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?



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