http://www.aba.com/Issues/Issues_UpdatingSEC.htm
Reporting requirements basically depend on the
number of shareholders. Companies have very inadvertently crossed the 500 shareholder threshold - into SEC reporting territory - through seemingly nominal awards of shares to employees.
Where companies like this have set up ESOP's, just having the plan usually requires the company to get an appraisal of share value at least annually. If say an employee leaves and cashes in the shares, that valuation will set the price.
Looking at any appraisal of shares, keep in mind that valuations of privately held shares can be at a couple of levels - 'fair value' - the proportionate value to the company's overall value; and 'fair market value', which recognizes that there is no public market for the shares and so are likely to be less liquid - and worth less - than if publicly traded. A practical reason for the differences: for gift or estate purposes, the tax courts will accept the lower FMV, recognizing that a share of a company that doesn't trade publicly doesn't have the same value as one that does (with non-controlling blocks of shares usually discounted further); meanwhile, many states use the higher FV for divorce and other equitable-distribution uses, for hopefully obvious reasons. If you are allowed to sell those shares and try to do so, you will obviously have more difficulty than if they were publicly traded, and FMV might be a reasonable expectation.
This differentiation is noteworthy because this 'liquidity' issue of private companies - and the resulting pricing - is something Buffett obviously latched onto years ago. In a non-auction sale of a private, non-traded company, pricing is generally going to be more attractive than publicly traded pricing - other things equal.
Reporting requirements basically depend on the
number of shareholders. Companies have very inadvertently crossed the 500 shareholder threshold - into SEC reporting territory - through seemingly nominal awards of shares to employees.
Where companies like this have set up ESOP's, just having the plan usually requires the company to get an appraisal of share value at least annually. If say an employee leaves and cashes in the shares, that valuation will set the price.
Looking at any appraisal of shares, keep in mind that valuations of privately held shares can be at a couple of levels - 'fair value' - the proportionate value to the company's overall value; and 'fair market value', which recognizes that there is no public market for the shares and so are likely to be less liquid - and worth less - than if publicly traded. A practical reason for the differences: for gift or estate purposes, the tax courts will accept the lower FMV, recognizing that a share of a company that doesn't trade publicly doesn't have the same value as one that does (with non-controlling blocks of shares usually discounted further); meanwhile, many states use the higher FV for divorce and other equitable-distribution uses, for hopefully obvious reasons. If you are allowed to sell those shares and try to do so, you will obviously have more difficulty than if they were publicly traded, and FMV might be a reasonable expectation.
This differentiation is noteworthy because this 'liquidity' issue of private companies - and the resulting pricing - is something Buffett obviously latched onto years ago. In a non-auction sale of a private, non-traded company, pricing is generally going to be more attractive than publicly traded pricing - other things equal.
