How to Sell Shares of a Private Company

Selling shares in a private company can be a complex process, especially compared to selling publicly traded stock. Whether you’ve received shares through employment, inheritance, or early-stage investment, the rules are different, and often more restrictive. 

This guide walks you through how to sell shares of a private company legally and effectively, including who can buy them, how to determine value, and which platforms or strategies to use.

Key Takeaways

• Selling private shares often requires approval from the issuing company.
• These shares aren’t listed on public exchanges and can’t be sold freely.
• Your options include selling to a private buyer, participating in a company buy-back program, or listing shares on a secondary market.
• Accurate valuation is essential and can be complex.
• Taxes and timing play a significant role in your final profit.
• Brokers and digital platforms like Flippa can help connect you with accredited buyers.

What Are Private Company Shares?

Private company shares (also known as private stock) are ownership stakes in a company that isn’t listed on a public stock exchange. These shares are typically held by founders, employees, early investors, or stakeholders, and they aren’t available to the general public.

Because private companies don’t have the same disclosure requirements as public ones, they aren’t obligated to share financial data with investors. This lack of transparency and stricter ownership rules make private shares more difficult to buy, sell, or value.

You don’t need to be an accredited investor to own private shares; many people acquire them through employee stock programs, inheritance, or private investment, but you usually must meet specific conditions to sell them.

Can You Sell Shares in a Private Company?

Yes, but it’s not as simple as selling stock on the open market.

Since private shares aren’t publicly traded, you’ll typically need permission from the issuing company before transferring ownership. This can involve internal approvals, restrictions on who can buy the shares, or waiting for specific events like a buy-back program or IPO.

That said, it’s entirely possible to sell private shares, especially with the help of a broker or secondary market. The key is knowing your options and planning ahead.

How to Sell Shares of a Private Company

While private share sales involve more friction than public stock, there are multiple paths available. Below are the most common ways to sell shares in a private company, depending on your situation and the company’s policies.

1. Find a private buyer

The most direct option is to find a buyer yourself. These are often accredited investors, private equity firms, or even other shareholders. In most cases, you’ll still need the issuing company’s approval before the transfer is finalized. Some sellers work with brokers to navigate legal and logistical hurdles.

2. Participate in a company buy-back program

Some private companies offer buy-back programs or tender offers, allowing employees or investors to sell shares back to the company at a set price. These programs can provide a straightforward exit but may be limited in scope or eligibility.

3. Sell on the secondary market

Secondary marketplaces connect private company shareholders with accredited buyers. These platforms often require due diligence and approval from the issuing company, but can streamline the selling process. A broker can help list and manage your offer.

4. Wait for a pre-IPO opportunity

If the company plans to go public, you may be able to sell shares before the IPO to institutional investors. These “pre-IPO” opportunities offer liquidity at potentially higher valuations but are generally limited to larger shareholders or early investors.

Why Sell Shares in a Private Company?

There are many reasons someone might want to sell private shares, and most come down to liquidity. Private equity isn’t easily converted to cash, so selling shares can provide needed funds for:

• Buying a home
• Paying off student loans
• Investing in new ventures
• Diversifying your financial portfolio

You might also sell for personal reasons, such as reducing risk or exiting a company you’re no longer involved with. In any case, you’ll likely need a valid reason and potentially company approval to begin the sale process.

How Do You Value Shares in a Private Company?

Valuing private company stock is tricky because there’s no public market setting the price. Instead, you’ll need to use one or more valuation methods to estimate fair value. The most common approaches include:

• Comparable company analysis (CCA): Compare your company to a similar publicly traded firm.
• Discounted cash flow (DCF): Estimate future earnings and discount them to present value.
• Valuation multiples: Use revenue or earnings ratios from peer companies.
• Internal rate of return (IRR): Project the expected annual return for a buyer.

CCA is often the most practical starting point, especially if you can access reliable data about competitors. Still, many sellers work with financial advisors or brokers to get a more precise and defensible valuation.

When Can You Sell Private Shares?

