Private shares, also known as private equity, offer the potential for high returns and a unique opportunity to invest in companies with significant growth potential.
They can be a lucrative investment strategy. However, because they are issued by companies that aren’t publicly trading, buying and selling private equity is more complicated than trading on the stock exchange.
Here’s what you need to know about how and where private transactions take place if you’re considering expanding your investment portfolio with private equity opportunities.
Private company stock refers to shares of companies that are not publicly traded on stock exchanges. Compared to public companies, private companies tend to be smaller and have fewer shareholders — their shares are typically owned by the company's founders, employees, or early investors.
While holders of public shares can sell them at any time to whoever they wish, the sale of private stock needs approval from the company that issued the shares. Some companies may also not be willing to distribute their shares extensively.
It can be difficult to sell or transfer ownership or shares because of this. However, the closer a company is to going public with an initial public offering (IPO), the more sought-after its private shares are.
The buying and selling of private company equity outside of the company itself is referred to as the secondary marketplace.
Buying private company stock usually involves negotiating directly with the company, buying from existing shareholders, or using channels that facilitate private equity trading.
Here are the main steps involved:
Private stock is held in electronic form or as physical stock certificates.
As mentioned, shareholders need permission from the company to sell their stock, as well as agree on the manner of sale.
A company buyback program is usually the simplest and easiest way to sell your shares, as the company sets the terms of the buyback program and you can sell your shares at a predetermined price.
You will need to find a buyer on your own if this option is not available or you choose to sell to a third-party buyer. Consider using a broker or a private equity marketplace like PreIPO® that connects buyers and sellers of private company stock.
Before selling, consider the fair value of your shares and negotiate a price with potential buyers. The company may provide a valuation of its stock, but it's a good idea to consult with a financial advisor or accountant to determine a fair price.
Additionally, a financial advisor or tax professional will guide you on the tax implications involved in selling private shares.
For a long time, brokers and private equity firms were the biggest players in the market for private company equity trading. Brokers specialize in facilitating transactions involving private company stock, while private equity firms often invest in private equity opportunities with the goal of eventually selling their shares for a profit before or after the company’s IPO.
However, the emergence of securities-trading platforms like PreIPO® has disrupted the secondary marketplace by providing a more accessible and transparent option for buying and selling private shares.
The PreIPO® platform leverages technology to automate and streamline the transaction process, making buying and selling private equity infinitely easier. Additionally, investors can access a wider pool of buyers and sellers, increasing liquidity and driving better pricing for shareholders.
PreIPO® is a leading securities-trading platform with a commitment to transparency, efficiency, and innovation.
We provide a user-friendly platform for buying and selling private shares and offer a range of services including access to powerful research and due diligence tools, as well as a network of experienced brokers to assist with the buying and selling process.
Join our platform today to explore global private equity opportunities and start investing in the next generation of innovative companies.
