Can I sell shares of a private company?

Nov. 1, 2000
You can sell the shares unless the company imposed restrictions on the stock, such as right of first refusal to buy back the shares. I also think it is very difficult for you to sell private company shares on your own.
1304qa Chang New
Q: Am I allowed to sell shares of a private company and how do I go about it?A: You can sell the shares unless the company imposed restrictions on the stock, such as right of first refusal to buy back the shares. I also think it is very difficult for you to sell private company shares on your own.

Assuming the number of shares you own is small, the company most likely has a mechanism already established to facilitate buying and selling shares between existing shareholders. If you want to sell a large number of shares on your own, then you must abide by the rules and regulations that are established to prevent unscrupulous promoters from "selling worthless certificates to unsuspecting widows and orphans." Put simply, what you have to do is make sure the buyer goes in with eyes wide open, and get disclaimers signed by the buyer so you can prove later that you made them aware of the risks. In addition, you must ascertain that the buyer is qualified to take the risks, meeting the criteria of being a "sophisticated investor." Then you must make full disclosure to the buyer about the company. This would be difficult for you to do on your own because you may not even know all of what's going on.

My recommendation is that you work closely with the company management and get the corporate lawyer involved. The company is motivated to cooperate because they don't want the stock to fall into the wrong hands. Also, by getting the company involved, you will have in effect shifted to the company the liability of making full disclosure. Either way, have a lawyer on your side in the process.

Q: The venture capital firm that just funded us wants me to engage a public relations (PR) firm. How do I use a PR firm effectively?A: I am surprised that they asked you to do so at such an early stage of your business development. The people you want to reach are very targeted until you are about ready for an IPO. You may want to find out what goals your investors have in mind for the PR firm. Maybe they want you to establish a PR-oriented culture early, or simply for you to have a nice website. I hope it is not because they want to brag about how great an investment they have made.

To use the PR firm effectively, you must first define your objective clearly. That is, define the purpose of each news release and tie all of them back to your bigger picture corporate objectives. In my mind a PR firm performs three main functions: it prompts you to think about PR, it helps you "spin" your message, and it gets your story published in the right places. In the early stage of your company, you don't want to spend time with curiosity seekers, but focus on getting the opinion leaders of your customer base to know you and to guide you. The number of these people is usually small and you and your marketing team should be the ones pushing to establish personal rapport with them, and not through intermediaries. The next stage is usually to get your product information into trade journals. Trade journals are hungry for new product information, so you don't need a PR firm to do that. Even if you have a PR firm, your people still have to generate the write-up. As you approach going public and even after the IPO, you'll want the financial community to know about you. There, PR firms can make a big difference. I can imagine financial journals are bombarded by press releases. A release from a top PR firm gets more attention because it automatically conveys more credibility than one coming from an unknown source.

Q: How do I promote my one-person consulting business? A: Most consultants get their business through referrals. This is sometimes called "viral marketing." People are surprised that if you start with a penny and double the amount every day for a month that it works out to more than a million dollars. So this example illustrates that referrals are a powerful way to build business quickly. To get launched, you should not be shy about asking for business from people whom you know and introducing yourself to the opinion leaders in your area of specialty. These people are the ones your potential customers are most likely to turn to for advice. You may also want to remind them of your existence to avoid being "out of sight, out of mind." I was surprised when a professional consultant told me that it takes a client base of 500 in order to make a living. For sure, you need more than a close group of just a handful of customers.
About the Author

Milton Chang

MILTON CHANG of Incubic Management was president of Newport and New Focus. He is currently director of mBio Diagnostics and Aurrion; a trustee of Caltech; a member of the SEC Advisory Committee on Small and Emerging Companies; and serves on advisory boards and mentors entrepreneurs. Chang is a Fellow of IEEE, OSA, and LIA. Direct your business, management, and career questions to him at [email protected], and check out his book Toward Entrepreneurship at www.miltonchang.com.

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