What is a secondary transaction? Definition, how it works and examples
Shares changing hands without the company raising a dollar — how private secondaries are priced, approved and settled, and how they differ from a primary round.
The short answer
Secondary shares, in plain meaning, are existing shares sold by one holder to another — an employee or early investor selling to a new buyer — rather than new shares issued by the company. A secondary transaction moves ownership; the company raises nothing, and the number of shares outstanding does not change. In a private company a secondary sale is the main way to turn shares into cash before an IPO or acquisition, and the main way an outside investor buys into a company that is not raising.
What is a secondary transaction? Primary and secondary, compared
The secondary market transaction definition is the mirror of a primary one. In a primary transaction the company issues new shares and keeps the money; existing holders are diluted. In a secondary transaction a holder sells shares it already owns; the money goes to the seller and nobody is diluted. A funding round can contain both — new money into the company alongside some early holders selling — and the documents separate the two. Secondary shares are not a different class.
How do secondary sales work in a private company?
A secondary share sale in a venture-backed company follows the company’s transfer restrictions, which Delaware law enforces if they are noted on the share or known to the holder. The NVCA model agreement sets the usual sequence for founders’ shares; employee shares are usually bound by a similar right in the bylaws or the option documents. Agree terms Seller and buyer agree a price and a number of shares, subject to the company’s rights. Notify the company The seller sends a transfer notice with the price, the buyer and the date — in the NVCA form, at least 45 days before closing.
Direct secondary, SPV or tender offer: three ways shares change hands
A vehicle exists because many companies will not add dozens of small names to their register: one special purpose vehicle buys the block and investors buy into the vehicle — see SPV investing. A company-run sale has its own page, tender offer. At Axevil each deal sits in its own Delaware SPV managed by Axevil Capital, LLC; minimums and fees are set per deal and written in that SPV’s documents.
Secondary share sale: pricing against the last round
An employee holds 20,000 vested common shares. The last round sold Series C preferred at $50.00. A buyer offers $40.00 per share. The $10 gap is not necessarily a bargain. The buyer gets common, which sits behind every preference, cannot be sold until an exit and has no say in when that comes. A discount to the preferred price prices the class and the wait — the logic of a discount for lack of marketability. Secondary prices can also sit above the last round when demand for a company outruns supply. Either way, the round price is a reference, not a quote.
Secondary transactions in private equity
What is a secondary sale in private equity? The same idea one level up: what changes hands is usually not a company’s shares but a limited partner’s interest in a fund. Secondary sales in private equity come in two broad kinds. LP-led An investor sells its fund commitment — paid-in capital, and the obligation to meet future capital calls — to a secondary buyer, with the general partner’s consent. GP-led The manager moves one or more assets into a new vehicle, often called a continuation fund. Existing investors choose to cash out or roll over; new investors fund the purchase.
What is a private securities transaction? The rules, as of October 2026
The phrase has a narrow regulatory meaning. Under FINRA Rule 3280 a private securities transaction is any securities transaction outside the regular scope of a registered person’s job at a broker-dealer — so-called selling away — and it requires written notice to the firm first. In everyday use it means any sale of unregistered securities, which a private secondary is. More on the regulator on FINRA.
Common mistakes in secondary transactions
Signing before the ROFR clears The company can take the shares at your price, and the buyer walks away. Comparing prices across classes Common below the preferred price is expected; name the class first. Assuming rights travel Pro rata and information rights usually stay with the original holder. Ignoring the lock-up Shares bought before a listing are normally locked up after it — see IPO lock-up. Treating a forward contract as a share A promise to deliver shares later is a claim on the seller, not ownership.
The terms this page uses
Secondary transaction A sale of existing shares between holders; the company receives nothing. Primary transaction A sale of new shares by the company, which keeps the money. Right of first refusal The company’s, then its investors’, right to buy the shares on the same terms before an outside buyer. Co-sale right Investors’ right to sell part of their own shares alongside a founder who is selling. Tender offer A company-organised secondary at one price, open to many holders in a set window. SPV A vehicle formed to buy and hold one company’s shares for a group of investors.
Questions about secondary shares
What is a secondary share sale — what does “secondary shares” mean? Shares that already exist and are sold by their holder to a new buyer, as opposed to new shares the company issues. The company receives no money from a secondary sale and the total share count does not change. Is a secondary sale bad for the company? Not by itself. It dilutes nobody, and it gives employees and early investors liquidity without a listing. Companies still control it closely, because sales below the last round can become a reference price. Can the company stop me selling my shares?
What is a secondary share sale — what does “secondary shares” mean?
Shares that already exist and are sold by their holder to a new buyer, as opposed to new shares the company issues. The company receives no money from a secondary sale and the total share count does not change.
Is a secondary sale bad for the company?
Not by itself. It dilutes nobody, and it gives employees and early investors liquidity without a listing. Companies still control it closely, because sales below the last round can become a reference price.
Can the company stop me selling my shares?
It can delay or pre-empt a sale. Most venture-backed companies have a right of first refusal and require consent to any transfer, and Delaware law enforces those restrictions if they are noted on the shares or known to the holder.
How long does a private secondary take?
Under the NVCA model terms, at least the notice period — 45 days — plus documentation and settlement. Company processes vary, and a refused or delayed consent can stop the sale entirely.
Who can buy secondary shares in a private company?
In the US, generally accredited investors, either directly or through a vehicle. The company may also limit buyers to people it approves.
Where the figures and rules on this page come from
Rules were last verified on 2 October 2026; market figures carry their own dates. The transfer sequence follows the NVCA model right of first refusal and co-sale agreement. The sale example is illustrative and describes no real company.