How to Sell Shares of a Private Company: A Step-by-Step Guide

Selling shares of a private company is not as straightforward as selling publicly traded stock. With no stock exchange, limited market access, and complex regulations, the process demands careful planning. Whether you’re a founder, early employee, or investor, understanding the correct procedures to sell private shares can maximize your return and minimize legal or tax pitfalls.

In this guide, you’ll learn exactly how to sell shares of a private company step by step, including legal considerations, valuation, and finding the right buyer.

Understand Your Shareholder Agreement and Company Bylaws

Before considering a sale, review all governing documents:

Key Documents to Examine:

Shareholder or Stockholder Agreement
Company Bylaws or Operating Agreement (LLC)
Employee Stock Option Plan (ESOP), if applicable
Right of First Refusal (ROFR) clauses
Transfer restrictions or lock-up periods

These documents dictate who you can sell to, when, and under what conditions.

Tip: Some companies require board approval or give other shareholders the right to buy shares first.

Get an Accurate Share Valuation

You need to know the fair market value (FMV) of your shares before negotiating.

How to Value Private Shares:

Recent Funding Rounds: What price did investors pay recently?
409A Valuation: Common for employee stock options, provides IRS-compliant valuation.
Comparable Company Analysis: Compare to similar private or public companies.
Discounted Cash Flow (DCF): For mature businesses with predictable earnings.

Hire a business valuation expert if large sums are involved.

Identify Potential Buyers

Since there’s no public market, you’ll need to actively seek buyers.

Potential Buyers Include:

Existing Shareholders
Founders or company executives
Private equity or venture capital firms
Secondary marketplaces (e.g., Forge, EquityZen)
Third-party investors interested in private equity

Each buyer type comes with different timelines, motivations, and due diligence levels.

Notify the Company and Request Approval (If Required)

Even if you find a buyer, many private companies require prior consent for any stock transfer.

The Process Typically Involves:

Sending a written notice of intent to transfer
Disclosing buyer identity and proposed price
Allowing existing shareholders to exercise ROFR
Getting board or company approval (where required)

Failing to get approval may void the transaction.

Draft and Sign a Share Purchase Agreement (SPA)

This legal document outlines all terms of the sale.

Key Components of an SPA:

Names of seller and buyer
Number and type of shares
Price and payment terms
Warranties and representations
Closing conditions

Have a lawyer draft or review the agreement to ensure legal compliance.

Complete the Transfer of Shares

Once the SPA is signed, you can finalize the deal.

Final Steps Include:

Payment processing (via escrow, wire, or platform)
Transfer on the company’s stock ledger
Issue of new share certificate to buyer
Form filing with your state’s Secretary of State (if required)

You’ll now legally no longer own the shares, and the buyer assumes ownership rights.

Understand the Tax Implications

Selling shares of a private company can have significant tax consequences.

Taxes You Might Owe:

Capital Gains Tax (short-term or long-term)
Alternative Minimum Tax (AMT) for ISO shares
State income tax on the gain
Gift tax if shares were transferred below market value

Consult a tax advisor to estimate your liability and consider strategies to minimize taxes.

Consider Secondary Marketplaces

Platforms like Forge Global, EquityZen, or CartaX offer liquidity for private shares, especially in late-stage startups.

Benefits:

Vetted buyers
Easier legal compliance
Transparent process
Often company-approved

However, these platforms may charge fees or require minimum transaction thresholds.

SEO Keywords to Include in Content

To boost organic visibility, integrate these keywords:

how to sell shares of a private company
selling private company stock
private shares liquidity options
transfer private equity shares
secondary market for startup shares
share purchase agreement private company
capital gains on private stock sales
private company shareholder agreement

Conclusion

Selling shares of a private company can unlock liquidity and financial flexibility—but it’s not something to rush. From legal hurdles to valuation complexities, every step requires due diligence. The good news? With proper planning, you can legally and profitably exit your position and take advantage of the wealth you’ve helped create.