Three Structures for Equity Tokenization + A Practical Guide to Regulation in Four Jurisdictions

In recent months, interest in the tokenization of U.S. equities has surged. A number of platforms offering "stock tokens" to overseas users have launched successively, with major players such as Robinhood making significant moves, while Jarsy, Republic, and others are discussing bringing the equity interests of high-quality non-listed companies such as SpaceX, xAI, and Stripe "on-chain." Consequently, many entrepreneurs and investors are eager to act:

  • Can equity in non-listed companies actually be tokenized?

  • How can this be done in compliance with the law? How significant are the differences across jurisdictions?

  • What implementation paths are available? What are the differences in rights and risks associated with each path?

  • As a client/initiator/investor/platform, how should I proceed with implementation?

This article clarifies these issues: feasibility, methodology, and structural outcomes.

 

Can equity in non-listed companies be tokenized?

The answer is yes. Securities laws in various jurisdictions do not prohibit using "tokens" as a more efficient form of electronic evidence to represent equity or its economic rights. Regulators are primarily concerned with what rights are being sold, how they are transferred, and where they are traded, rather than whether blockchain technology is used.

Why is it feasible? (Core Logic)

  • Technology Neutrality:Equity may exist as paper stock certificates, electronic registrations, or on-chain credentials. As long as existing securities law requirements regarding information disclosure, investor suitability, and ongoing compliance are met, the technological form will not be inherently rejected.

  • Verifiable Efficiency:Blockchain organizes registration, transfer, and clearing/settlement into a single auditable track, reducing manual processes and counterparty risk, thereby facilitating cross-border collaboration and automated performance.

  • Genuine Market Demand:Pre-IPO assets are high-quality but suffer from low liquidity. Tokenization can enable better allocation, pricing, and exit mechanisms within the scope of qualified investors.

To what extent? (Practical Boundaries)

  • Start with Qualified Investors:Most jurisdictions currently favor participation by professional/qualified investors (such as "PI/AI/QIB"). Retail access remains limited in the short term due to information asymmetry and suitability requirements.

  • Secondary Liquidity is "Tiered":Tokenization does not change the nature of "restricted securities." Whitelists (compliant registers) and lock-up periods still apply, and genuine liquidity mostly occurs within regulated venues.

  • Issuer Cooperation is Key:Without the issuer's consent or proper handling of Rights of First Refusal (ROFR), even if sales are possible, it is difficult to fully implement shareholder rights; at most, only economic rights can be realized.

When should you not proceed? (Red Lines)

  • Unclear Ownership:Lack of evidence for the underlying shares corresponding "1:1," absence of custody/transfer records, or inability to prove authentic source.

  • Unenforceable Promises:Claiming "1:1 conversion to shares" without provisions for transfer agents and issuer cooperation.

  • Cross-Border Marketing Overreach:Using "globally available" as a slogan while ignoring local securities laws and red lines regarding "active solicitation."

Therefore, equity in non-listed companies can be tokenized. Legally, focus on "rights and rules"; technologically, ensure "verifiability and controllability." By clarifying ownership, transferability, and compliant venues, tokenization can not only be implemented but also stabilized.

 

Three Types of Tokenization Methods

1. Direct On-Chain Equity (Moving the "Equity Body" Directly On-Chain)

Definition: This method of tokenization means the token equals the stock itself, with token transfers synchronized with updates to the shareholder register.

When to choose this: The issuer is willing to cooperate with governance reforms, pursuing a long-term strategy of "most complete rights and best secondary market access."

Implementation Focus (Focus on three key aspects):

  • Articles of Association and Register:The company's articles of association permit on-chain registration; integration with the transfer agent (a third party responsible for registration and transfer).

  • Venues and Settlement:Determine regulated secondary venues (such as ATS (Alternative Trading System in the U.S., a secondary market facility regulated by the SEC),MTF(Multilateral Trading Facility in the EU, a matching venue regulated under MiFID)) and clearing/settlement chains.

  • Section 12(g) Management (Section 12(g) of the U.S. Securities Exchange Act, which sets thresholds for "record holders" and asset size that trigger public company registration):Control statistical criteria and numbers to avoid turning a private placement into a "quasi-public company."

Signals not to choose this: The issuer refuses to amend articles of association, does not cooperate with transfers, or cannot bear the costs of disclosure/audit and holder management.

2. Economic Rights/Contractual Exposure (Like Stock, But Not Stock)

Definition: This method of tokenization means the token carries economic outcomes such as dividends, buybacks, or event-based settlements; legally, you are typically not a shareholder.

When to choose this: For rapid launch and testing, when the issuer temporarily does not open the shareholder register, but there is strong market demand.

Implementation Focus (Focus on three key aspects):

  • Enforceable Redemption Terms:Clearly define triggers for redemption/conversion events, timelines, responsible parties, and fallback measures in case of failure.

