Private stocks are shares offered by companies that have not yet gone public. There are several advantages to this -- notably, the company does not have to meet the extensive and expensive regulations set by federal agencies to go public with its stock. However, private companies must still follow basic rules when it comes to offering shares, and these rules may be changed by both state and federal decisions.

Limits
Private companies can face limits when it comes to raising capital through the sale of stock. Depending on the company type and investor type, the business may not be able to raise more than $1 million in a 12-month period. With "sophisticated" investors that have a high net worth and trading experience, the limit may be raised to $5 million. Instead of a dollar limit, some companies may be limited to a certain number of investors, based on investor type. Variance occurs because each state tends to have unique laws regarding private companies and management of their stock.

Markets Available
A private company cannot trade on a public stock market, such as the New York Stock Exchange. These exchanges are open to all investors and federal regulations keep strict watch over the companies participating. However, there are a number of second markets -- like the aptly named SecondMarket -- in which private companies can sell their stock. The investors on these markets must meet specific requirements, have a net worth over $1 million to show their experience and have the ability to handle more risky investments.

Stock Compensation Plans
Many businesses like to award employees with incentive plans like stock options or employee stock option plans. These plans give employees value for their shares in the company, which can be an issue in a private company where employees who actually receive shares may not be able to sell them on the open market. Laws can vary according to states here as well, but in most cases if the employee wants to sell stock to receive value, the business must offer fair market value so that employees can redeem value.

Financial Details and New Legislation
Throughout the 2000s, the limit on shareholders for private companies was set at 499: at 500, the company had to start sharing extensive financial information with shareholders and, ultimately, the public. However, in 2011 the Securities and Exchange Commission began considering new standards that would make it easier for private companies to get investment without sacrificing their valuable privacy.