Tokenization of equity in non-listed companies: Is it possible, how to do it, and what will it look like?

Author: Mankiw

Over the past few months, the topic of US stock tokenization has surged in popularity, with a flurry of "stock token" platforms targeting international users launching online. Major platforms like Robinhood are making moves, while others like Jarsy and Republic are discussing moving the equity of high-quality, privately held companies like SpaceX, xAI, and Stripe onto blockchains. This has many entrepreneurs and investors eager to capitalize on this trend.

Can the equity of non-listed companies be tokenized?
How can we do this in compliance? How much do these differ across jurisdictions?
What are the paths to implementation? What are the differences in rights and risks of each path?
As Party A/Initiator/Investor/Platform, how should I implement it?

This article will clarify these questions: whether it can be done, how to do it, and how to achieve it.

Can equity in non-listed companies be tokenized?

The answer is yes. Securities laws in various jurisdictions do not prohibit the use of more efficient electronic certificates like "tokens" to carry equity or other economic rights; regulators are always concerned with what rights you are selling, how they are transferred, and where they are traded, not whether you use blockchain.

Why is it possible? (Core Logic)

Carrier neutrality: Equity can be in the form of a paper share certificate, electronic registration, or an on-chain certificate; as long as it meets the information disclosure, investor suitability, and continuous compliance requirements of existing securities laws, the technical form will not be naturally denied.
Verifiable efficiency: The chain arranges registration, transfer, and clearing and settlement on an auditable track, reducing human links and counterparty risks, and facilitating cross-border collaboration and automatic performance.
Real market demand: Pre-IPO assets are high-quality but low-liquidity. Tokenization can achieve better allocation, pricing, and exit design within the scope of qualified investors.

How far can it go? (Realistic boundaries)

Start with qualified investors: Most jurisdictions currently support the participation of professional/qualified investors (such as "PI/AI/QIB"). Retail opening will remain limited in the short term due to information asymmetry and suitability requirements.
Secondary liquidity has "circles": tokenization does not change the nature of "restricted securities", whitelists (compliance registers) and lock-up periods still exist, and real liquidity mostly occurs in regulated venues.
The cooperation of the issuer is key: without the issuer's consent or proper handling of the ROFR (right of first refusal), even if the sale is possible, it will be difficult to fully realize the shareholder rights, and at most they will only be economic rights.

When should you not do it? (Red line)

Unclear ownership: There is a lack of documentation for the underlying shares of the "1:1 correspondence", no custody/transfer records, or the inability to prove the true source.
The commitment is unenforceable: it claims a "1:1 share exchange" but there are no terms for cooperation between the transfer agent and the issuer.
Cross-border marketing crosses the line: using "global sellability" as a slogan and ignoring local securities laws and the "active solicitation" red line.

Therefore, non-listed company equity can be tokenized, with legal requirements regarding "rights and rules" and technical requirements regarding "verifiability and control." By clarifying ownership, transferability, and compliant venues, tokenization can be both feasible and sustainable.

Three types of tokenization

1. Real stock on-chain (moving the “stock entity” directly to the chain)

Definition: This type of tokenization is where the token equals the stock itself, and token transfers are synchronized with shareholder register updates.

When to choose it: The issuer is willing to cooperate with governance reform and pursue the long-term route of "the most complete rights and the best secondary access".

Landing grip (only focus on three things):

Articles of Association and Register: The company’s articles of association allow for on-chain registration; they are connected with the transfer agent (a third party responsible for registration and transfer).
Venue and delivery: Identify regulated secondary venues (such as ATS (US Alternative Trading System, a secondary market facility regulated by the SEC), MTF (EU Multilateral Trading Facility, a matching venue regulated by MiFID)) and clearing and settlement links.
12(g) Management (Section 12(g) of the U.S. Securities Exchange Act sets thresholds for the number of “record holders” and asset size that trigger public company registration): Control the statistical scope and quantity, and do not turn private equity into a “quasi-public company.”

Signals of not choosing it: The issuer does not change its articles of association, does not cooperate with the transfer, or cannot afford the disclosure/audit and holder management costs.

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

Definition: This type of tokenization means that the token carries economic results such as income/repurchase/event settlement, and legally you are usually not a shareholder.

When to choose it: It needs to be launched quickly and tested quickly. The issuer will not open the shareholder list for the time being, but there is strong market demand.

