What Is a Secondary Transaction? Definition, How It Works and Examples

The secondary market transaction definition mirrors the primary one. In a primary transaction, the company issues new shares and keeps the money. Existing holders are diluted, meaning their percentage of the company shrinks. 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. The documents separate the two.

Secondary shares are no separate class of stock. A buyer gets whatever the seller held, with that class’s rights. From an employee, that is usually common stock. From an early fund, it is sometimes preferred stock. The difference is explained on common stock vs preferred stock. Rights in the seller’s own agreements generally stay with the seller. Examples are pro rata rights, to invest in later rounds, and information rights, to receive company reports.

A secondary share sale in a venture-backed company follows the company’s transfer restrictions. Delaware law enforces them if they are noted on the share or known to the holder. The National Venture Capital Association (NVCA) publishes model deal documents, and its 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.

1. 1.0
   Agree termsSeller and buyer agree on a price and a number of shares, subject to the company’s rights.
2. 2.0
   Notify the companyThe seller sends a transfer notice with the price, the buyer and the date. In the NVCA form, it goes out at least 45 days before closing.
3. 3.0
   Right of first refusalThe company may buy the shares itself at the same price. The model gives it 15 days to say so.
4. 4.0
   Investors’ turnShares the company does not take are offered to its investors, who have ten more days. Some may also sell alongside under a co-sale right.
5. 5.0
   Consent and documentsThe company approves the transfer. Buyer and seller sign a stock transfer agreement, and the buyer joins the stockholder agreements.
6. 6.0
   Settle and registerCash moves and the register is updated. A sale not completed within 60 days of the notice restarts the process.

The sale also needs a securities-law exemption, because the shares were never registered with the SEC. A holder who is not an affiliate, such as a director, officer or major shareholder, typically relies on section 4(a)(1) of the Securities Act. Another route is section 4(a)(7). It requires every buyer to be an accredited investor and bars general solicitation, meaning public advertising. Selling your own shares step by step is covered in how to sell pre-IPO shares.

A vehicle exists because many companies will not add dozens of small names to their register. Instead, one special purpose vehicle (SPV) 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.

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 stock. Common sits behind every preference, cannot be sold until an exit and has no say in when that comes. So a discount to the preferred price reflects the class and the wait. That is 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 only a reference. No one has to trade at it.

The same idea applies one level up. What changes hands is usually a limited partner’s interest in a fund. A limited partner (LP) is an investor in the fund, and the general partner (GP) is its manager. Secondary sales in private equity come in two broad kinds.

LP-led

An investor sells its fund commitment to a secondary buyer, with the general partner’s consent. The commitment covers the capital already paid in and the duty to meet future capital calls.

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.

Both are priced against the fund’s reported net asset value (NAV), the value the manager puts on its holdings. The buyer inherits the remaining capital calls. For the two sides of the fund relationship, see general partner vs limited partner.

The phrase has a narrow regulatory meaning. FINRA, which oversees US brokers, defines it in Rule 3280. There, a private securities transaction is any securities trade outside the regular job of a registered person at a broker-dealer. This is known as selling away, and it requires written notice to the firm first. In everyday use, the phrase means any sale of unregistered securities, and a private secondary is one. More on the regulator is on FINRA.

• Signing before the ROFR clearsThe company can take the shares at your price, and the buyer walks away.
• Comparing prices across classesCommon stock priced below the preferred price is expected. Name the class first.
• Assuming rights travelPro rata and information rights usually stay with the original holder.
• Ignoring the lock-upShares bought before a listing are normally locked up after it, meaning they cannot be sold for a set period. See IPO lock-up.
• Treating a forward contract as a shareA promise to deliver shares later is a claim on the seller. It gives you no ownership.

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-organized 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.

Limited partner (LP)

An investor in a fund. The general partner (GP) manages the fund.

Continuation fund

A new vehicle a private equity manager forms to take over one or more assets from an older fund.

The pre-IPO shares page explains the shares themselves, class by class.

Rules were last checked on October 2, 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.