Public companies are limiting sales of its shares [Twitter, LivingSocial, Square]

Private companies rely on the stability of its stocks to stay in the game. Thus, shares sold and bought by investors are constantly monitored. A report by Bloomberg says, Twitter Inc., LivingSocial and Square Inc. are taking steps to bar investors from selling shares on secondary exchanges.

Twitter asked its investors in its recent funding to refrain from sales on exchanges while Square asked its investors to sign a contract that would block any sales of its shares. LivingSocial is considering imposing similar restrictions for its investors. It looks like these companies are trying to cap the number of stockholders. They would prefer if the shares stayed as it is.

Having too many shareholders would mean that the figures will be more public. The SEC requires companies with 500 or more investors to disclose financial results. Facebook and Zynga charge at least $2,500 for share sales to discourage the practise. U.S. regulators also are considering limits on secondary markets.

The startups aim to limit the trading of stock on SecondMarket Inc. and SharesPost Inc., open online marketplace to sell shares. In January, SecondMarket said it received a request for information from the U.S. Securities and Exchange Commission. Head of the private-company market at SecondMarket, Adam Oliveri said

“We kept getting requests from companies asking, What do we put in our bylaws to make sure secondary trading doesn’t happen before we’re ready for it?”

He also said that lawyers are working to draft standard contractual language restricting secondary sales until enabled by a company.

Twitter was valued at $8 billion in its latest round, and daily-deal site LivingSocial raised money in April at a $3.5 billion valuation. Square, the mobile-payment startup, was valued at more than $1 billion in its fundraising in June. They are trying their best to stay there and not risk anything by sales of its shares to random people. Before LinkedIn Corp. held its IPO earlier this year, the company worked with SharesPost to set up controls on the site limiting the sale of stock only to other existing shareholders.

These kind of limitations by companies has already got some of them into trouble. Last year, an investment group, Alpha Investments sued Zynga for restricting a share sale on SecondMarket by a former Zynga employee to them. It feels rather unfair for companies to decide on the sales of its share by investors.