How to Sell Your Own Company’s Stock

In between board meetings, stakeholder updates and everything it takes to keep a business moving, there comes a time for company insiders to address personal financial needs: liquidity for taxes, diversification or wealth planning—without having every investment decision feel like a referendum on timing. But founders are inherently close to information the market would care about, and even routine, good-faith transactions can attract scrutiny if they happen anywhere near meaningful company developments.

A Rule 10b5‑1 trading plan is designed for exactly that tension: you set clear, pre-established instructions for trading at a time when you’re not aware of material nonpublic information (MNPI), and then the plan carries out those instructions automatically using objective criteria such as dates, amounts, price thresholds or a formula so execution doesn’t depend on making a fresh judgment call each time.

How Can 10b5-1 Plans Benefit Founders?

Once established, a 10b5‑1 plan permits founders and executives—who are, by definition, company insiders—to trade during “closed windows” (also known as blackout periods) when they may have MNPI. These might include periods of non-public earnings results, a potential merger, litigation settlement negotiations or clinical trial results. Given 10b5-1’s pre-set nature, you can customize the plan when you adopt it to achieve particular objectives, down to specific share amounts, pricing and timing.¹ That feature can protect founders from “emotional” selling and mitigate potential negative signaling from liquidating holdings.

Establishing a 10b5-1 Trading Plan

Founders and other insiders should adopt a Rule 10b5‑1 plan only when they are not aware of MNPI, and they must act in good faith with respect to the plan. At adoption, you can tailor the plan to your objectives by setting clear, pre-established trading instructions. Here are some considerations:

Tailoring a 10b5-1 Plan for Your Goals

In terms of putting together the plan, there are a variety of common selling strategies to consider.

• Periodic selling: Determines timing triggers (Example: Sell 5,000 shares on the first of each month)
• Limit orders: Sets price conditions (Example: Sell 10,000 shares at $45)
• Accelerated selling: Uses multiple limit orders together with increasing amounts of stock at each limit price (Example: Sell 5,000 shares at $20; then sell 10,000 shares at $30)
• Quantity limits: Specifies the number of shares to be sold in a designated period (Example: Sell no more than 50,000 shares in a calendar month, or target 10% of the stock’s daily trading volume)

Given the complexity of equity compensation, founders should partner with a tax advisor alongside their Morgan Stanley Financial Advisor to optimize tax implications related to any liquidity or option-exercise strategy.

What Are the Limitations to 10b5-1 Plans?

Although 10b5-1 trading plans offer many benefits, it’s important to understand the limitations.

• Mandatory cooling-off period. Rule 10b5‑1 plans must include a “cooling‑off” period between the plan’s adoption or modification and the first trade. For Section 16 officers and directors (who are required under SEC rules to report their trades and holdings in company stock), trades under a 10b5‑1 plan can’t start until the later of (1) 90 days after the plan is adopted or (2) two business days² after the company discloses its financial results for the fiscal quarter when the plan was adopted³—but in all cases no later than 120 days after adoption.
• Single trade-plan restriction: Insiders may only adopt one trade plan in any given 12-month period, with certain exceptions.
• Insiders must act in good faith and with certifications: Anyone adopting a 10b5-1 plan must act in good faith with respect to the plan, and Section 16 directors and officers must certify in writing that they are not aware of MNPI.
• No overlapping sales plans: This restriction helps prevent an insider from having two (or more) separate plans that could trade during the same time window and then effectively “choose” which plan benefits them after the fact.
• Disclosure requirements: Every quarter the SEC requires disclosures of any early plan terminations and description of newly established plans for Section 16 directors or officers.
• Company policies: Beyond the SEC’s rules, founders should also follow their company’s insider trading policy, which often adds practical guardrails for 10b5‑1 plans.

Working with your Morgan Stanley Financial Advisor

For many founders and other insiders, a Rule 10b5‑1 plan can be a practical way to achieve investing goals while reducing the risk of trading when you may have MNPI. The right approach depends on your financial picture, such as diversifying a concentrated position, upcoming liquidity needs and philanthropic goals. Your Morgan Stanley Financial Advisor can help you incorporate a 10b5‑1 plan into your broader wealth strategy.