To buy equity in a company, you purchase an ownership stake: shares of stock if it’s a corporation, or units if it’s another type of business entity. For a publicly traded company, that means opening a brokerage account and placing an order on an exchange. For a private company, it means investing through an SEC-regulated exemption, a direct negotiation with the company, or an employer equity program. Which private deals you can access, and how much you can put in, depends largely on whether you meet the SEC’s definition of an accredited investor.
Whether You Qualify as an Accredited Investor
Anyone can buy shares of a publicly traded company. Private offerings are a different story. The SEC sorts individual investors into two groups, and the group you fall into decides which private deals are open to you.
You’re an accredited investor if you meet at least one financial benchmark. The common paths for individuals: earning more than $200,000 a year ($300,000 with a spouse or partner) for the two most recent years, with a reasonable expectation of the same this year, or having a net worth above $1 million excluding your primary residence.1U.S. Securities and Exchange Commission. Accredited Investors Holding certain professional licenses, such as a Series 7 or Series 65, also qualifies you regardless of income or net worth.2eCFR. 17 CFR 230.501 – Definitions and Terms Used in Regulation D
If you don’t meet any of those, you’re a non-accredited (retail) investor. You can still buy public stock without restriction, and you can participate in some private offerings, but the dollar amounts you can invest privately are often capped.
Buying Shares of a Public Company
The public-company path has three parts: open a brokerage account, fund it, and place an order.
Every brokerage will ask for a Social Security number or Individual Taxpayer Identification Number,3Internal Revenue Service. U.S. Taxpayer Identification Number Requirement a government-issued photo ID, your address, employment information, and some detail about your investment goals and risk tolerance. Brokers collect this under FINRA’s Know Your Customer rule.4FINRA. FINRA Rule 2090 – Know Your Customer You then link a bank account with your routing and account numbers; the broker usually verifies with small test deposits. Fund the account before you pick a specific investment. Stock prices move, and waiting on a transfer to clear while the price climbs can cost you.
Once the cash is in, you search for the company’s ticker symbol on the brokerage platform, choose how many shares, and pick an order type. The two you’ll use most often:
- A market order executes immediately at the best available price. Fast, but the fill price can drift slightly from what you saw on screen.
- A limit order sets the highest price you’re willing to pay. It only fills if the stock reaches your price or lower. More control, but no guarantee the order fills.
The platform shows a review screen with the estimated total before you confirm. After the order fills, you’ll get a trade confirmation showing the execution price, share count, settlement date, and any fees.5U.S. Securities and Exchange Commission. Confirmation Requirements for Transactions of Security Futures Products Effected in Futures Accounts U.S. equity trades settle T+1, one business day after the trade date.6U.S. Securities and Exchange Commission. SEC Chair Gensler Statement on Upcoming Implementation of T+1 After settlement, the broker holds the shares in “street name” on your behalf. You own them; the broker is listed as the registered holder for administrative convenience.
Buying Equity in a Private Company
Private companies don’t trade on exchanges. Federal securities law lets them sell shares without full public registration through a handful of exemptions. Three matter most for individuals.
Regulation Crowdfunding
Regulation Crowdfunding lets a company raise up to $5 million over a rolling 12-month period from anyone, accredited or not.7U.S. Securities and Exchange Commission. Regulation Crowdfunding – Compliance and Disclosure Interpretations The transactions go through SEC-registered online funding portals. Each company posts a Form C with financials, ownership structure, and how it plans to spend what it raises.8eCFR. 17 CFR Part 227 – Regulation Crowdfunding, General Rules and Regulations
Non-accredited investors have annual caps across all Crowdfunding offerings combined. If either your annual income or your net worth is below $124,000, you can invest the greater of $2,500 or 5 percent of the larger of those two figures. If both are at least $124,000, you can invest up to 10 percent of the larger figure, capped at $124,000 total in any 12-month period.9U.S. Securities and Exchange Commission. Regulation Crowdfunding – Guidance for Issuers Accredited investors have no cap.
You open an account on the funding portal, review the offering, enter the amount, and electronically sign a subscription agreement, which is the contract between you and the issuing company. When the offering closes, the company’s transfer agent updates its records to reflect your ownership.
Regulation D Private Placements
Regulation D is the workhorse exemption for startups and later-stage private companies raising larger amounts. Two variants:
- Rule 506(b) has no dollar cap but bans public advertising. Up to 35 non-accredited investors can participate, provided each is financially sophisticated enough to evaluate the risks. Accredited investors face no participation limit.10U.S. Securities and Exchange Commission. Private Placements – Rule 506(b)
- Rule 506(c) allows public solicitation, but every buyer must be a verified accredited investor. Non-accredited investors are shut out entirely.
In a typical Reg D deal, you receive a private placement memorandum, sign a subscription agreement, provide proof of accredited status if required, and wire funds directly to the company or an escrow account.
Regulation A+
Regulation A+ is sometimes called a mini-IPO. It comes in two tiers. Tier 1 covers offerings up to $20 million in a 12-month period with no per-investor cap. Tier 2 covers offerings up to $75 million; non-accredited investors under Tier 2 can invest up to 10 percent of the greater of their annual income or net worth.11U.S. Securities and Exchange Commission. Regulation A These offerings usually appear on online investment platforms, and the buying experience feels a lot like placing a brokerage order: browse the offering, review the SEC-qualified disclosure, invest.
