There are a few things to know before selling stocks from a private entity.
With this information in mind, you can ensure you get the most for your stock and sell it correctly.
Here are four things to consider before you sell stock from private entities.
Your Right to Sell Private Company Stock
Before looking for investors wanting to purchase your stock, check with the private company’s guidelines first!
For instance, private companies typically have specific stock-selling guidelines.
Also, most private businesses require shareholders to hold their shares or stock for a specified amount of time before they can sell.
Further, some businesses don’t allow you to resell the stock at any point.
Do your own due diligence and check with the company’s guidelines to ensure you have the right to sell your shares of stock.
Tax Implications of Selling Private Stock
Another thing to consider as you’re trying to sell private stock shares is the tax implications.
For example, you must consider the sale’s tax liability.
Sometimes, sellers can save more on taxes when they’re strategic about when they sell their private stock units.
For instance, if you sell your shares of stock within a year, you’re liable to ordinary income tax on your financial gain.
However, if you hold onto these shares for at least 12 months, you might pay a lower rate because of the long-term capital gain tax.
The Bid/Ask Spread
The bid/ask spread is the difference between what the buyer is willing to pay for your shares of stock and what you’re ready to accept.
In other words, if a potential investor agrees to buy your shares of stock at $20 per share, but you ask for $25 per share, then you have a five-dollar spread.
Also, the spread can cost you if someone is willing to buy your shares at $20 per share, but you’re asking for a higher amount.
Clearly, it’s vital to consider and know about the bid/ask spread before officially selling your stocks.
Sometimes, it’s best to hold your shares so they become more valuable.
Liquidity Needs
Finally, consider your liquidity needs before you decide to sell private stock.
In other words, how urgently do you need the money?
For instance, you may be looking for a quick sale if you have an emergency expense or a looming debt payment that you must make.
On the other hand, if you don’t need the money right away, you may be able to get a better price in the future.
Further, if you want to change your investment strategy or diversify your portfolio, waiting for the right time and opportunity to maximize your return on investment is beneficial.
When selling private company stock, thoroughly understanding the process is critical.
The Company Might be Buying Back in the Future
Depending on your role in the company, the business might already consider buying back shares.
I’ve personally been a part of several cases where a company raises an additional round of funding, and part of that round is buying back stock from old investors.
Again, you might not want to wait around, but it is something to be aware of.
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