Can LLC Issue Stock: Crypto Industry Insights

Can an LLC issue stock? This is a common question for entrepreneurs and investors in the crypto industry, especially as more blockchain projects seek innovative ways to raise capital. Understanding the legal and practical aspects of equity issuance is crucial for anyone navigating the intersection of traditional business structures and digital assets. This article breaks down the essentials, highlights recent industry developments, and explains what it means for crypto-focused companies and their stakeholders.

LLC Structure and Equity Issuance: Key Differences

In the United States, a Limited Liability Company (LLC) is a flexible business entity that combines elements of partnerships and corporations. Unlike corporations, LLCs do not issue stock. Instead, ownership is represented by membership interests, which are typically outlined in the LLC's operating agreement. These interests can be divided among members in any proportion agreed upon, but they are not shares of stock in the legal sense.

This distinction matters for crypto projects considering fundraising or tokenization strategies. While corporations can issue stock to raise capital from the public or private investors, LLCs must use alternative methods, such as selling membership interests or issuing tokens that represent a stake in the company. This can impact how easily an LLC can attract institutional investment or list on public exchanges.

Recent SEC Filings: Crypto Firms and Public Equity Offerings

As of June 2024, the crypto industry has seen a surge in companies exploring public equity offerings to expand their operations and treasury holdings. Notably, Hyperliquid Strategies Inc. (HSI) filed a $1 billion SEC registration to fund its growth and token treasury. According to official filings, HSI plans to offer up to 160 million shares of common stock through a committed equity facility led by Chardan Capital Markets. This move is designed to strengthen the company's balance sheet and increase its exposure to its native digital asset, HYPE.

HSI's approach is significant because it represents one of the largest crypto-related equity plans for 2025, blending traditional finance with crypto treasury management. The company, formed from a pending merger between Sonnet BioTherapeutics Holdings, Inc. and Rorschach I LLC (a SPAC), aims to list on Nasdaq under a new ticker symbol. This hybrid model allows the firm to access institutional capital while maintaining a strong presence in the digital asset ecosystem.

According to the SEC filing, HSI currently holds 12.6 million HYPE tokens and $305 million in cash, providing a solid liquidity base. The funds raised may be used for liquidity management, staking, and token acquisition programs. The HYPE token responded positively to the news, with its price rising 8.16% to $38.81 and a market capitalization of $13.06 billion as reported by CoinMarketCap.

Source: CryptoTale, June 2024

Implications for Crypto Startups: Choosing the Right Entity

For crypto startups, the choice between forming an LLC or a corporation has direct implications for fundraising and regulatory compliance. Since an LLC cannot issue stock, companies seeking to raise capital through public equity offerings or list on major exchanges like Nasdaq typically opt for a corporate structure. This allows them to issue shares, attract institutional investors, and comply with SEC regulations.

However, LLCs remain popular for smaller projects or those prioritizing operational flexibility and pass-through taxation. Some crypto firms start as LLCs and later convert to corporations as they scale and seek broader investment opportunities. The recent example of Hyperliquid Strategies Inc. demonstrates how mergers and restructuring can facilitate access to public markets and institutional capital.

It's important for founders and investors to consult legal and financial professionals when deciding on the best entity type for their crypto venture. Regulatory requirements, investor expectations, and long-term growth plans should all be considered.

Common Misconceptions and Best Practices

One common misconception is that LLCs can issue stock just like corporations. In reality, LLCs can only allocate membership interests, which are not freely tradable on public markets. Attempting to structure an LLC as a stock-issuing entity can lead to legal and regulatory complications.

Best practices for crypto projects include:

• Clearly defining ownership and profit-sharing in the operating agreement.
• Understanding the limitations of LLCs regarding public fundraising.
• Considering conversion to a corporation if public equity issuance is a future goal.
• Staying updated on SEC regulations and industry trends.

For those managing digital assets, using secure and compliant solutions like Bitget Wallet can help safeguard funds and streamline operations.

Looking Ahead: Industry Trends and Strategic Considerations

The integration of traditional equity frameworks with crypto assets is reshaping how companies raise capital and manage treasuries. As seen with Hyperliquid Strategies Inc., hybrid models that combine public equity offerings with digital asset management are gaining traction. This trend is likely to continue as more firms seek to bridge the gap between conventional finance and the decentralized economy.

For crypto entrepreneurs, staying informed about regulatory changes and market developments is essential. Choosing the right business structure and fundraising strategy can make a significant difference in long-term success. Platforms like Bitget offer a range of tools and resources to support both new and established projects in the evolving digital asset landscape.

Further Exploration and Practical Tips

Whether you're launching a new crypto venture or considering restructuring an existing one, understanding the nuances of LLCs and stock issuance is vital. Explore more about business entity selection, SEC compliance, and treasury management on Bitget Wiki. Stay ahead of industry trends and make informed decisions for your project's future.

Ready to learn more? Discover how Bitget can support your crypto journey with secure trading, staking, and wallet solutions tailored to your needs.