Understanding the Process of Selling Shares in a Company

When you own shares in a privately held business, the process of selling them can be quite different from that of trading public shares on a stock exchange. Unlike public companies whose shares are freely traded on regulated markets, privately held businesses have fewer options for liquidity. This article will explore the challenges and methods involved in selling shares in a privately held company.

Selling Shares in a Private Company

In a privately held business, the only shareholder you typically want is the majority shareholder. This is because they get to make all final decisions and are in control of the company's direction. However, in some cases, there may be situations where a minority shareholder or even an employee has shares that need to be sold.

Scenario 1: Multiple Shareholders

Imagine two smart business owners going into business together and hiring one employee. Each of the business owners owns 49% of the company's shares, while the employee is given 2% as a deciding vote in case of disagreements. However, the employee eventually leaves the company due to conflicts and the unpleasant work environment. In situations like this, the shares may need to be sold.

Scenario 2: No Clear Market for Shares

If you are unsure about how to sell your shares in a privately held company, the answer might be simpler than you think. Pressing the 'sell' button is often the simplest solution, much like pressing the 'buy' button to acquire the shares in the first place.

Alternative Methods for Selling Shares in a Private Company

There are several ways to sell shares in a privately held company, depending on the company's structure and the market conditions:

1. Through Stock Market Brokers in India

If the shares are listed on the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE), you can sell them through a stock market broker. This method is suitable for companies that have gone public and are listed on stock exchanges.

2. Through Private Equity Placement

If the company is not listed on a stock exchange, you may need to approach the promoters or directors of the company for a private equity placement. This method is used for unlisted and private or public limited companies.

3. Through Business Brokers

Negotiating with a business broker can be another option if you prefer a private sale. Business brokers facilitate the sale of private companies and their shares.

4. Hiring a Lawyer

If the situation is complex, consulting a lawyer is highly recommended. Lawyers can help navigate the legal aspects of share sales, especially if there are specific terms or conditions that need to be met.

5. Right of First Refusal

In many cases, existing shareholders have a right of first refusal when shares are for sale. This means they have the option to purchase the shares before any third parties can. To follow this process, you would typically contact the corporation's secretary to obtain a list of shareholders and send each a registered letter detailing the sale.

6. Informal Marketplaces

Another option is to put the sale on the 'word of the street.' This can be a less formal method, but it can still be effective. Inform key individuals in the industry about your shares and see who might be interested.

Conclusion

Selling shares in a privately held company requires an understanding of the different methods available. Whether you are a business owner looking to sell a controlling stake, an employee with shares that need to be liquidated, or an investor looking to buy shares, the process can vary widely. With the right approach and the help of professionals if necessary, you can sell your shares effectively and efficiently.