When it comes to start-ups and secondaries, what do we mean?
Secondaries here implies secondary transactions. There are therefore things start-ups should consider before venturing into a secondary transaction.
In this article on start-ups and secondaries, we are going to examine the vital things that every start up should consider when it comes to venturing into secondary transactions.
Before then, let’s examine what a secondary transaction is.
Start-ups And Secondaries – Secondary Transactions Defined
A secondary market transaction is when shareholders of a company sell their stock to another investor. A venture secondary transaction involves the sale of private stock in a company that is backed by venture capitalists.
Let’s now proceed to examine the things to consider before venturing into a secondary transaction.
Vital Things Every Start-Up Should Consider Before You Venture Into Secondary Transaction
1. Legal advice
Ensure that your secondary intents are explicitly negotiated at the term sheet stage of the financing, otherwise you may lose some leverage, and debate secondary possibilities with your investors and board before adding the concept to the term sheet. Consider the amount you want to take off the table, as well as the long- and short-term value of selling early rather than waiting for a greater exit opportunity.
2. Local law
Different countries’ laws govern the selling of secondary stock. Consult an attorney to guarantee you do not inadvertently violate state or federal securities laws or tender offer restrictions.
3. Contractual constraints
Depending on the contract that regulates your shares, you may be subject to contractual constraints such as time limits that prevent you from selling before a specific date.
4. Board approval
In some cases, and depending on the contract in existence, you may be required to obtain approval from a company’s board of directors before selling stock in a secondary sale.
5. Taxation
Consult with a tax expert to verify that the tax impact is appropriately calculated.
Have any questions? Book a call with us today!
https://calendly.com/info-whe/30min
References
- https://technical.ly/startups/cash-startup-founder-secondaries accessed 19 October 2023
- https://www.growthmentor.com/glossary/secondary-sale/ accessed 19 October 2023
- https://carta.com/learn/equity/liquidity-events/secondary-transactions/ accessed 11th November 2024
Do you seek redress or consultation on legal matters?
Our Law Firm – Scotts Legal – offers legal services in areas including but not limited to the following:
- Real Estate Services (Property Acquisition, Investigation, Registration, Property Management)
- Company Registration and Post-Incorporation Services
- Corporate and Commercial Law solutions
- Domestic Violence and Child Custody
- Cross Border Transactions
- Debt Recovery Services
- Commercial Litigation
- Intellectual Property
- International Trade
- Criminal Litigation
- Employment Law
- Client Advisory
- Civil Litigation
- Mining Law
- Tax Law
Book a FREE CALL to inquire about any of the services above.
Follow us on our social media handles:
Constantly get our news updates