The practical steps to sell and transfer private shares in the US

To follow up on my posts on US financial regulations concerning private shares resale, here are the concrete steps one should take to effectuate a sale and transfer(from the seller’s pov):

  1. find a buyer for your shares. This has to be someone from your existing network. US laws prohibit ‘general solicitation’ of private shares, meaning you can only offer them to people that you already know. Also make sure the buyer is an accredited investor. This can be done by having the buyer sign a simple statement to that effect, no proof of income or assets are needed. (you need to  ‘reasonably’ be able to presume the person qualifies)
  2. When you have found a buyer, draft and execute a Stock Purchase Agreement(SPA) between yourself and the buyer. The SPA should take into account the common restrictions  found on private company shares, such as the Right of First Refusal of the company and preferred shareholders. Templates for SPA are available
  3. After having executed the SPA, if you haven’t done so already, notify the company of your intent to sell. This will trigger the Right of First Refusal procedure, which can take a few weeks or even a month. The company will have to go through the procedure and basically decide whether they want to preempt your deal and buy the shares from you or find out whether any of the preferred shareholder wants to buy the shares from you.
  4. When the outcome of the above is known, the company will notify you of it. At this point you will know whether there are any shares left to sell to your buyer, or whether all of the shares that you wanted to sell have been bought by the company and/or other shareholders preemptively. Even if the company buys all the shares, it’s not a big deal for you since they will have to pay the same price that your buyer was willing to pay. However it will matter for your buyer, and this is why your SPA should take this into account.
  5. Notify your buyer of the above, and ask him to transfer you the purchase price.
  6. When you have received the purchase price, sign a Stock Power and send it along with your stock certificate to the company, directing it to transfer the shares that you sold to the buyer. Send a copy of all this to the buyer as well. If this is required by the company, you will also need to get yourself a legal opinion about the legality of your transaction, and send it to the company as well.
  7. When the company receives all the above, they will change the name of the shareholder in their registry and issue a new stock certificate in the name of the buyer.

Done Deal!


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