What is Secondary Sale?
Selling shares you already own to another investor - liquidity without the company raising new money.
Secondary Sale: definition
In a primary sale, the company issues new shares and keeps the money to fund the business, diluting existing owners. In a secondary sale, existing shares change hands between a seller and a buyer; the company raises no new capital and the share count does not increase. Secondaries let founders and early employees realize some value before an exit, and they often occur alongside a funding round or through a structured tender offer.
- Existing shares sold by a holder - no new shares issued
- The company does not receive the proceeds (unlike a primary raise)
- Provides pre-exit liquidity for founders, employees, and early investors
- Often subject to company approval and rights of first refusal
How Fintra handles it
Fintra equity management keeps the cap table accurate as shares transfer in a secondary - updating ownership from seller to buyer, respecting transfer restrictions and rights of first refusal, and preserving each holder cost basis and acquisition dates. Any change to the cap table is recorded with an audit trail and reviewed by a named human.
- Ownership transfers reflected accurately on the cap table
- Transfer restrictions and rights of first refusal respected
- Cost basis and dates preserved for the buyer and seller records
Worked example
Frequently asked questions
What is the difference between a primary and a secondary sale?
In a primary sale the company issues new shares and receives the proceeds to fund itself, increasing the share count and diluting existing owners. In a secondary sale an existing holder sells their shares to a buyer, the company gets nothing, and no new shares are created.
Why do secondary sales happen?
They give founders, early employees, and investors a way to realize some value before a full exit like an IPO or acquisition - useful when a company stays private for many years. Secondaries can ease the pressure to sell the whole company prematurely for liquidity.
Can employees sell their startup shares freely?
Usually not without approval. Private-company shares typically carry transfer restrictions, rights of first refusal, and sometimes board consent requirements. Secondary sales must respect these, which is why they are often organized by the company through a structured process.
What are the tax implications of a secondary sale?
Selling shares generally triggers a capital gain or loss based on the sale price versus cost basis, with the holding period determining short- or long-term treatment. QSBS may apply in some cases. Tax outcomes vary, so sellers should consult a professional before a secondary.
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