Why do sellers accept public stock more readily than private stock?

What does public stock give a seller that private stock doesn't?

• A price someone else sets. The market values the shares every trading day. With private stock, the buyer proposes the value and the seller has to trust it.
• A path to cash. After the holding period, the seller can sell some or all of the shares without waiting for the whole company to be sold.
• Partial selling. The seller can sell a slice to pay tax or diversify and keep the rest.
• Disclosure. Public companies file regular reports. OTCQB, for example, requires current SEC (or Regulation A or alternative) reporting, PCAOB-audited annual financials and an annual CEO/CFO certification. The seller can see how the company is doing.

Private stock has none of these by default. A shareholder agreement can add some, such as information rights or a put right at a formula price, but it can't create a market.

How does Rule 144 work for a seller?

Shares issued in a private acquisition are restricted. Rule 144 is the usual route to resell them without registration. In general terms:

1. Holding period. Six months for shares of a company that has been reporting to the SEC; one year for a non-reporting issuer.
2. Current information. The company generally must be current in its public filings.
3. Affiliate limits. A seller who becomes an officer, director or large holder may be an affiliate. Affiliates face volume limits and other conditions even after the holding period.
4. Legend removal. The transfer agent usually needs an opinion from company counsel before the restrictive legend comes off.

Contractual lock-ups can extend the wait beyond Rule 144. A resale registration statement can shorten it. The details turn on facts, so confirm with securities counsel.

How liquid is "liquid" for a small public company?

Less than sellers often assume. Admission standards for small markets are modest. OTCQB requires a minimum bid of $0.05 for 30 consecutive days, at least 50 beneficial holders with 100+ shares each, and at least 10% public float. A company can meet those and still trade very little.

Three risks remain after closing:

• Thin trading. Selling a large block can push the price down.
• Underperformance. In a study of 6,000+ IPO registrations from 1990 to 2024, stock-paid deals by newly public firms underperformed cash deals by 20–30 percentage points over 3–5 years and were about 50% more likely to end in delisting.
• Dilution. Castellum, on NYSE American, grew its share count from about 53M to about 94.6M between March 2024 and March 2026. A seller's stake shrinks as the company keeps issuing shares.

Why do buyers want to pay in public stock?

It saves cash and it is easier to sell to the seller than private stock. The same academic study found that completing an IPO raised a firm's annual probability of making an acquisition by about 12 percentage points, and about three-quarters of the extra deals were at least partly paid in stock. Being public also has a cost. See the ongoing costs of being a public company.

If your holding company is not public yet, the site's estimate is roughly 6 months by reverse merger or IPO and about 10 months by direct listing. See how long it takes to go public.

Worked example: $1M of restricted public stock

Assume a seller takes $1M of the price in public stock at $2.00 a share. The trading volume, selling pace and prices are assumptions for illustration.

1. Shares received: $1M ÷ $2.00 = 500,000 restricted shares.
2. Six months later, assuming Rule 144 conditions are met, the seller may begin selling.
3. The stock trades about 20,000 shares a day. To avoid pushing the price down, the seller sells no more than 10% of daily volume: 2,000 shares a day.
4. Time to sell all 500,000 shares at that pace: 500,000 ÷ 2,000 = 250 trading days, about a year.
5. If the price rises to $2.50, the shares are worth $1.25M. If it falls 30% to $1.40, they are worth $700,000.

With private stock, step 2 would read: wait until the company is sold, pays dividends or buys you out.

What should a seller ask for before taking public stock?

• Enough cash at closing to cover taxes and personal needs.
• A pricing method based on an average market price, not one day's close, and possibly a collar.
• Registration rights, or a commitment to support Rule 144 sales and legend removal.
• Clear lock-up terms, if any.
• A look at the company's share issuance history, not just its price.

Where these numbers come from: stock-as-currency findings from the CLS Blue Sky Blog (July 14, 2026); OTCQB standards from OTCQB Rules v6.1 (September 17, 2026); Castellum share counts from jwatte.com. Rule 144 holding periods are general securities law; confirm with securities counsel.

Related questions

Is OTC stock as good as Nasdaq stock for a seller?

Usually not. Nasdaq companies generally trade more and have more institutional holders. Some public holding companies start on OTCQB and uplist later; see what it takes to uplist from OTC to Nasdaq.

Can a seller sell before the holding period ends?

Generally not, unless the company registers the resale with the SEC. Confirm with securities counsel.

What if the stock price falls between signing and closing?

A collar can adjust the number of shares if the price moves outside a set range. Without one, the seller bears the move.

What comes next

Taking stock can also change when a seller pays tax. Next, read can a seller defer taxes by taking stock?

Related articles

• How do you pay a seller with stock instead of cash?
• What is rollover equity and how much is typical?
• How do sellers who take public stock get liquidity?
• Should a holding company go public, and at what size?

• How can a holding company use public stock to buy private businesses?
• How do you value your own stock when using it to buy a company?
• Can you use stock in a holdco that trades on OTC?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.