Will Tokenization Make Companies Limited by Shares Redundant?

A few years ago, I was sitting in a meeting with a group of tech entrepreneurs who were excitedly discussing the potential of tokenization.

One of them turned to me and said, 'In ten years, companies limited by shares will be ancient history.' I remember chuckling at the boldness of the statement.

I myself am member of a DAO (Decentralized Autonomous Organization) and while I admired the enthusiasm, I could not help but think of the centuries-old legal frameworks and the deeply entrenched mechanisms that traditional equity markets rely on.

Could blockchain technology really upend all of that?

The Traditional Share-Based Corporate Structure

For centuries, companies have relied on the structure of being limited by shares, enabling businesses to raise capital, allocate ownership, and manage governance through a system of tradable equity.

This model has provided a legal framework for investment, profit distribution, and shareholder rights, all governed by well-established corporate laws.

Shares function as a key instrument in corporate finance, allowing businesses to raise capital from investors while offering them limited liability and the potential for dividends or capital appreciation.

Stock exchanges facilitate liquidity, regulatory oversight ensures compliance, and legal frameworks define the rights and obligations of shareholders and directors.

How Tokenization Challenges the Traditional Model

Tokenization offers an alternative approach to asset ownership and corporate governance, with potential advantages over conventional shareholding models:

1. Fractional Ownership and Accessibility – Tokenized assets can be divided into smaller units, allowing broader participation from retail investors. This could democratize investment opportunities beyond traditional equity markets.

   
   

2. Programmable Governance – Smart contracts can embed corporate governance mechanisms directly into tokens, automating shareholder voting, dividend distribution, and compliance processes, reducing the need for intermediaries.

   
   

3. 24/7 Market Liquidity – Unlike traditional stock markets with limited trading hours, tokenized assets can be traded on decentralized exchanges at any time, potentially increasing market efficiency.

   
   

4. Eliminating Intermediaries – The role of clearinghouses, custodians, and brokers could be minimized or eliminated altogether, reducing transaction costs and settlement times.

   
   

5. Cross-Border Transactions – Tokenized shares could be traded across jurisdictions without the need for traditional stock market infrastructure, reducing barriers to international investment.

Challenges and Regulatory Hurdles

Despite these advantages, several challenges prevent tokenization from making companies limited by shares redundant:

• Regulatory Uncertainty – Existing securities laws do not always accommodate tokenized shares, and jurisdictions vary widely in their approach to recognizing and regulating them.

  
  

• Corporate Law Compatibility – The legal framework governing companies limited by shares is deeply entrenched. For tokenization to replace shares entirely, corporate laws would need fundamental reforms.

  
  

• Market Trust and Adoption – Institutional investors and large corporations rely on well-established equity markets with deep liquidity and investor protections. Tokenized assets may struggle to gain widespread adoption in these circles.

  
  

• Security Risks and Fraud – The blockchain space has seen high-profile hacks, fraud cases, and governance failures, posing risks to investor protection and legal enforcement.

  
  

• Scalability and Integration – Blockchain-based tokenization platforms need to integrate with existing financial infrastructure and ensure scalability for widespread corporate adoption.

• 
  

The Likely Evolution: Hybrid Models

Rather than rendering companies limited by shares obsolete, tokenization may lead to a hybrid corporate model where traditional equity markets coexist with blockchain-based mechanisms. Several possibilities include:

• Security Token Offerings (STOs) – A regulated approach where companies issue digital tokens that represent shares while remaining compliant with securities regulations.

  
  

• On-Chain Corporate Governance – Companies could issue tokenized voting rights or dividends while maintaining conventional equity structures.

  
  

• Blockchain-Based Private Equity and Venture Capital – Tokenization could thrive in private markets, enabling startups and SMEs to raise capital efficiently without public listings.

  
  

Conclusion

While tokenization presents a compelling alternative to traditional corporate structures, it is unlikely to make companies limited by shares entirely redundant in the foreseeable future.

The regulatory landscape, investor trust, and corporate governance frameworks still favor the conventional shareholding model.

However, the integration of tokenization into corporate finance is inevitable, and businesses that adapt early to this new paradigm may gain a competitive edge.

The future likely lies in a fusion of traditional equity structures with blockchain-driven efficiencies, reshaping how businesses raise capital and manage ownership.