Landing grip (only focus on three things):

The redemption terms must be enforceable: clearly define the redemption/share redemption triggering events, timetable, responsible parties, and failure protection.
Dual-track compliance: The US uses Reg D 506(c) (Section 506(c) of Regulation D of the US Securities Act of 1933, which allows public solicitation but only issuance to qualified investors) + overseas Reg S (Reg S, an overseas safe harbor rule, requires offshore trading and prohibits solicitation targeting the US market); channel segmentation to avoid "integration".
Transferability on-chain: Contractualize/proceduralize whitelists, lock-up periods, and restricted resale statements (Legends), avoiding them being confined to the PDF of issuance documents.

Signals not to choose it: Marketing implies that "you are a shareholder", or promises "1:1 share exchange" but there are no transfer agent/issuer cooperation terms.

Reminder: Tokens with the same name on different platforms are not interchangeable. Differences in price anchors (latest financing/offer/NAV) and redemption paths will lead to shadow market price differences.

3. Tokenization of Fund/SPV Shares (Indirectly Holding Multiple Assets)

Definition: This type of tokenization refers to tokenizing fund/LP/SPV shares, with the underlying holdings of multiple Pre-IPOs.

When to choose it: For institutions/family offices/high net worth individuals, it pursues institutionalized governance, auditable net worth and more stable secondary compliance docking.

Landing grip (only focus on three things):

Contract and Disclosure: The fund contract explains the redemption window and side pocket in detail; the valuation scope and revaluation in major events are clearly stated.
Fee penetration: Fund fees, platform fees, and channel fees are disclosed layer by layer to ensure investors don’t get confused.
Secondary acceptance: Priority access to regulated venues (such as ATS/MTF/RMO), with circulation mainly within the circle.

Signals of not choosing it: wanting to only bet on a single hotspot, being very sensitive to lock-in and liquidity windows, or having a low tolerance for "multi-layer fees".

How to choose among the above three methods?

If you want the strongest rights: Choose 1 and put real stocks on the blockchain (provided that the issuer truly cooperates).
If you want speed and flexibility: Choose 2: Economic rights (but engrave "redemption chain" and "restricted transfer" into the code).
If you want system and stability: choose 3 fund/SPV shares (use disclosure and net value to gain credibility, and go to a regulated venue for the secondary market).

How to comply with regulations: The "bottom line and channel" of the four major legal jurisdictions

(1) United States

Positioning: Regulators look at "what securities you sell, to whom you sell them, and how you transfer them", not whether you are a chain.

The distribution channels you can use (select only one or a combination)

Reg D 506(b) (Private offering exemption under the Securities Act of 1933): No public solicitation; can admit a small number of non-qualified but financially sophisticated investors; unlimited amount; Form D (federal filing required within 15 days of offering).
Reg D 506(c) (permits public solicitation but only offers to accredited investors): Substantial verification of “accreditation” is required (third-party verification of letter/tax return, etc.).
Reg S (Offshore Safe Harbor): Offshore transactions and no directed selling efforts to the US market. Often combined with Reg D to cover both US and offshore markets.

How to get secondary liquidity

Rule 144/144A (Rule on Restricted Securities Resale; 144A applies to QIBs, Qualified Institutional Buyers): This determines who can transfer securities to whom and when. ATS (Alternative Trading System, a US FINRA/SEC-regulated alternative trading system): If you want a "true secondary," connect to an ATS; otherwise, redemptions are likely to be on-exchange/internal matching.

Write restrictions into the code: whitelist (only qualified/KYC addresses can hold/transfer), lock-up period and Legend (restricted resale statement) must be on-chain, not just written in PPM.

Don't step into the pit

Integration risk: Any public marketing during the 506(b) period, or 506(c)/Reg S using the same domain name/same sales funnel, may be considered the same offering and lose the exemption.

12(g) (Exchange Act, Section 12(g), triggering the “record holder” threshold for public company registration): The statistical caliber of nominal holders/multiple addresses on the chain must be consistent to avoid “multiple wallets = multiple people”.

In one sentence: Reg D 506(c) + Reg S dual track is the most commonly used; the attributes of restricted securities remain unchanged, first nail down the whitelist + ATS, and then talk about "liquidity".

(2) Hong Kong

Positioning: Equity tokens = securities; not the "non-securities VA" that can be accepted by general VATPs (Virtual Asset Trading Platforms).

The distribution/sales channels you can take

Private placement is only offered to PIs (Professional Investors); solicitation/advertising to the general public is likely to trigger licensing/approval obligations.

If you want to match transactions, it usually involves Category 1 (Dealing in Securities) and/or Category 7 (Providing Automated Trading Services), of which the ATS (Automated Trading Services, a Hong Kong term) must be approved by the SFC; don't try to cram security tokens into VATP.

