Secondary sales
Selling existing shares: no money to the company, transfer restrictions, and no QSBS for the buyer.
In a secondary sale a shareholder sells existing shares to a buyer; the company issues nothing and receives nothing. Two consequences follow. QSBS has to be acquired at original issue, so the buyer's shares are not QSBS in its hands. And most startups' documents restrict transfers — the NVCA model set includes a right of first refusal and co-sale agreement, giving the company and investors the right to buy first or sell alongside.
Secondary sale
- Good at
- Liquidity before an exit
- No new shares, so no dilution
- Watch for
- Transfer restrictions and the company's consent
- The price can set a reference point for the 409A value
- The buyer gets no QSBS
- Best for
- Founders and early employees after a few years, with board approval
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- Federal statute
- 26 U.S.C. §1202(c)(1)(B) (opens in a new tab)QSBS must be bought from the company — so shares bought in a secondary are notFree to read
- Background reading — not an authority
- NVCA Model Legal Documents (opens in a new tab)The model certificate of incorporation, stock purchase, investors' rights, voting and ROFR/co-sale agreementsFree to read
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Secondary saleA shareholder selling existing shares to a buyer, rather than the company issuing new ones. The company receives nothing; the buyer's shares are not original issue, so they are not QSBS in the buyer's hands, and the company's right of first refusal and transfer restrictions usually apply
- Qualified small business stockOriginal-issue stock of a domestic C corporation with gross assets of $75 million or less at issuance that lets holders exclude gain on sale — for stock issued after July 4, 2025, 50% after three years, 75% after four and 100% after five, up to the greater of $15 million or ten times basis per issuer. Stock issued earlier keeps the old rules: $50 million of gross assets, five years, $10 million