What a secondary sale means in practice
In practice, a secondary sale means that shares are transferred from an existing owner to a new investor on agreed terms. The company is not a party to the deal, but it often has to approve the change of ownership under the articles of association or a shareholders' agreement.
The deal can affect the balance of power and control in the company, especially if a large block of shares changes hands or if the new owner receives special rights.
Factors that affect a secondary sale
Secondary deals are governed by several factors that decide whether and how the deal can be completed.
- Restrictions in a shareholders' agreement or the articles of association
- Pricing based on valuation and negotiation
- The buyer's role and strategic importance
- Approval from the company or the other owners
- Impact on control and the balance between owners
When these factors are handled correctly, a secondary sale can create liquidity without disrupting the company's capital structure.
When a secondary sale becomes relevant
Worth bearing in mind
A secondary sale becomes relevant when an owner wants to reduce or end their ownership without the company carrying out a new share issue. It is common in unlisted companies where investors are looking for liquidity and where exit opportunities are otherwise limited.
For the buyer, a secondary sale can be a way to take over an established ownership position, often with better insight into the company than when investing directly in the company.
Frequently asked questions
What is the difference between a secondary sale and a new share issue?
In a secondary sale existing shares are sold, while a new share issue means that new shares are issued and capital is added to the company.
Does the company receive money in a secondary sale?
No, the purchase price goes to the selling owner, not to the company.
Are secondary sales common in unlisted companies?
Yes, it is a common way for investors to create liquidity in companies that are not listed on a stock exchange.
Can a secondary sale affect control of the company?
Yes, especially if a large block of shares changes hands or if the buyer gains influence.
Is the company's approval required for a secondary sale?
Often yes, depending on what the articles of association and the shareholders' agreement say.