There’s no official holding period for private shares, but timing still matters. In most cases, it’s best to wait at least one year after receiving shares before trying to sell. Attempting to flip stock too quickly,  especially employee shares, can raise red flags or be blocked outright by the company.

Holding your shares for a longer period also gives them more time to appreciate in value. That said, if you have a legitimate reason (like a financial emergency or investment opportunity), the company may approve an earlier sale.

What Should You Consider Before Selling Private Company Shares?

Selling shares of a private company is a significant decision that depends on your personal finance, among other factors.

1. Your company’s restrictions

Often, you cannot sell private company shares without the company’s permission. If you’ve received an employee stock option and wish to sell, you might need to obtain approval first — and the company has the right to refuse, which means it can buy back your stock before other potential investors do. 

The first step is to ask your CEO or founder whether they plan to run a buy-back program in which they set the rules. If they offer approval for you to sell your shares of stock to a buyer, you can go ahead with the transaction.

2. The bid-ask spread

Determine the bid-ask spread if you plan to sell your stock offerings through a secondary marketplace. This is the difference between the highest bidding price to buy and the lowest price to sell. 

For instance, if the asking price is $100 and the highest bid offer is $90, the spread is $10. While the spread may not seem huge, when multiplied by the number of shares you wish to sell, you could miss out on a potentially significant profit.

3. The tax implications

When calculating your total gains, you must consider taxes. You must pay income tax on your gains when you exercise stock options and sell shares in the same transaction. 

However, if you sell your shares before exercising stock options, you will have to pay tax on the difference between your strike price (amount per share) and the fair market value. You may also have to pay capital gains tax on any value increases.

4. Liquidity needs 

When selling your stock picking, you should consider the value of having cash in your bank accounts versus the theoretical value of stock increasing. Think about why you want to liquidate your shares. It might be worth it if you have a specific reason, such as paying for a wedding or diversifying your holdings. 

However, if you think the value will continue to increase, holding off selling could result in better financial gains. Pay attention to the market’s news to determine the right time to sell.

Summing up

Selling shares in a private company isn’t as simple as cashing out public stock, but it’s absolutely possible with the right knowledge and approach. From navigating company approval to understanding valuation and tax obligations, it pays to be prepared.

With the private equity market growing steadily, platforms like Flippa are helping bridge the gap between private sellers and interested buyers. Whether you’re ready to sell now or planning for a future exit, taking the right steps today can unlock real financial opportunity.

Frequently asked questions

Can you sell shares without a broker? 

You can sell privately traded with or without a broker. A broker may look after your best interests and help you find a buyer offering a reasonable price. However, you can also use brokerage platforms to buy and sell shares with accredited investors. 

Can you sell shares anytime?

With privately held stocks, you can sell at a time that suits you. However, you will need permission from the issuing company or wait for them to host a buy-back program before selling. Often, if you have a valid financial reason to sell, the issuing company will approve.

What steps are essential for selling shares in a private company?

1. Obtain approval from the issuing company.
2. Determine the value of your shares.
3. Find a buyer, either directly or through a broker.
4. Negotiate and agree on a price.
5. Complete the sale with a legal contract.

How do I determine the market value of my shares?

Use methods like valuation ratios, discounted cash flow (DCF) analysis, internal rate of return (IRR), and comparable company analysis. 

What are common mistakes to avoid when selling company shares?

Avoid undervaluing your shares, not getting company approval, neglecting tax implications, and failing to consult a financial advisor.

Are there specific platforms for selling private company shares?

Yes, platforms like Flippa facilitate the sale of private company shares.

Can I sell shares with existing shareholders in the company?

Yes, but you typically need the company’s approval and must follow any internal policies regarding share transfers.

What factors influence the sale price of company shares?

Factors include the company’s financial health, growth potential, market conditions, and the share’s supply-demand balance.

Are there legal considerations when selling company shares?

Yes, ensure compliance with securities laws, obtain necessary company approvals, and draft a clear sales agreement.

What role does company performance play in share valuation?

Company performance directly impacts share value, as better financial health and growth prospects increase share worth.

Can I sell shares with outstanding company debts or liabilities?

Yes, but outstanding debts or liabilities can negatively affect the share price and buyer interest.