United States.
Three STO exemptions you should know: Reg A+, D, and S
An exemption under Regulation A+
This will allow a company to sell securities to general investors for up to $50 million through a public solicitation. To register your security under this exemption, you may need much money. You will also have to complete a financial audit. Also, whatever amount you raise will be considered revenue and therefore taxed.
An exemption under Regulation D
This exempts a company from having to register with the SEC, but the following conditions must be applied:
- All investors must be accredited. They need to do KYC and be provided by the company straightforward and clear information about the project, deliverables, and reasonable project expectations.
- The company must file Form D (which is the exemption from registering with the SEC) once the securities are sold.
- All investors are forbidden from selling the securities, tokens, or shares that they purchased in the STO for at least one year after having purchased them.
An exemption under Regulation S
This path involves selling your securities anywhere in the world but not in the US. Since you are not selling securities to US residents, the SEC has no interest in overseeing the sale. During your STO, however, you need to conduct KYC to make sure US citizens do not invest in your project.
As the new funding methods like an STO is in its immature stage, regulations still need time to catch up to fill in the needs of the fast-evolving market scenario. Considering to apply one of the three STO exemptions described above could be one of the solutions for your company. It also offers a playground for both technology and regulation to evolve together while safeguarding people getting involved with the unforeseeable market.