  • Dual-Track Compliance:In the U.S., use Reg D 506(c) (Rule 506(c) of Regulation D under the Securities Act of 1933, allowing general solicitation but issuance only to accredited investors) + Overseas Reg S (Regulation S, the offshore safe harbor rule, requiring offshore transactions and no directed selling efforts towards the U.S. market); separate channels by region to avoid "integration."

  • On-Chain Transferability:Encode/program whitelists, lock-up periods, and restricted resale legends into smart contracts, avoiding reliance solely on PDFs in offering documents.

Signals not to choose this: Marketing implies "you are a shareholder," or promises "1:1 conversion to shares" without transfer agent/issuer cooperation clauses.

Note: Identical underlying assets on different platforms are not interchangeable. Differences in price anchors (recent financing/offers/NAV) and redemption paths will lead to price discrepancies in shadow markets.

3. Fund/SPV Share Tokenization (Indirect Holding of Multiple Assets)

Definition: This method of tokenization involves tokenizing fund/LP/SPV shares, with the underlying layer holding multiple Pre-IPO。

When to choose this: Targeting institutions/family offices/high-net-worth individuals, seeking institutionalized governance, auditable net asset values, and more stable compliance for secondary market connectivity.

Implementation Focus (Focus on three key aspects):

  • Contracts and Disclosure:Fund agreements clearly articulate redemption windows and side pockets; valuation methodologies and revaluation upon material events are specified.

  • Fee Transparency:Disclose fund fees, platform fees, and channel fees layer by layer, ensuring investors can calculate costs clearly.

  • Secondary Market Support:Prioritize access to regulated venues (e.g., ATS/MTF/RMO), with circulation primarily within tiered groups.

Signals not to choose this: Desire to bet on a single hot asset, high sensitivity to lock-ups and liquidity windows, or low tolerance for "multi-layer fees."

How to choose among these three methods?

  • For the strongest rights: Choose Method 1, Direct On-Chain Equity (provided the issuer genuinely cooperates).

  • For speed and flexibility: Choose Method 2, Economic Rights (but embed the "redemption chain" and "restricted transfer" into the code).

  • For institutional robustness: Choose Method 3, Fund/SPV Shares (gain trust through disclosure and NAV, with secondary trading on regulated venues).

 

How to Ensure Compliance: "Baselines and Channels" in Four Major Jurisdictions

(I) United States

Positioning: Regulators look at "what security you are selling, to whom, and how it is transferred," not whether you are using a blockchain.

  • Available Issuance Channels (Choose one or a combination)

  • Reg D 506(b) (Regulation D 506(b), private placement exemption under the Securities Act of 1933):No general solicitation allowed; may include a small number of non-accredited but financially sophisticated investors; no limit on amount; Form D (federal filing within 15 days after issuance).

  • Reg D 506(c) (Allows general solicitation but issuance only to accredited investors):Substantive verification of "accredited" status is required (third-party verification letters/tax forms, etc.).

  • Reg S (Regulation S, Offshore Safe Harbor):Offshore Transaction + No Directed Selling Efforts towards the U.S. market. Often combined with Reg D to cover "within the U.S. + overseas."

How to Achieve Secondary Liquidity

  • Rule 144/144A (Resale rules for restricted securities; 144A targets QIBs, Qualified Institutional Buyers):Determines who can transfer to whom and when.

  • ATS (Alternative Trading System, U.S. alternative trading systems regulated by FINRA/SEC):For "true secondary" markets, connect to an ATS; otherwise, it is mostly internal redemption/matching.

  • Encode Restrictions:Whitelists (only accredited/KYC addresses can hold/transfer), lock-up periods, and Legends (restricted resale statements) must be on-chain, not just written in the PPM.

Pitfalls to Avoid

  • Integration Risk:Any public marketing during the 506(b) period, or using the same domain/sales funnel for 506(c)/Reg S, may be viewed as a single offering, resulting in loss of exemption.

  • Section 12(g) (Section 12(g) of the Exchange Act, triggering public company registration based on "record holder" thresholds):Statistical criteria for nominal holders/on-chain multi-addresses must be consistent to avoid treating "multiple wallets as multiple persons."

One-sentence judgment: The dual-track combination of Reg D 506(c) + Reg S is most common; the nature of restricted securities remains unchanged. Secure the whitelist + ATS first, then discuss "liquidity."

(II) Hong Kong

Positioning:Equity tokens = Securities; they are not "non-security VAs" that can be handled by general VATPs (Virtual Asset Trading Platforms).

Available Issuance/Sales Channels

  • Private placements only to PIs (Professional Investors); public solicitation/advertising easily triggers licensing/approval obligations.

  • Ifmatching trades, it usually involves Type 1 (Dealing in Securities) and/or Type 7 (Providing Automated Trading Services) licenses, wherein ATS (Automated Trading Services, Hong Kong terminology) requires SFC approval; do not attempt to squeeze security tokens into a VATP.

How to Achieve Secondary Liquidity

  • Secondary liquidity should primarily rely on regulated securities venues (matching/settlement provided by licensed corporations); currently mainly targeting PIs, with limited retail space.

