SharePost is a company that allows for the sale of shares of private companies by facilitating trades between buyers and sellers of private companies. It allows for employees with company stock to gain liquidity in their shares. With companies being slower to get to IPOs, SharePost can be an important way for employees to cash in on their stock options prior to the company going public.
SharePost Website: https://sharespost.com/solutions/shareholders/
Very interesting company! Under their FAQ section, they address concerns surrounding whether issuers of shares will permit the sale of private company stock. This was my initial question regarding this business model. SharePost doesn’t directly answer this concern. They simply state, “SharesPost Private Securities Specialist will help you navigate your relationship with the company and compliance with their preferred transaction process.” I wonder how tightly private companies control the process of trading shares in their company. I would imagine that would be closely regulated to ensure control. It would be interesting to see what private companies write into their shares contracts to regulate these sort of transfers.
I think SharesPost has a very interesting business model. But I also agree with Michael’s comment that it might often be very difficult for the employee to sell the shares due to the legal constraints imposed by the company. Especially owners of smaller, private companies are often very concerned, in my experience, to not lose control in their own companies. Hence, they often require the employee to hold the shares for a longer period before reselling them and, in some cases, even reserve a right for the company to buy them back, if the employee wants to sell them. In any case, I guess the difficulty is that for shares of smaller, privately held companies, there is normally not a significant demand and, therefore, no real market. However, maybe SharesPost can solve this problem at least to some extent.
It is interesting that you guys posted about stocks of private companies. I am currently doing an internship at the SEC and one of my assignments required me to write a memo about “tacking,” as related to “restricted securities.” Here, “tacking,” means using another holder of the security’s time he had the restricted stock and to add that time to the time the new holder of the security is required to hold on to it (genereally, I think – lol). “Restricted” is within the SEC regulations and means it cnanot be freely traded as one normaly thinks about public stocks being traded. Instead, certain conditions must be met before the security can be sold. One type of restriced security is stocks that came from a private company like the content of your post. The link below seems to be pretty straight-forward in laying out some basic rules surrounding trading of private securities.
https://finance.zacks.com/rules-private-stocks-1384.html
Some noteable restrictions are:
generally, sales of these stocks at offerings must be sold to accredited investors which means the investor has net worth of over $1 million. However, like all laws there are execeptions. If you are a relative or spouses of accredited investors (proof of address required), or a trust, estate, or corp. owned by an accredited investor, you can also get this stock at an offering. Notebly, an issuer of private stock can only sell to 35 non-accredited investors and this is to protect such people from losing money here. Without being a public corporation, a company is subject to a lot less regulation and thus, less oversight.
Companies issuing private stock must also offer the acquiror of private stock a private placement memorandum disclosing the company business and potential negatives associated with the company and the value of the investment.
One final intersting point to note is that one way to get out of some of the restrictions for selling private stock is to obtain a letter from a lawyer saying it is exempt and can be sold. I find that pretty interesting. I assume there are limits to this, otherwise receiving a letter would be a blank check to circumvent the SEC restricted selling rules. I am sure there are mechanisms to prevent lawyers from writing bogus notes (and knowledgable investors from seeking out notes for that purpose).
Regardlesss, it is a pretty interesting area of the law – for better or for worse – and I believe changes frequently.
See the link above for more details.