Secondary Trading of Private Company Shares: New Opportunities and Challenges

Abstract

Emerging and growing private companies play a vital role in driving progress, fostering innovation and facilitating job creation. Their ability to raise capital, expand their business activities, attract and retain skillful employees is therefore of crucial importance for the growth of the U.S. economy. The last three years have seen a remarkable increase in the secondary trading of private company shares, which has been largely driven by a raising pressure on private companies to provide liquidity to former and current employees, early investors and other shareholders. The increase in frequency and volume of secondary trading of private company shares has highlighted the important role that an active and liquid secondary market may play to facilitate the growth of private companies. However, the recent development of a red-hot trading in the shares of some of the world leading technology private companies has sparked a large debate on the risks and complexities associated with the secondary trading of private company shares, and has attracted the scrutiny of financial authorities and regulators. This paper studies recent developments in secondary trading of private company shares. Chapter 1 discusses major drivers that may have contributed to increase secondary sales and purchases of private company shares. Chapter 2 examines viable means for promoting a controlled, transparent and liquid secondary trading of private company shares. Chapter 3 analyzes the benefits associated with an active secondary trading of private company shares. Chapter 4 discusses certain securities law issues relevant for the secondary sales and purchases of private company shares. Chapter 5 discusses measures to improve and promote further development of secondary trading of private company shares.