How to get secondary liquidity

Secondary liquidity should be mainly based on regulated securities venues (matching/settlement provided by licensed corporations); currently it is mainly for PIs, with limited retail space.

Don't step into the pit

Active marketing vs. passive solicitation: Chinese pages, Hong Kong dollar pricing, Hong Kong media placements/customer service hotlines may all be considered active solicitation of the Hong Kong public.

In one sentence: Security tokens in Hong Kong = securities license route + PI only; VATP route is not applicable.

(3) Singapore

Positioning: Security tokens are capital market products under the SFA (Securities and Futures Act); they are two different systems from the DPT (Digital Payment Token) under the PSA (Payment Services Act).

Distribution/Locations You Can Visit

AI/II private placement offers (Accredited/Institutional Investor) are exempt from the prospectus requirement but are subject to advertising and transfer restrictions.
RMO/AE (Recognized Market Operator / Approved Exchange): If you want to match/trade, you must connect with an RMO/AE or operate under its framework.
VCC (Variable Capital Company): A friendly shell for funds/portfolios, suitable for "③ Fund/SPV shares".

How to get secondary liquidity

It mainly relies on RMO on-site matching, with AI/II as the circle; it can connect with overseas regulated venues for cross-site delivery.

Don't step into the pit

Entity: Having a team/operation in Singapore, even if the server is overseas, may be considered to be providing regulated activities in Singapore.

In one sentence: If you want to implement it safely, SFA private placement + RMO is the main line; PSA/DPT does not solve the problem of security tokens.

(4) European Union

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

Distribution/Locations You Can Visit

Conventional prospectus regulation or exempt placing;

DLT Pilot (Regulation 2022/858, Distributed Ledger Market Infrastructure Pilot): License DLT MTF/SS/TSS (DLT Multilateral Trading Facility/Settlement System/Trading and Settlement Integrated), and pilot transaction + settlement on-chain under scale and category restrictions.

How to get secondary liquidity

Connect to MTF or DLT MTF to achieve compliant matching and settlement; otherwise, only on-site redemption/agreement transfer is possible.

Don't step into the pit

Use MiCA as a passport for security tokens; or replace prospectus/key information document standards with "white paper-style" disclosures.

In one sentence: To put "real stocks/real bonds" on the chain, DLT Pilot + MTF is the right way; otherwise, follow the traditional MiFID path, and technology is just a medium.

summary:

How to choose the issuance: US Reg D 506(c) (public solicitation) + Reg S (offshore safe harbor) is the most common combination; Hong Kong/Singapore/European markets follow their own private placement/exemption standards.

How to solve the secondary problem: the attributes of restricted securities remain unchanged; the whitelist/lock-up period/Legend must be contractualized and traded in regulated venues (US ATS, EU MTF/DLT MTF, Singapore RMO).

How to do marketing: Divide channels by jurisdiction and conduct anti-integration design to avoid "selling to the world through one funnel".

How to avoid risks: First, nail down ownership to the issuer’s consent; then write transferability into the code; and finally discuss valuation and liquidity.

What we offer

Our expertise lies in transforming a compelling story into a product that can be legally issued, circulated compliantly, and redeemed as promised. I'll first thoroughly investigate the underlying risks (whether the equity source is clear, whether the target company agrees, and whether there are any transfer restrictions). Then, I'll provide a one-page decision: whether the project is feasible, which path will save time and money, and what resources and timelines are required. I'll then incorporate the issuance, transfer, disclosure, and risk control rules into the contract and system (not just in a PowerPoint presentation) and connect the product to a regulated secondary market to ensure tradability and settlement.

What you ultimately receive isn't a mountain of legalese, but a set of actionable deliverables: a clear roadmap with key milestones, publicly available legal opinions, complete offering documents, coded compliance rules, a secondary liquidity plan and contingency plan, and a set of operational specifications acceptable to banks and regulators. In short, we help you turn uncertainty into certainty, making risks visible, processes controllable, and results verifiable.

Conclusion

Tokenization isn't just about turning equity into currency. The real challenge lies in codifying three "old-world" concepts: ownership, transferability, and transaction infrastructure, and ensuring their stable operation across multiple jurisdictions. We recommend a consistent approach: first clarify the law, then get the code right: nail down issuer consent/ROFR, 12(g) thresholds, distribution periods and whitelists, and clearing and settlement pathways before addressing valuation, liquidity, and market education. Only with this in place can private company equity tokenization be considered a true product, not just a narrative.