How to sell private stock in my company
How to sell shares of stock in a private company | Equity 101 lesson 6
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I remember when my friend gave me a call and he was like, âNathania, I bought a house." And Â
I remember thinking, âWhoa, like, those shares that he had, that is what got him the house.â Â
Up until this point, I didnât really think much of my shares. I knew that they were vesting, but Â
they were just there. And then all of a sudden, when he told me that, I realized that I could Â
actually take my ownership and my shares and turn it into something tangible and something real.
In this lesson, weâre going to talk about selling your shares. What are Â
the different ways you can sell? And what kind of things do you need to consider when you do?
Selling your shares is a really personal decision. Itâs not as easy as just finding a buyer and Â
selling your shares to them. There are a bunch of different factors you need to consider. First of Â
all: Can these shares even be sold or transferred? Private company shares are usually subject to a Â
lot of restrictions on sales and transfers. The second question: Do you need the cash? If not, Â
you might want to take a look and see: Is the value of the shares increasing over time? Â
In other words, is the stock going up? Also: Will this be your only chance to sell? Â
Do you know if youâll have more chances to sell in the future? Or the really big one: Â
What are the tax implications associated with selling? Because rememberâselling your Â
shares may implicate capital gains, which means youâre likely to have a tax impact.
For a lot of employees, a big portion of their net worth is tied up in these shares. Â
So selling is a really important decision, and itâs a really personal one, too.
There are a few different ways that you can actually sell your shares. Â
If you work for a public company, you can usually sell shares right when you vest themâjust Â
sell them in the stock market. Another way of saying this is: Â
Public shares are pretty liquid. This term âliquidâ means they can easily turn into cash.
Private company shares, on the other hand, are not very liquid. So itâs a lot harder to sell Â
your shares when you have shares of a private company. Additionally, most private companies Â
strongly restrict sale and transfer of shares outside of specific company-sponsored events.
Employees of private companies can typically sell their shares in three common ways. Â
Thereâs an IPO, which is when their company goes public, thereâs M&A, which is when their company Â
gets bought by another entity or merges with another company, or thereâs a tender offer, Â
which is when their own company actually buys the shares back from them.
IPOs are definitely the most publicized of the three. Â
Theyâre the stories you read in the news like âUber went publicâ or âAirbnb went Â
public.â What an IPO is, is when a private company offers shares to the public at large. Â
So they list on the stock exchange, and now anybody can buy and sell their stock. For you, Â
the employee, this also means you can sell your shares to the public on the stock market.
But hereâs the thing: There are typically some restrictions. You canât just sell your shares Â
right away. Thereâs usually a thing called a lock-up period, which means youâre restricted from Â
selling your shares for a set period of time after the IPO. Typically, this lockup period is six Â
months. So once the IPO happens, you have to wait six months before you can sell. And a quick note: Â
Thereâs been some negotiation on this period, and some companies have a shorter or no lockup period Â
at all. After the lockup periodâs over, all good. You can sell your shares without restriction.
M&A stands for mergers and acquisitions. This is another really common way for employees to sell Â
shares. Usually, itâs when another company comes in and buys out or merges with the company that Â
you work for. A lot of the time, the acquiring company will pay cash for the outstanding shares Â
and youâll get a lump sum payout. However, itâs often the case that employee shareholders of Â
common stock are the very last to get paid out. In M&A transactions, itâs not uncommon to see even Â
early employees walk away with very little. It all depends on the nature of the deal. But then, Â
some acquisitions are actually paid for with the acquiring company stockâmeaning Â
instead of cash, youâll get shares of stock from the acquiring company.
So yeah, if your company IPOs or gets acquired, it can potentially be a great thing. Â
But the problem with IPOs and M&As is you usually have to wait a long time before the exit happens. Â
Your company might stay private for 10 years. You see flashy IPOs in the news all the time, Â
but the truth is these days, private companies are just staying private a lot longer. Airbnb, Â
for example: That was a big IPO, but they were a 12-year-old company before they decided to Â
go public. So thatâs a long time to wait before being able to sell your shares.
One of the ways that a company can alleviate this time is through a tender offer. Â
So what is a tender offer? Well, itâs a broad offer by your company Â
or a third party to purchase a set amount of the company shares at a fixed price. Â
Or, to put it more simply. It means you have the ability to sell your shares for cash Â
while the company is still private. Not all companies will provide a tender offer. Â
And even when they do, theyâre usually a one-off or at best, theyâre pretty sporadic.
So in the end, up to this point, there hasnât really been a consistent or reliable way to Â
sell your shares or become liquid. At Carta, weâre working every day to try and change that. Â
Unlocking liquidity for the private market feels like this revolutionary ideaâbut here at Carta, Â
what we hope is that in the future, itâll be totally normal.
We believe that regular access to liquidity is a right Â
for all employees who hold shares in their company. We also believe Â
employees have the right to a clear job offer with clear numbers explaining their ownership.
