[timr]

Because private companies don't want to lose control of their shares. When too many outsiders hold your shares, bad things happen (i.e. the SEC starts treating you like a public company).

For this reason, most equity plans have a right of first refusal. Your ability to trade restricted shares to outsiders is limited.

[thrill]

IOW, regulation creates an significant limitation for individuals (being able to sell their shares), for the supposed benefit of individuals (forcing companies to publicly report), even if the selling individual and buying individual are both perfectly fine with the private transaction and situation. This limiting of individuals is of course for their own good, and such limitations are greatly reduced for the wealthy, who can simply bypass the individual and buy direct from the company.

As someone who once had significantly valuable equity in a company that eventually failed, and who asked and was denied the sale of some of that equity, I would have welcomed an opportunity to trade some of that upside to secure against the downside.

[timr]

Of course you would have welcomed it. But you're missing the point: companies don't want you to sell their private shares, either. If nothing else, it's a logistical headache that they don't need.

This isn't a story of "big government" -- it's better for everyone (except perhaps you) if it's difficult for you to sell your private shares on a secondary market. The company maintains better control of share pricing and internal information, you have a (sometimes strong) incentive to stay an employee if you can't liquidate your shares on a moment's notice, and it helps to keep scammers out of the equities market.