How to Trade Private Companies

Unless a corporation is a sole-proprietorship, most companies that incorporate issue stock. Corporations which have had their Initial Public Offering have publicly traded stock listed on a stock exchange, and available for trading to the public.

Other companies, which choose not to offer their stock publicly, stay private with their shares held by the investors, founders and employees of the company in some cases. These people, who own shares of private companies, may want to sell their stock, making it possible for some people to trade private companies.

What You Need to Trade Private Companies

Nevertheless, not everyone can trade a private company’s stock, at least in the United States.
Buying a private company’s stock can only be done by meeting certain standards set by the Securities and Exchange Commission or SEC.

All buyers of private stock in the U.S. must be “accredited investors”, meaning that individuals must have at least $200,000 annual income for a minimum of three years, or a net-worth of $1,000,000. In addition, accredited investors must have a certain degree of sophistication in the stock market.

Conversely, selling stock of a private company can be done by any shareholder eligible to sell their securities. The stock can only be sold with the provision that the company has not put any restrictions on the sale of the stock or shareholder class.

Where Private Company Stocks Trade

A number of online services exist that offer free a free trading platform for private company shares. These companies are regulated by the SEC and the Financial Regulatory Authority or FINRA, a private independent securities regulator.

Before a transaction takes place on the brokerage’s trading platform, the buyer is fully screened with a background check to make sure they meet the SEC requirements. The broker then evaluates if there are any stockholders in the private company willing to sell their stock.

After checking for sellers, the broker then checks buying interest, and establishes a share price. Once the price of the shares has been established, an auction of the shares begins which can last from a day to a couple of weeks with the shares awarded to the highest bidder.
By InvestorGuide Staff

Copyrighted 2020. Content published with author's permission.

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