How do I sell my private company stock?

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Getting stock in the company you work for is a great perk, but it doesn’t always translate to liquid cash. If your company hasn’t gone public yet, selling your private company stock can be tricky. 

It’s not impossible, though. If you’re interested in liquidating your shares, you might have a couple different options. 

How can I sell my private company stock?

There are two primary ways to sell private company stock: tender offers and bi-lateral secondary transactions. 

Tender offer

A tender offer is a company-sponsored liquidity event that gives shareholders the opportunity to tender (sell) their shares to outside investors or back to the company. The company brings the buyers to table, sets the price, and organizes the transaction.

As an employee, selling private stock via tender offer gives you the chance to liquidate shares without having to wait for the company to go public. At the same time, your company may get to remain private for longer while offering investors and employees the liquidity they want. 

Keep in mind, though, that tender offers aren’t routine occurrences. It’s up to your company to decide whether to run a tender offer, and there are no assurances your company will ever offer such a program. And even if your company does run a tender offer, there’s no guarantee you will be able to sell your shares, as there may be additional requirements that you need to satisfy or there may be too much interest and the tender offer may be “oversubscribed.”

Bi-lateral secondary transaction

Another option is to sell stock through a secondary transaction site prior to the company going public. With this option, the secondary marketplace connects you to investors who want to buy your stock. However, it’s a complex process that takes a lot of time, costs money (upwards of 5% of your gross proceeds), and may not get you the best price for your stock. 

What should I consider before selling private company shares?

Selling your private shares is a big decision that depends in part on your personal finances. Before selling, consider these four factors:

1. Your company’s restrictions around selling shares 

If you hold shares in a private company, sometimes you can’t sell your stock without the company’s permission. Not only that, but the company also has the right of first refusal, which means they can buy back your stock before other investors do. 

The first step to selling your shares is asking your CFO or founder if they are planning to run a buyback or third-party tender offer. If they do run such a program, they will set rules. You might only be able to sell a certain number of shares, for example, or only qualify if you’ve exercised your options and held onto the resulting shares for a certain amount of time, such as six months. 

A tender offer must remain open for a period of time, so take time to evaluate the qualifying criteria and terms of a sale to make sure you’re comfortable with everything. 

2. The bid-ask spread in a bi-lateral secondary transaction

Before you decide to sell your shares, you should also investigate the stock’s current bid-ask spread, which is the difference between the highest bidding price per share to buy (bid price) and the lowest price per share to sell (asking price).

If, for example, the asking price is $100 and the highest bid is $90, then the spread is $10. This means even if you think the stock is worth $100 or more, you will likely only be able to sell them for $90 per share. That $10 spread may not seem significant on its own, but when you multiply it by the amount of shares you want to sell, you could lose out on a lot of potential profit.

That said, investments in private companies carry risk and volatility (particularly in a downturn), and passing on an opportunity to sell your shares may mean that you realize a smaller or no gain if you wait. Consider the “bird in the hand” adage and how important that is to you in the context of your personal financial situation and risk tolerance.

3. The tax implications of a sale

When calculating your total gain, don’t forget to factor in taxes. If you exercise stock options and sell your resulting shares in the same transaction (during a company-sponsored tender offer that allows for cashless exercise, for example), you’ll pay ordinary income tax on your gains (the amount you sold the shares for minus your strike price).

If you sell private shares you hold as a result of a prior option exercise, in addition to paying ordinary income tax on the spread (the difference between your strike price and what the fair market value of the shares at the time of your option exercise), you may be subject to capital gains tax liability on the increase between the fair market value of your shares when you exercised to the sale price. There are two different scenarios here:

  • If you hold your shares for at least a year after exercising them and two years after your option grant date, you’ll be subject to long-term capital gains taxes on the increase in value, which the IRS taxes at a lower rate than short-term capital gains. However, you may also have to pay the alternative minimum tax (AMT).
  • If you exercise your options and sell your shares within the same year, you’ll pay short-term capital gains taxes on the increase in value. 

4. The value of liquidity

Any time you are considering selling stock, you have to weigh the value of having cash now against the theoretical value of your stock going up over time. That’s why it’s important to consider why you want to liquidate your shares. 

Maybe you’d like to pay off your student loans, put money toward your wedding, put a down payment on a house, or start a family, for example. Or perhaps you want to invest the money in a side venture. If you have a good use for your cash right now, it may be worth selling some of your shares. However, if you think your stock’s value will continue to rise and you can afford to wait, holding off on a sale could net you more money down the line. 

Either way, it’s helpful to consult with your financial and tax advisors to review the benefits and drawbacks of these opportunities. 

The challenge with selling private company stock under the current system

Selling your private company stock under the current system can be tedious and expensive. Not only does the issuing company often have to approve the sale and buyer, but you may also have to hire an accountant and attorney to review your taxes and analyze your shareholder agreement and sales contracts, respectively. What’s more, if the issuing company is considering a tender offer, they can kill the deal or back out if they choose. 

But the system is changing—we’re building CartaX. Pending regulatory approval, CartaX will be a financial marketplace for private company liquidity that matches buyers and sellers. CartaX will simplify the process for employees to sell shares and investors to buy them, while minimizing the issuing company’s administrative burden. It’ll be available later in 2020. 

What if I can’t afford to exercise my shares?

You can only sell your private company shares if you exercise your stock options and purchase those shares first. Depending on the strike price, though, you may not have enough cash to exercise your options, especially if your company requires you to hold onto it for a certain period of time before selling. 

That’s where option lending comes in. Option lending gives sellers loans to help them exercise their shares. The size and terms of the loan vary by lender. 

If you opt for a bank loan, for example, you may have to agree to personal recourse, which means your personal assets will be at risk if your stock goes down and you can’t repay the loan. With other lenders, you may have to give up a certain amount of your stock when your company has a liquidity event. 

Option lending can be a good solution if you can’t afford to exercise your shares, but it’s critical to consider 1) the size of the loan, 2) how much interest you’re comfortable paying, and 3) how much risk you’re willing to incur if your stock loses value. 


Learn more about how companies can use Carta to run liquidity events. If you’re thinking about exercising your stock options, check out our AMT calculator to get a sense of the taxes you might need to pay.


DISCLOSURE: This publication contains general information only and eShares, Inc. dba Carta, Inc. (“Carta”) is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.  This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests.  Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor.  This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. 

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