A:

In some instances, both private and public companies may issue shares to their own employees as part of a compensation program. This action is designed to motivate employees by tying a portion of their earnings to the company's earnings.

In some cases, people may eventually want to sell their shares. For publicly traded shares, this process is simple: an employee can just sell the shares through a broker. Private shares, on the other hand, cannot be sold as easily. Because private shares represent a stake in a company that is not listed on any exchange, finding a buyer may be difficult. The lack of information about most private companies tends to dissuade investors, who are usually very reluctant to buy into a company that they know nothing about.

The simplest solution for selling private stocks is to approach the issuing company and to inquire about what other investors did to liquidate their stakes. Some private companies may have buyback programs, which allow investors to sell their shares back to the issuing company. Private companies may also be able to provide leads about current shareholders or new investors who have expressed interest in buying the company's shares.

After an investor manages to find a buyer for the stocks, it is suggested that he or she visit a securities lawyer in order to finish off the paperwork because although private stocks are not registered with the Securities and Exchange Commission (SEC), all SEC regulations involving selling stocks must still be followed. Failure to comply with all relevant regulations may result in civil, administrative or even criminal penalties.

To learn more, read What's the difference between publicly- and privately-held companies?

RELATED FAQS
  1. How do modern companies assess business risk?

    Before a business can assess or mitigate business risk, it must first identify probable or likely risks to its bottom line. ... Read Full Answer >>
  2. Why has emphasis on corporate governance grown in the 21st century?

    Corporate governance refers to operational practices, management protocols, and other governing rules or principles by which ... Read Full Answer >>
  3. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
  4. Why should investors research the C-suite executives of a company?

    C-suite executives are essential for creating and enacting overall firm strategy and are therefore an important aspect of ... Read Full Answer >>
  5. What is the difference between a direct and an indirect distribution channel?

    A direct distribution channel is organized and managed by the firm itself. An indirect distribution channel relies on intermediaries ... Read Full Answer >>
  6. How can an investor determine a company's annual return from looking at its financial ...

    The funds in a share premium account cannot be used for a company's general expenses. These funds are restricted in terms ... Read Full Answer >>
Related Articles
  1. Investing Basics

    What is a Public Company?

    A public company has sold stock to the public through an initial public offering (IPO) and that stock is currently traded on a public stock exchange.
  2. Economics

    What Does Human Resources Do?

    Human resources (HR) is the department within a company that handles all matters relating to employment.
  3. Professionals

    8 Justifications For Sky-high CEO Salaries

    Why are CEO salaries so astronomically high? There may be more to the story than you think.
  4. Term

    What is a Feasibility Study?

    A feasibility study analyzes a company’s ability to complete a project.
  5. Professionals

    Are Stock Buybacks Always Good for Shareholders?

    Stock buyback programs aren't always done with the interests of shareholders in mind. It's important to try to understand the motivation behind such moves.
  6. Brokers

    10 Most Famous Public Companies That Went Private

    Here’s a list of the most popular listed companies that went private in recent decades.
  7. Investing

    Strategies Activist Shareholders Follow

    Activist shareholders, also called activist investors, are large-scale investors who use their investment power to influence public companies. While their goals can vary widely, the strategies ...
  8. Investing

    Has Nepotism Ever Worked?

    It may very well be that hiring a relative is the right course of action for you. But before you do, carefully consider how hiring family could hurt your business.
  9. Investing

    What Can A Conference Call Tell About Trends?

    Messages in a company conference call can be easily misconstrued. But there is a way to cut through the talking points to get to the real substance.
  10. Investing

    Why These Industries Are Prone To Corruption

    Corruption is like life in that it exists pretty much everywhere the conditions are favorable.
RELATED TERMS
  1. Dividend Payout Ratio

    The percentage of earnings paid to shareholders in dividends. ...
  2. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  3. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
  4. Ex Gratia Payment

    A payment made to an individual by an organization, government, ...
  5. Poison Put

    A takeover defense strategy in which the target company issues ...
  6. Enterprise Investment Scheme (EIS)

    A UK program that helps smaller, riskier companies to raise capital ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!