Secondary sale: selling shares before the exit

Not every shareholder in a company wants to wait for the exit to cash in. Founders who have built value for years, employees with exercised options, business angels from the early rounds: at a certain point it can make sense to sell part of one’s shares before the whole company changes hands. This is the secondary sale, an increasingly common transaction in Switzerland too as companies stay private longer. But it must be structured precisely, because it touches the articles of association, the shareholders’ agreements and taxation.

Primary and secondary: the difference

The distinction is fundamental and often confused.

In a primary, the company issues new shares and takes in fresh capital: the money enters the company to fund its growth.
In a secondary, an existing shareholder sells their shares to a buyer: the money goes to the seller, not to the company. There is no new issuance, so there is no dilution — only the ownership of the shares changes.

Many rounds combine the two: part primary to grow the company, part secondary to give partial liquidity to the founders or let early-round investors exit.

Why do a secondary

The motivations are legitimate and varied:

Partial liquidity for founders: after years of modest salaries, cashing in a small stake eases personal pressure and aligns the founder with long-term decisions.
Exit for early investors: angels and seed funds may want to close their position with a good multiple without waiting for the exit.
Liquidity for employees: those who have exercised stock options can realise part of the value.
Entry of a new investor who wants a larger stake than is available with new capital alone.

The valuation knot

The price of a secondary does not always match the valuation of the last round. Ordinary shares sold by a founder are often worth less than the preferred shares subscribed by investors, because they lack a liquidation preference and other rights. For this reason secondaries frequently close at a discount to the primary price. Setting a defensible valuation is delicate also because of the tax implications, especially when it involves employees and options.

The clauses that govern the sale

A shareholder can almost never sell freely: the articles of association and the shareholders’ agreement of the AG impose restrictions designed precisely to control the entry of new shareholders.

Transfer restriction (vinkulierte Namenaktien): in an AG, registered shares may be subject to board approval for the transfer.
Right of first refusal (ROFR): the other shareholders have a pre-emption right and can buy on the same terms offered by the third party.
Right of co-sale / tag-along: allows the other shareholders to sell pro rata in the same transaction.
Drag-along: in a broader deal, it can oblige minority shareholders to sell together.

Ignoring these clauses is the most frequent mistake: a sale closed without respecting the pre-emption right or the required approval can be challenged.

The tax aspects in Switzerland

The treatment depends on who sells and how they hold the shares. For a resident individual holding the shareholding in their private assets, the capital gain from a sale is in principle exempt from income tax — but there are significant exceptions (for example the cases of indirect partial liquidation or transposition) that can make the transaction taxable. For employees selling shares obtained through participation plans, specific rules apply. Given the complexity, every secondary must be assessed case by case before signing: the structure chosen directly affects the net proceeds.

How to structure it well

Verify the articles of association, shareholders’ agreement and pre-emption clauses in advance.
Set a defensible valuation, distinguishing ordinary and preferred shares.
Clarify the seller’s tax position before fixing the price.
Formalise the transfer with the correct documentation and update the share register.
Coordinate the secondary with any primary round under way.

In short

The secondary is a valuable tool for providing liquidity without waiting for the exit, but it is not a free sale: it lives within the perimeter of the statutory and shareholder-agreement restrictions, and its tax consequences must be clarified beforehand, not afterwards. Structured well, it lets founders and early investors cash in in an orderly way while keeping the corporate balance intact.

Do you want to sell or buy shares in a secondary while respecting the articles, agreements and taxation? The capital division of SIH ONE structures the deal from valuation to transfer.