Five things to consider before selling private stock

If you hold shares in a private company, selling them before an IPO may be possible. Here are the key considerations shareholders should understand before initiating a transaction.

What is private company stock

Private company stock represents equity ownership in a business that is not listed on a public stock exchange. These shares are typically issued to founders, employees and early investors as compensation or in exchange for capital.

Unlike public stocks, private shares don't trade on an open exchange. That makes them inherently less liquid, but it doesn't mean they can't be sold. Under the right conditions, shareholders may be able to convert their private equity into cash well before an IPO.

How to sell private stock

Shareholders generally have a few primary methods for selling private equity. The most common is using a secondary marketplace, where sellers may list their shares and seek to be matched with accredited and institutional buyers. These listings are initiated by sellers when they are seeking potential liquidity opportunities, though a listing does not guarantee a transaction or liquidity event.

Companies sometimes sponsor tender offers or buyback programs, which are typically announced in advance with a defined window for eligible shareholders to sell at a set price. Some shareholders also arrange direct private sales, though this path requires independently finding a qualified buyer and managing complex legal documentation.

Your company's guidelines on selling their shares

Before you start learning how to sell stock, be sure to check company guidelines first. Like all public and private companies, your employer may have specific guidelines around selling company stock. As a private company, your company could require you to hold shares for a certain amount of time before selling them, while other companies don't allow secondary transactions at all.

Some organizations also reserve the ROFR, where they have the option to buy the shares from you or substitute a buyer of their choice instead of the buyer you lined up. If you work with a private market firm, they may be able to tell you if your company has allowed others to sell their shares in their marketplace.

The tax implications of the sale

If you decide to sell stock, you'll also need to take into account the tax liability this transaction could trigger. Depending on your personal tax situation, you may be able to save more on taxes if you're strategic about when to sell employee stock.

Say you exercise your stock options, only to turn around and sell them to another investor within a year. In this case, you'd be liable for ordinary income tax on your gains. But if you held onto these private company shares for at least 12 months, you may pay a lower rate with the long-term capital gain tax.

As with all important financial decisions, though, it's prudent to talk things through with a financial advisor or tax professional before making a decision.

The timing of the transaction

Beyond tax advice, you'll also want to determine whether you'd benefit more from selling private company stock now or from holding onto shares that may increase or decrease in value over time.

Think about why you want to sell your shares in the first place. Do you want to reinvest the cash in reliable public stocks or other high-growth startups? Make a down payment on a new house? Pay off your student loans?

If you are considering a secondary transaction, you may want to conduct your own analysis and take your personal financial circumstances, goals, and risk tolerance into account when evaluating whether selling or continuing to hold your shares may be more appropriate for you.

How Forge can help shareholders sell private company stock with ease

If you list your shares on Forge, our team supports you through the entire transaction. Sellers may be able to leverage Forge's resources and experience to find potential buyers, helping them pursue liquidity.

Forge has built a large and growing network of accredited and institutional investors who are interested in buying private stock. Our experienced team of Private Market Specialists is available to assist throughout the trade lifecycle.

With the Forge trading platform, you can also track the valuation of your company as it raises capital and review other exciting private companies to invest in. Combined with real-time pricing transparency and contextual market insights, shareholders who want to sell can take advantage of a wealth of data as they navigate the process.

Learning how to sell private stock can be easier than ever before. You may begin the process by creating an account to see to see indicative information about the potential value of your shares.

With the Forge trading platform, you can also track the valuation of your company as it raises capital and research other exciting private companies to invest in. Combined with the knowledge and expertise of our Private Market Specialists, this means that an existing shareholder who wants to start selling company shares privately can take advantage of a wealth of insight, as they sell their individual stocks.

With the resources and knowledge available to you through Forge, learning how to sell private stock can be easier than ever before. To begin the process, create a free account on our trading platform today to see how much your shares could be worth.