Pitfalls to Avoid

  • Active Marketing vs. Passive Access: Chinese language pages, HKD pricing, advertising in Hong Kong media/customer service hotlines may all be considered active solicitation to the Hong Kong public.

One-sentence judgment: Conducting security token business in Hong Kong = Securities License Route + PI Only; the VATP path is not applicable.

(III) Singapore

Positioning: Security tokens fall under Capital Markets Products under the SFA (Securities and Futures Act); this is a separate system from DPTs (Digital Payment Tokens) under the PSA (Payment Services Act).

Available Issuance/Venues

  • AI/II Private Offers (Accredited/Institutional Investor) may use prospectus exemptions, but there are restrictions on advertising and transfers.

  • RMO/AE (Recognised Market Operator / Approved Exchange): If matching/trading is desired, connect to an RMO/AE or operate within their framework.

  • VCC (Variable Capital Company): A friendly vehicle for loading funds/portfolios, suitable for "Method 3: Fund/SPV Shares."

How to Achieve Secondary Liquidity

  • Primarily through on-exchange matching via RMOs, with the circle = AI/II; can connect to overseas regulated venues for cross-venue settlement.

Pitfalls to Avoid

  • Substance: Having a team/operations in Singapore, even if servers are overseas, may be deemed as providing regulated activities in Singapore.

One-sentence judgment: For stable implementation, SFA Private Placement + RMO is the main line; PSA/DPT does not resolvesecurity token issues。

(IV) European Union

Positioning: Security tokens remain subject to MiFID II(Markets in Financial Instruments Directive II) and CSDR (Central Securities Depositories Regulation); MiCA (Markets in Crypto-Assets) does not govern security tokens.

Available Issuance/Venues

  • Standard Prospectus Regulation regime or exempt offerings;

  • DLT Pilot (Regulation 2022/858, Distributed Ledger Technology Market Infrastructure Pilot): Licenses DLT MTF/SS/TSS (DLT Multilateral Trading Facility/Settlement System/Trading and Settlement System), allowing pilot trading + settlement on-chain within limits on scale and categories.

How to Achieve Secondary Liquidity

  • Connect to MTF or DLT MTF to achieve compliant matching and settlement; otherwise, only internal redemption/agreement-based transfers are possible.

Pitfalls to Avoid

  • Treating MiCA as a passport for security tokens; or replacing prospectus/key information document standards with "whitepaper-style" disclosures.

One-sentence judgment: For "true equity/bond" on-chain implementation, DLT Pilot + MTF is the correct path; otherwise, execute according to traditional MiFID pathways, with technology merely as a medium.

Summary:

  • How to Choose Issuance:U.S. Reg D 506(c) (allows general solicitation) + Reg S (offshore safe harbor) is the most universal combination; Hong Kong/Singapore/EU follow their respective private placement/exemption frameworks.

  • How to Solve Secondary Market Issues:The nature of restricted securities remains unchanged; whitelists/lock-up periods/Legends must be encoded into contracts and traded on regulated venues (U.S. ATS, EU MTF/DLT MTF, Singapore RMO).

  • How to Conduct Marketing:Design channel segregation and anti-integration measures by jurisdiction to avoid "one funnel selling globally."

  • How to Avoid Risks:First secure ownership and issuer consent; then encode transferability; only then discuss valuation and liquidity.

 

What We Can Provide

We specialize in turning a "compelling story" into a product that can be legally issued, compliantly transferred, and redeemed as promised. We first dig out the underlying risks for you (clarity of equity source, target company consent, transfer restrictions), and then provide a one-page decision matrix: whether the project is feasible, which path saves the most time and money, and what resources and timeline are required. Subsequently, we embed the rules for issuance, transfer, disclosure, and risk control into contracts and systems (not just in PowerPoint slides), and connect the product to regulated secondary markets, ensuring it is "tradable" and "settlable."

What you ultimately receive is not a pile of legal jargon, but a set of actionable deliverables: a clear roadmap and key milestones, usable legal opinions, complete offering documents, compliance rules encoded into software, secondary liquidity solutions and contingency plans, and a set of operational norms acceptable to banks and regulators. In short—we help you turn uncertainty into certainty, making risks visible, processes controllable, and results verifiable.

 

Conclusion

Tokenization is not "turning equity into coins." The real challenge lies in encoding three "old world" matters—ownership, transferability, and trading infrastructure—so that they operate stably across multiple concurrent jurisdictions. Our consistent recommendation is to clarify the law first, then write the code correctly: first secure issuer consent/ROFR, Section 12(g) thresholds, distribution periods and whitelists, and clearing/settlement paths, before discussing valuation, liquidity, and market education. Only by achieving this does tokenization of equity in non-listed companies become a genuine product, rather than just a narrative.

 

Note: This article provides general information and does not constitute legal advice in any jurisdiction. For specific projects, please conduct targeted due diligence and customize compliance solutions after signing a non-disclosure agreement.