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In the US one has to be accredited investor to buy stock in a private company.

However, does one still need to be accredited investor in case a public company goes private (i.e. get delisted from stock exchange) to retain already purchased shares?

  • For clarification, presumably you are specifically asking about privatisations that do not involve a "squeeze out" – where, typically once 90% of shareholders have agreed to sell, the purchaser can force the sale on the remainder (see the end of this Quora answer). Because where everyone either accepts or is squeezed-out, none of the original owners will be shareholders in the now-private company. – TripeHound Aug 14 '18 at 7:16
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No, they cannot force you to sell simply because of your status. When companies go private though, they frequently invoke "drag along" clauses in shareholder agreements which may specify that in the event of such a sale, everyone must sell.

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    I was mostly concerned about regulations (e.g. SEC Reg D). In particular It sets some limitations for a private company to issue stock only to accredit investors, but does it set limitations for shareholders to inherit in case company goes from public to private? I am trying to understand the buzz about Tesla where some claim private ownership structure would be impossible due to Reg D, but I read whole Reg D and not obvious to me why impossible. – Hans Solo Aug 14 '18 at 5:13
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+50

First, being delisted is not the same thing as going private. If a stock is delisted from its exchange, it can still trade publicly "over the counter" or on the "pink sheets", and you do not need to be accredited to hold such shares.

As TripeHound commented, "going private" normally requires buying all outstanding shares, and this can be done because a majority or supermajority vote of the shareholders can force everyone to sell. If not all shares are bought, that would be "acquiring a stake" rather than "going private", and the remaining shares would continue to trade publicly.

Once you own publicly traded shares, there is no normal process that would leave you owning non-publicly-traded shares.

A related question is here.

  • +1 "the remaining shares would continue to trade publicly." Depending on how big the majority stake was, and how little was left "public", this might force a de-listing (but, as you say, the shares could still be traded OTC). See, for example, "Distribution" in NYSE-MKT Listing Requirements – TripeHound Aug 15 '18 at 8:56
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In the US one has to be accredited investor to buy stock in a private company.

That's not correct. The private company is only allowed to solicit investment from accredited investors. Non accredited investors are not barred from investing in companies and many many many many non-accredited folks are invested in other people's small businesses.

  • I seem to agree with your answer after reading Reg D. But for more specific case (not asking legal advice) - Is it possible that Tesla public retail shareholders remain as shareholders in private Tesla? – Hans Solo Aug 15 '18 at 14:42
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    @HansSolo, probably not, but it has nothing to do with accreditation. (it's hard to pin musk down as to the substance of this tweet, if any, but) it's this would not be much different than any other cash buyout. There are other good answers here related to buyouts, typically buyer makes an offer that's hard to refuse. The offer goes to the board, the shareholders vote, depending on the bylaws, X% of the voting shares vote yes then 100% of the shares are sold in the transaction. So you won't remain as a shareholder because your shares will likely be sold if there is a majority vote to sell. – quid Aug 15 '18 at 15:48

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