Getting Equity Through Your Employer
If you work for a company that offers equity as compensation, you have a path to ownership that doesn’t touch the open market. The two common vehicles are employee stock purchase plans and stock options.
An employee stock purchase plan (ESPP) lets you buy company stock at a discount through after-tax payroll deductions. During an enrollment window, you elect a percentage or dollar amount to set aside. The company accumulates those contributions over an offering period, often six months, then buys shares for you at a discount. Under a tax-qualified plan, the maximum discount is 15 percent of fair market value, and your total purchases across all your employer’s plans can’t exceed $25,000 in fair market value of stock (measured at grant) per calendar year.12Internal Revenue Service. Internal Revenue Bulletin 2009-49 – Section 423 Regulations
Stock options give you the right to buy a set number of shares at a fixed strike price after a vesting period. Incentive stock options (ISOs) are available only to employees and, if you meet holding-period requirements, the profit on eventual sale is taxed at long-term capital gains rates rather than as ordinary income.13Office of the Law Revision Counsel. 26 USC 422 – Incentive Stock Options Non-qualified stock options (NSOs) can go to employees, contractors, or advisors; the spread between the strike price and market price at exercise is taxed as ordinary income. You sign a grant agreement on your employer’s equity portal, wait for vesting, then exercise by paying the strike price. The shares land in a linked brokerage account.
Before You Can Sell: Resale Restrictions
Shares you buy in a private offering are generally restricted securities. You can’t flip them the way you can public stock. Under SEC Rule 144, you have to hold restricted shares from a company that files regular SEC reports for at least six months before reselling. For a company that doesn’t file those reports, which describes most private companies, the minimum is one year.14eCFR. 17 CFR 230.144 – Persons Deemed Not to Be Engaged in a Distribution
The company itself may impose more. Bylaws and shareholder agreements commonly include rights of first refusal (offer the shares back to the company or existing shareholders before selling to an outsider), lock-up periods, or board-approval requirements for any transfer. Read the transfer language before you buy. It can make private equity very hard to turn back into cash on your timeline.
Tax Bills You Should Expect
Owning equity creates tax obligations that catch new investors off guard. A few worth knowing before you buy.
When you sell stock for a profit, you owe capital gains tax. Hold the shares more than a year and the gain is long-term, taxed at a preferential rate.15Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses Hold a year or less and it’s short-term, taxed at your regular income rate. For 2026, single filers pay 0 percent on long-term gains up to $49,450 in taxable income, 15 percent up to $545,500, and 20 percent above that. For married couples filing jointly the brackets are $98,900 and $613,700.16Internal Revenue Service. Revenue Procedure 2025-32 – 2026 Adjusted Items
ISOs get favorable treatment only if you hold the shares at least two years from the grant date and one year from exercise. Sell earlier and you trigger a disqualifying disposition, which taxes the profit as ordinary income.13Office of the Law Revision Counsel. 26 USC 422 – Incentive Stock Options Even if you hold long enough, exercising ISOs can trigger the alternative minimum tax. The spread between strike price and fair market value at exercise counts as AMT income in the exercise year. The 2026 AMT exemption is $90,100 for single filers and $140,200 for married joint filers.17Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If your regular income plus the ISO spread exceeds the exemption, you may owe AMT on top of your regular tax. Model the numbers before exercising a large batch.
If you receive restricted stock that vests over time, common for founders and early employees, you can file a Section 83(b) election to pay tax on the stock’s value at grant rather than at vesting.18Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection with Performance of Services The deadline is strict: 30 days from the transfer. Miss it and the election is permanently unavailable for that grant. No extensions.19Internal Revenue Service. Form 15620 – Section 83(b) Election The risk: if you file and later forfeit the stock, you can’t recover the tax you already paid.
One more trap. If you sell stock at a loss and buy the same or a substantially identical security within 30 days before or after the sale, the wash sale rule disallows the loss deduction.20Office of the Law Revision Counsel. 26 USC 1091 – Loss from Wash Sales of Stock or Securities The disallowed loss rolls into the cost basis of the replacement shares, so it’s not gone forever, but you can’t use it against current-year gains.
Risks Worth Weighing First
Equity can produce serious returns. It can also lose value in ways debt instruments don’t. A few risks to think about before you place any order.
Stock prices move with company performance, the economy, and investor sentiment. Nothing guarantees an equity investment holds its value. With public shares you see the swings live; with private ones you may not learn about a decline until the company issues an update or attempts a down round.
Dilution is the other slow leak. When a company issues new shares to raise capital, compensate employees, or acquire something, your ownership percentage shrinks. Own 1 percent of a company with 10 million shares outstanding, and after 2 million new shares are issued your stake drops to roughly 0.83 percent. Your per-share claim on future profits and dividends drops with it. Private companies issue new shares across multiple funding rounds, so early investors can see meaningful dilution if they don’t participate later.
In private companies, preferred stock, typically held by venture capital investors, often carries a liquidation preference. Those holders get paid first if the company is sold or wound down. If the sale price doesn’t clear the total preferred investment, common shareholders (including employees and crowdfunding investors holding common stock) may receive nothing. Look at the capital structure and existing preferences before investing to see what a realistic payout looks like at various exit prices.
Finally, private shares are illiquid. Between the SEC holding periods, company transfer restrictions, and the absence of ready buyers, treat private equity as money you won’t need for years. Secondary market platforms exist for pre-IPO shares in well-known companies, but they cover a small slice of private businesses and often charge significant fees.