Secondary share sales: how UK startup employees and early investors can cash out before an exit

A secondary sale is the sale of already-issued shares from one existing shareholder to a buyer, most commonly a founder, early employee or early investor selling some or all of their stake to a new investor, an existing shareholder, or the company itself, without the company raising any new capital in the process. It is distinct from a primary funding round, where the company issues brand new shares and the cash goes onto its own balance sheet, and it is one of the few ways UK startup employees and early backers can access cash from their equity before a full company exit such as a trade sale or IPO.

Why would a company or its shareholders want a secondary sale?

For employees, particularly those who have been with a company for several years and hold vested share options, a secondary sale can be the first opportunity to realise any value from equity that has, until that point, existed only on paper, which is a meaningful retention and morale tool for a company whose exit may still be years away. For early investors, a partial secondary sale offers a way to realise some return and reduce risk without forcing an exit the company and its founders are not ready for, while for the company itself, a controlled secondary process can help clean up a cap table by moving small or disengaged shareholdings into fewer, more committed hands. It is common for a later-stage funding round to include a secondary component alongside the primary raise, where some of the new investor’s cheque buys existing shares directly from selected early shareholders rather than all of it going into the company.

What does a secondary sale actually involve, legally?

A UK secondary sale is generally documented with a stock transfer form, the legal instrument that transfers title to the shares, a sale and purchase agreement setting out the commercial terms, and, if the buyer is not already party to the company’s shareholders’ agreement, a deed of adherence binding them to its terms, according to legal guidance from Humphreys Law on UK secondary share sales. The company’s board typically has to approve and register the transfer for it to take legal effect, and private company articles of association commonly include pre-emption rights, requiring shares to be offered to existing shareholders first, and consent requirements, meaning a shareholder generally cannot simply sell to whoever they like without checking what the company’s constitutional documents actually permit. Stamp duty is normally payable on the transfer, currently at 0.5% of the consideration paid, generally the buyer’s responsibility, with small transfers under £1,000 exempt.

What is a tender offer, and how does it differ from a private, one-off sale?

A tender offer is a more structured, company-sponsored secondary process in which the company, or a specific investor, offers to buy shares from a defined group of eligible shareholders, commonly current and former employees, at a set price, typically over a defined window of a few weeks. This differs from an informal, one-off secondary sale negotiated privately between two parties, since a tender offer is organised centrally, applies the same price and terms to everyone eligible, and is usually run alongside, or shortly after, a primary funding round that has established a fresh, credible valuation to price the tender against. A well-run tender offer can be a genuinely useful way to give a broad group of employees liquidity at the same time, rather than secondary sales happening piecemeal and on inconsistent terms.

What is PISCES, and how does it change things?

PISCES, the Private Intermittent Securities and Capital Exchange System, is a new regulatory framework approved by the Financial Conduct Authority, with the London Stock Exchange the first approved operator from August 2025, that allows private companies to run their own scheduled, intermittent trading events for their shares, rather than relying purely on informally arranged, one-off secondary deals. Access is generally limited to sophisticated investors, high-net-worth individuals, institutional investors and, notably, employees of the participating company, and companies retain meaningful control over the process, including setting price floors or ceilings and having a say over who is allowed to buy their shares. PISCES is operating as a regulatory sandbox through to 2030, after which Parliament will assess how well it has worked, so it remains a relatively new and still-developing option rather than an established, universal route, but it represents a more formal, FCA-regulated alternative to ad hoc private secondary deals for companies that choose to use it.

What tax treatment applies to a secondary sale?

For a UK-resident individual seller, a secondary sale of shares is generally subject to capital gains tax on any gain over their original cost, rather than income tax, though the position can be more complex for employees or others connected to the company, where shares acquired or sold at a discount to market value can trigger income tax and employer National Insurance consequences under the employment-related securities rules. This is a genuinely fact-specific area, particularly for anyone holding EMI or other tax-advantaged share options, where the interaction between the option scheme’s own rules and a secondary sale needs proper advice rather than assumption, since getting it wrong can affect both the seller’s tax bill and the option’s qualifying status.

What should a founder weigh up before running a secondary process?

It is worth thinking about who a secondary process is genuinely intended to benefit, long-serving employees, a specific early investor looking to reduce risk, or general cap table tidy-up, since that shapes whether an informal private sale, a structured tender offer, or a PISCES-style event is the more appropriate mechanism. It is also worth checking the company’s articles of association and any shareholders’ agreement carefully before running any secondary process, since pre-emption rights, consent requirements and any restrictions on price or eligible buyers set out there will determine what is actually possible without amending the company’s constitutional documents first.

How is a secondary sale actually priced?

Unlike a primary funding round, where the price is negotiated directly between the company and a new investor as part of agreeing how much new capital to raise, a secondary sale price is generally set with reference to the most recent primary round’s valuation, sometimes at a discount to reflect the reduced information rights and lack of board influence a secondary buyer typically receives compared with a primary investor. Where a secondary sale happens alongside a primary round, as is increasingly common at Series B and beyond, it is common for the secondary price to simply match the new round’s price per share, giving employees and early investors a clean, easily justified reference point rather than a separately negotiated figure. Where a secondary sale happens independently of any primary round, for example a one-off request from a departing employee wanting to sell some vested shares, pricing is less standardised, and it is worth a company thinking about whether it wants to set a consistent internal reference price for such situations rather than negotiating each one from scratch.

The practical takeaway

Secondary sales, in various forms, are a well-established and increasingly formalised way for UK startup employees and early investors to access some value from their equity before a full company exit, and options range from a simple, privately negotiated transfer through to a structured tender offer or a new FCA-regulated PISCES trading event. Because the legal mechanics, tax treatment and company consent requirements are all genuinely fact-specific, it is worth taking advice from a solicitor experienced in UK private company secondaries, and from an accountant on the personal tax consequences, before running or participating in any secondary sale, rather than treating it as a straightforward private transaction.