Companies whose shares trade on public stock exchanges get most of the attention from investors, but the vast majority of companies haven't gone through the cumbersome process of initial public offerings. If you invest in a privately held company and receive stock, your options for selling your shares are much more limited. Below, we'll look at how to sell privately held stocks so you can examine your options.
Sell back to the company
Sell the shares back to the company
The easiest way to sell shares of privately held stock is to get the company that issued them to repurchase them. The process of a buyback is relatively simple. However, the sticking point is that the company must authorize a buyback. If other shareholders want to sell their shares as well, then the company might not be willing to accommodate every shareholder's request.
Sell to another investor
Sell the shares to another investor
Unlike publicly traded stock, where the exchange matches buyers and sellers, you'll have to do your own legwork to find a buyer for privately held stock. To comply with SEC regulations, a company must be willing to provide substantive disclosures to potential investors, including certain financial statements and other non-financial information.
If the company isn't willing to buy, you can only sell to an accredited investor, which would include the company's directors or executive officers, as well as any individual who meets one of the following financial criteria:
- A net worth of more than $1 million, excluding the value of a primary residence.
- Annual income of $200,000 or more for individuals or $300,000 or more for couples in each of the past two years and a reasonable expectation to earn at least that much during the current year.
Private securities markets
Sell the shares on a private securities market
Many marketplaces for privately held companies have sprung up over the years. They link buyers who want to invest in companies that haven't gone public with sellers who want to turn their private shares into cash. Here are a few examples of private securities markets:
- Nasdaq Private Market SecondMarket®
- EquityZen
- Forge
- Hiive
Related investing topics
Get your company to do an IPO
Get your company to do an IPO
Finally, some companies go public specifically to allow shareholders to sell their stock. The registration process is long, complicated, and expensive, but existing shareholders can include shares as part of an initial public offering, or IPO for short. Many institutional investors use IPOs as an exit strategy, but for most retail investors, it takes a group effort to get a company to respond.
Investing in privately held stock can be lucrative, but it creates complications when it's time to sell. By following these leads, you might be able to find a buyer for your privately held stock.
