What Is the Process of Selling Shares of a Business That Already Exists?

by Diane Perez

The process of selling shares of a business can be easy or complicated, depending on the type of shares and how you acquire them. The Securities and Exchange Commission, or SEC, regulates the buying and selling of stock in mid-size and large corporations. However, startup or small companies issue private stock, and it can have restrictions on how or when you sell it.

Private Shares

Private shares are not listed on a public stock exchange. The issuing corporation can restrict to whom you can sell the stock. You might need to hire an attorney to prepare the necessary documentation on a potential buyer, to submit to the company for its approval. This prevents competitors from buying into a company and learning its trade secrets. Additionally, you can be restricted from selling before a specified date, regardless of your financial need. There are several online markets where you can list your shares for sale, including SecondMarket and SharesPost, provided you are an accredited investor as defined by the SEC.

Public Shares

Public shares are those listed on a stock exchange, which can be bought or sold through a broker. Sometimes corporations have buybacks, where you sell the stock directly to the company rather than through a broker. You can buy and sell public shares at any time.

Employee Shares

Some companies give shares to their employees as part of their retirement or profit-sharing program. Your employer can limit how much stock you sell at one time. Additionally, they can insist on the right of first refusal, which means that you must offer the stock to your employer before trying to sell it to anyone else.

Owner Shares

As the owner of a company, you may want to sell some or all of your stock. Some owners transfer the stock family members, while others prefer to sell to their business partners or employees, or to an outside buyer. The owner may have to sign a non-compete clause with the buyer, which means that they can’t start a new business that competes with the one you are selling. If a bank is financing the sale, they can insist that the buyer have management experience; this can limit your pool of potential buyers.

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