Secondary Stock Transactions

In the financial world, a secondary offering is where a large number of shares of a company are transferred or sold from one shareholder to another.

In the financial world, a secondary offering is where a large number of shares of a company are transferred or sold from one shareholder to another. At times, these can be just as important as the primary transactions of the company. The value of these shares can rise drastically in value, and change hands several times during the company’s business cycle.

With the importance of this, Eqvista has added new features in its application where you can now easily perform a secondary transaction and record it in your company’s cap table. Read on to understand what’s this all about.

What is a Secondary Stock Transaction?

A secondary stock transaction takes place when there is a sale of shares from the primary owner in a company. When this transaction takes place on any share, option, warrant or convertible instrument, it is called a secondary stock transaction.

To explain better, let us say that Mark invests in a company named XYZ and is offered shares in return. This share transaction is called a primary transaction. Now, after a few years, Mark decides to transfer these shares to his younger brother. In this case, this transaction for the transfer of shares is called a secondary transaction.

Difference Between Primary vs Secondary Transactions

In the primary market, the company issues new shares to investors in exchange for cash. The capital gained from such an offering is used to finance the business, make acquisitions, and used for general corporate purposes.

On the other hand, in a secondary transaction market, the investors would buy or sell the shares between each other. In this case, no new shares are issued by the company and the company is not offered any capital. This is what makes primary transactions different from secondary transactions.

And just like it is important to keep a record of all the primary transactions, recording the secondary transactions is just as important. This is because it helps you keep track of all the shares in your company. In fact, these transactions are also crucial for your company’s 409A valuation.

Why are Secondary Transactions Important for your 409A valuation?

When you are about to have your company’s 409A valuation done, you will need to share all the transactions that have taken place in the company with the valuator. You will have to give the details of each and every kind of transaction that took place, including the primary and secondary transactions in the company. The secondary transactions can be in many forms including:

  • The sale of the company stock to a third party by an early investor
  • Exercise of the employee share options
  • Liquidation for the founders as a part of a financial round

These transactions are important when you are getting a 409A valuation. You will need to understand the nature of these transactions to see the potential impact it has. You can ask yourself the following questions to gather the information needed for consideration:

  • When did the transaction take place?
  • Who sold and who bought the stock? Are they related and how (if applicable)?
  • What was the total number of shares sold and what was its price?
  • How was the price of the shares determined?
  • Did the buyer get all the information about the company before the purchase including the forecast and financial plans?
  • Can every shareholder in your company sell the shares at the same price?
  • Was this a recurring transaction or a one-off event?

It is very important to answer and review these questions as you are looking at the potential impact of any secondary transactions in your 409A valuation. In fact, auditors these days investigate the secondary transactions for private companies and considered it much more important. Due to this, it is highly important for you to record these transactions along with managing your cap table in your company.

Secondary Transaction Example

Let’s take the company Facebook to show an example of these secondary transactions. Facebook was created by Mark Zuckerberg in his Harvard campus during 2004. Initially, it was a social media website only accessible by people from a few university campuses. But as Zuckerberg started to get investments, the company began to grow and expand its reach.

It took time for the company to grow, but this was only possible for Zuckerberg when he approved to give out shares in exchange for funding to expand. Usually it was not an issue and Mark would use the unissued shares for raising funds. But it was in 2013 when Mark Zuckerberg had to sell-off about 41 million shares he owned to investors. This transaction was not for getting funds for the company, but for himself.

And as he was selling off his personal shares, he got the rewards directly from the investors, and not for the company. The reason why Zuckerberg sold his shares was because he had to raise money for his own tax reasons. This kind of transaction is called a secondary transaction.

Types of Secondary Transactions

With all this cleared up about what secondary transactions are, let us now talk about the various kinds available. There are 5 main kinds of secondary transactions. These include:

  1. Transfers: When shares are transferred to another party
  2. Cancelations: In case a company wants to cancel a share transaction
  3. Exercises: When an option or warrant is exercised and converted into shares
  4. Conversion from debt: When a note is converted into shares of the company
  5. Repurchase: This transaction involves the repurchasing of a warrant, option or share back to the company

Secondary Transactions on Eqvista

For making things easier as you use the Eqvista application, we have added the feature of recording every secondary transaction in your cap table as well. These features include:

#1 Share, Warrant and Option Grant CancelLation

This is one of the new features that has been added in Eqvista where you can easily cancel a grant. As soon as you do this, the application will save the grant with the canceled status and the shares would be returned back to the company. You can then easily check the details of the canceled grants on the Security Page below the table of all the available grants.

Furthermore, as soon as you request for having the grant canceled, you will get the following dialog box. From here, you can choose the option “Yes” to cancel the grant. This will then cancel the grant, return the shares back to the company and you will be able to see the canceled grant in the company records.

Secondary Transactions on Eqvista

#2 Share, Warrant and Option Grant Restoration

Under this list is another feature that can be used after you have canceled a grant. You can now restore the grants that have been canceled. The shares for restoring the grant comes from the unissued shares under that equity class of the company. In case the security doesn’t have enough shares for the grant to be restored, it would show a message that would ask you to reserve more shares to complete the restoration.

To restore a grant, go to the security page and click on “Actions” on the grant that has already been canceled. You will see a drop-down menu from where you will need to select the option “Restore Grant.” Click on this and your grant will be restored if the security has the right number of shares needed. Else, you will need to increase the number of shares in the security first before you can restore the grant through the same process mentioned above.

Option Grant Restoration

#3 Share, Warrant and Option Grant Repurchase

Other than the features mentioned above, you can also fully or partially repurchase a share, warrant or option grant through the Eqvista application for your company.

Once this has taken place, the shares can be repurchased again by anyone that the company authorizes. When you select the option to repurchase, you will get the following dialogue box that you will have to fill and submit accordingly for the transaction to take place.

Option Grant Repurchase

As of now, Eqvista allows you to repurchase the company stock without a vesting schedule. But we will be adding this feature in the near future to make the process better for those who want to use a vesting schedule instead.

#4 Warrant and Option Exercise

This is a function is also called “Convert to Stock.” Under this feature, you can easily convert the options and warrants to stock. Once you select this, you will get a pop-up dialogue box where you can fill in the details and click on save.

Warrant and Option Exercise

#5 Transfer of Shares

Another secondary transaction that you can use is the transfer of shares. For this, you can go to the primary transaction section and select the option to transfer the shares. Once you do this, a dialogue box will appear, where you can then add the necessary information and click on save to complete the transaction.

Transfer of Shares

#6 Note Conversion into Equity

This feature allows you to convert a note into shares. All you need to do is go to the convertible note on the Eqvista application. Here, you will find an option to convert the note on the right hand side of the page. Click on the option and add in the necessary details and click on save.

Note Conversion into Equity

You will be asked to confirm the details before you can submit a request for the conversion as shown below. Once you confirm the details, click on submit and the convertible note would be converted into shares.

Note Conversion into Equity

Eqvista’s New Secondary Transaction Log Page

Eqvista also allows you to keep a record of all the secondary transactions, which will help you record these on your cap table. We have also incorporated a user-friendly interface that shows you all the secondary transactions of your company.

In addition to this there is also an overall summary of each type of transaction on top of the table. All in all, with these implementations, you can easily read the table and understand the information you need. If you want to see more details, there is a button to switch and see more for each type of transaction.

This is how it is displayed:

Secondary Transaction Log Page


All in all, the Eqvista team has worked hard to bring the best to help you during your company audits or for a 409a valuation. You can easily keep track of all the shares of your company with Eqvista. We hope you love the features that have been implemented in Eqvista and enjoy using the application.

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