# Secondary sales

> Selling existing shares: no money to the company, transfer restrictions, and no QSBS for the buyer.

Source: https://lopifi.com/learn/qsbs-section-1202/secondary-sales
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What is a secondary sale of startup stock?** Selling existing shares: no money to the company, transfer restrictions, and no QSBS for the buyer.

In a [secondary sale](https://lopifi.com/md/glossary/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.

> “such stock is acquired by the taxpayer at its original issue”

— [26 U.S.C. §1202(c)(1)(B)](https://www.law.cornell.edu/uscode/text/26/1202), QSBS must be bought from the company — so shares bought in a secondary are not

— [NVCA Model Legal Documents](https://nvca.org/model-legal-documents/), The model certificate of incorporation, stock purchase, investors' rights, voting and ROFR/co-sale agreements

**Secondary sale**
- Pro: Liquidity before an exit
- Pro: No new shares, so no dilution
- Con: Transfer restrictions and the company's consent
- Con: The price can set a reference point for the 409A value
- Con: The buyer gets no QSBS
- Best for: Founders and early employees after a few years, with board approval

## Where this page's rules come from

- [26 U.S.C. §1202(c)(1)(B)](https://www.law.cornell.edu/uscode/text/26/1202) — QSBS must be bought from the company — so shares bought in a secondary are not (statute)
- [NVCA Model Legal Documents](https://nvca.org/model-legal-documents/) — The model certificate of incorporation, stock purchase, investors' rights, voting and ROFR/co-sale agreements (reference)

- **Track:** [Cap tables & raising](https://lopifi.com/md/learn/equity)
- **Part of:** [QSBS (Section 1202) and secondary sales](https://lopifi.com/md/learn/qsbs-section-1202) — 3 min
- **Terms taught:** [Secondary sale](https://lopifi.com/md/glossary/secondary-sale), [Qualified small business stock](https://lopifi.com/md/glossary/qualified-small-business-stock)
- **Previous:** [QSBS (Section 1202) and secondary sales](https://lopifi.com/md/learn/qsbs-section-1202)
- **Next:** [Running a raise: data room, closing and the wire, Cap table · Lesson 10](https://lopifi.com/md/learn/how-to-run-a-startup-fundraise)
- **The course:** https://lopifi.com/md/learn