Is Employee Stock Trading a Good Idea? | Investment

How to buy employee equity

Companies specializing in the trading of private stocks are emerging that allow people who own shares of private companies to sell them to a special type of investor called accredited investors. The Securities and Exchange Commission defines accredited investors as those who have earned income greater than $ 200,000 (or $ 300,000 with a spouse) in each of the previous two years or someone with a net worth greater than $ 1 million. dollars (excluding the value of a principal residence).

“Often times, members of a company have already acquired units, but there may not be an IPO for a long time. So a qualified investor can come in and say, ‘OK, we’ll buy your units from you and wait for the IPO, and we’ll give you something in between,’ says Chris Whalen, a chartered accountant. in Red Bank, New Jersey. “So let’s say they’re sitting at $ 10 per share and the company expects an IPO at $ 100. A qualified investor could come in and offer to pay $ 40 per share.

Buying private equity is a risky business. These assets are called unregistered securities because they are not registered with the SEC. Registration allows investors to access information about the company so that they can form an opinion before investing.

You can still lose your money investing in a registered security, but a registered security is not as risky as unregistered ones. And while there are more risks associated with unregistered securities, they don’t add additional tax complications for buyers, Whalen says. For accredited investors, private equity becomes just another equity investment, he says.

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