Kwantor's structure - legal framing

Participation Right

At the root of Kwantor's structure is the Participation Right ("winstbewijs" in Dutch). This right entitles participants to a share of dividend payouts or liquidation proceeds in tandem with the normal share structure of a company as laid down in a notarial deed, and, although not frequently used, has clear legal status. See for instance Kelterman & Baggerman (2018) and Kelterman & Baggerman (2019) (both in Dutch) published by the Stichting tot bevordering der Notariële Wetenschap on the legal interpretation of Participation Rights.

Note that the Dutch "winstbewijs" has no direct translation to English. We use "Participation Right" to clarify that it concerns a right that is contractually formed to allow participation in economic interests of a company, but that as such is not necessarily embodied through a document such as a notarial deed.

Combination with statutory shares

A company's share capital is tied to, or formed by, the normal share structure of a company as laid down in the Articles of Association. The possibility to issue Participation Rights is also embedded in the Articles of Association, but the actual issuance of these rights happens independently from these Articles.

Digital Tokens

Kwantor's structure uses digital tokens called Profit Share Tokens (PSTs) as a unit of account for Participation Rights, where the holder of a Participation Right can claim a pro-rata share of dividend payouts or liquidation proceeds equal to the number of PSTs held.

For simplicity, Kwantor's structure equates the economic rights of one ordinary share to the economic rights tied to one PST through the Participation Right. So, for instance, when one stakeholder holds 10 ordinary shares and another stakeholder holds 10 PSTs, both can claim the same economic benefits if dividends or liquidation proceeds are paid. This safeguards clarity on the cap table for all the company's stakeholders.

The use of digital tokens decouples the "rules" governing the agreement and the "amount" to which a holder is entitled. This decoupling minimizes (paper) administrative overhead.

We use this structure for both the Participation Right through Profit Share Tokens (PSTs) and for options to a Participation Right through Option to PST Tokens (OPTs).

Read more about Profit Share Tokens and PSTs.

Deed of Issue of Participation Right

While the possibility to issue Participation Rights is enabled by the embedding in the Articles of Association, the actual entitlement to participate in profit distributions and liquidation proceeds is offered by the company through the Deed of Issue of Participation Right, which legally outlines the rights of an individual holder and links them to the number of PSTs held. However, the precise number of PSTs issued to a participant and their price are not defined in the Deed, but in individual Assignment or Investment Agreements.

Outlining Your Rules Framework: the Participation Plan

Participation Plan

To ensure clarity and consistent use of Participation Rights, Kwantor has devised a Participation Plan—the framework outlining the general rules that your company adopts. This plan is similar to an Employee Stock Ownership Plan (ESOP) or Stock Appreciation Rights (SAR) plan that a company typically adopts when using these instruments, and includes things like the use of vesting schedules and competition protection arrangements.

However unlike SARs and STAKs (traditional ESOPs), Kwantor provides participants with meaningful upside by allowing them to share in dividends and liquidation proceeds as the company grows, with optional Profit Share Tokens for long-term alignment.

For companies, Kwantor’s solution avoids immediate cash payouts, eliminates governance burdens such as notary and foundation maintenance fees, and keeps governance separate from economic rights. All transactions are documented in Teller, our secure equity management platform, providing HR and finance teams with real-time oversight.

You will be guided in our equity management platform Teller through the configuration choices available, such as vesting schedules, leaver policies and liquidity event arrangements.

Note that this rules framework itself does not govern the right to profit entitlements and liquidation proceeds, but only sets general conditions and parameters applicable to all Participation Rights issued under the Plan. To govern the actual rights, you need the Deed of Issue of Participation Right. The Deed of Issue of Participation Right in Teller modularly extends the rules set in the Participation Plan by incorporating them, and both are created in one smooth flow. This way, you will have a clean user experience when configuring your Plan and deed, and all stakeholders have clarity about what to expect with one document.

Options

As an extension of the Participation Plan, you may want to include rules governing Option Rights. This extension safeguards a consistent use of Option Rights, similar to how the Participation Plan safeguards a consistent use of Participation Rights.

In our equity management platform Teller, we guide you through an intuitive flow where you can specify your Option Rights framework within your Participation Plan.

Equity Issuance

Assignment and Investment Agreements

Usually, the amount and price of a SAR or an option under an ESOP are set in a separate agreement or deed. However, in Kwantor's equity structure with Profit Share Tokens (PSTs) and Options to PST Tokens (OPTs), the amount and price are set in individual Assignment and Investment Agreements. This way, you are more flexible in the allocation of Participation Rights to your stakeholders, while safeguarding consistency throughout your use of these instruments through the framework of the Participation Plan.

An Assignment Agreement is a simple contract that can be used in tandem with your employment contract for internal employees or for contractors and legal entities and specifies the scope of the assignment and the reward connected to it.

An Investment Agreement is a simple investment contract for (early) investors that allows you to reward investors with PSTs and OPTs.

Price and valuations

To determine your price per PST and per OPT you require a valuation of a PST. Valuations can be highly complex for mature companies, and valuations may differ between individual assessments. However, since each PST effectively entitles their holder to the same economic benefits as each ordinary share, as a general rule of thumb, at the time of incorporation, a company can base their PST price and strike price of an OPT on the nominal value of its ordinary shares, or post incorporation on the fair market value (FMV) of its ordinary shares.

Fiscal treatment

The choice for many equity instruments and reward schemes depend in part on their fiscal treatment. Participation Rights generally follow similar tax treatment as ordinary shares, and Option Rights tied to Participation Rights generally follow similar tax treatment as stock options.

Archipel Tax Advice wrote a web article with an overview of the fiscal treatment for Participation Rights - see: https://www.archipeltaxadvice.nl/insights/winstbewijzen-behandeling (Dutch).

Flexible Rewarding

Flexible rewarding is an approach to rewarding colleagues and key employees that adapts to both company growth and individual contribution. Instead of fixed bonus structures, flexible rewarding rewards can be easily adjusted and documented based on business and individual performance. Our clear, simple frameworks make it easy to decide how rewards are allocated, without complex processes or excessive paperwork. This allows companies to reward fairly and consistently, while staying agile as priorities, roles, and performance evolve.