Although Facebook isn't yet public, employees and other insiders have been able to cash out some of their equity through private stock-sale deals. But the company is trying to dump cold water on that rapidly heating up market: Facebook recently began charging employees a $2,500 fee if they sell their private stock.
Social-game developer Zynga has followed suit, introducing a $6,000 charge for private stock sales. First reported by Bloomberg BusinessWeek, the fees were confirmed by SharesPost chief executive Greg Brogger, whose company runs an exchange for private company shares.
Email Print Comment"The market for private shares has absolutely exploded in the past six months," Brogger said. "It's taken off like a rocket."
Zynga and Facebook are the only companies to levy a fee so far, but they may not be the last. Twitter and LinkedIn also attract heavy interest from potential buyers, according to Brogger.
That matches up with a recent report from SecondMarket, a New York-based SharesPost rival, which cited those four companies as the ones drawing the most inquiries.
Buyers are typically venture capital funds or wealthy individuals, and more than 80% of the sellers are former employees, according to SecondMarket's report on its third-quarter sales data. The company says it has processed more than $150 million in Facebook stock sales since it launched in April 2009.
But losing employee shares to outsiders can be a nightmare for startup companies. Transferring private stock often comes with hefty legal and administrative costs, and it can be tough for management to maintain control when a bunch of outsiders are shareholders.
And when the number of shareholders grows too large, the government gets involved. The Securities and Exchange Commission generally requires companies with more than 500 shareholders to disclose financial details that many companies would rather keep private until they file for an IPO. (That rule prodded Google (GOOG, Fortune 500), which gave stock options to many employees, into filing for its IPO in 2004.)
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Facebook has so far stayed off the SEC's radar thanks to an unusual exemption the agency granted in 2008. Instead of options, Facebook gave many of its employees restricted shares that would not convert to common stock until the company went public or was bought. Since there was no market though which employees could trade restricted shares, Facebook said it shouldn't be required to disclose financial information. The SEC agreed.
But SecondMarket and SharesPost exploded onto the private-company stock scene in 2009. The SEC did not respond to a request for comment on those exchanges.
Many of Facebook's 1,700 employees hold ownership stakes in the company. Earlier this month, Facebook announced a 5-for-1 stock split, marking the third split in the company's history.
Source CNN Money