Secondary transactions in private company shares — sales of existing shares by current holders rather than issuance of new shares by the company — have grown into a significant segment of the European venture and growth capital market. Extended private holding periods, driven by a reduced IPO market and fewer M&A exits at the scale needed to provide meaningful liquidity across the cap table, have created mounting liquidity pressure among founders who have spent years building companies without realising personal financial returns, employees whose option value remains theoretical, and early investors whose fund lifecycles require capital returns on a schedule that the company’s primary exit may not satisfy. Secondary transactions address this pressure but involve legal complexity that is often underestimated by participants.
Why Secondary Transactions Have Grown
The structural drivers of secondary market growth in European private companies are well-established. The median holding period between founding and exit for European venture-backed companies has extended to approximately seven to ten years, and for companies that achieve meaningful scale the timeline is often longer. Fund structures have correspondingly extended their tenors, but early investors in a fund that closed in 2015 or 2016 have limited partners who expected distributions on a timeline that the primary exit market has not delivered. Secondary purchases of LP interests in funds — fund-to-fund secondaries — have been one response; direct secondary purchases of portfolio company shares are another.
Founder liquidity is the second major driver. In markets such as France, Germany, and the Netherlands, where the social contract around startup compensation has historically involved below-market cash salaries offset by equity, founders who have not taken salary at market rates for several years face significant personal financial pressure by year five or six of a growth stage company. A limited secondary sale — the sale of five to fifteen percent of a founder’s shareholding to a secondary investor — allows the founder to achieve a degree of personal financial stability without triggering a primary exit process that the company may not be ready for.
Employee option liquidity programmes have similarly grown, with secondary platforms including EquityBee, Ledgy, and others facilitating structured liquidity windows for employee option holders at companies that have not yet reached a primary exit.
Transfer Restrictions: The Legal Starting Point
The starting point for any secondary transaction in a private company is an analysis of the transfer restrictions in the company’s constitutional documents and shareholders’ agreement. Private company shares in Continental Europe are almost always subject to some form of transfer restriction, the effect of which is to prevent shareholders from freely selling their shares to third parties without obtaining the consent of other shareholders, the company, or both.
The most common transfer restriction mechanisms are pre-emption rights (right of first refusal), approval rights, and tag-along rights. Pre-emption rights require a selling shareholder to offer their shares to other shareholders — typically pro rata to existing shareholdings — before selling to a third party. If the existing shareholders exercise their pre-emption rights, the transfer occurs internally at the offer price. If they waive their rights, the sale to the third party can proceed. Approval rights require the board or shareholders’ meeting to approve any transfer to a non-approved transferee; refusal to approve may or may not trigger an obligation on the company to find an alternative buyer.
Tag-along rights allow non-selling shareholders to join a proposed transfer and sell their shares on the same terms as the selling shareholder. Tag-along rights are primarily protective for minority shareholders who want to ensure they can participate in any liquidity event rather than being left behind as a minority in a company whose major shareholders have changed. In practice, tag-along rights can significantly complicate secondary transactions involving founders or major investors, because the trigger of tag-along rights may result in a larger transaction than the secondary buyer intended or can accommodate.
Jurisdiction-Specific Mechanics
Transfer mechanics in Continental European jurisdictions differ significantly from the relatively flexible position under English law. In France, the transfer of shares in a SAS requires compliance with the transfer restriction provisions in the statuts and the shareholders’ agreement, and SAS shares are transferred by a simple written agreement supplemented by registration of the transfer in the company’s shareholder register. For SAS shares, no notarial deed is required, which makes the transfer process administratively lighter than for SARL parts sociales, where registration with the commercial court is required.
In Germany, GmbH (Gesellschaft mit beschränkter Haftung) shares are notarised instruments. Transfer of GmbH shares requires a notarially certified agreement between buyer and seller, and registration of the new shareholder in the commercial register (Handelsregister) is required to bind the company. The notarial requirement imposes a fixed cost and procedural timeline on every GmbH share transfer, regardless of size, which differentiates the German secondary market from markets where electronic or simple written transfer is available. For GmbH structures with multiple classes of shares or complex vesting provisions, the notarial documentation must specifically address each tranche of shares being transferred and any associated conditions.
In the Netherlands, BV (Besloten Vennootschap) shares are transferred by notarial deed executed before a Dutch civil law notary. The deed of transfer must be registered with the trade register, and the company’s shareholders’ register must be updated. Dutch BV constitutional documents and shareholders’ agreements typically contain approval and pre-emption provisions modelled on the standard statutory scheme, which the Company’s management board or general meeting of shareholders must follow in the prescribed sequence before a third-party transfer can be completed.
Valuation and Information Asymmetry
Secondary transactions in private companies face an information asymmetry problem that does not arise in primary transactions. In a primary funding round, the company is the party with superior information, but investors benefit from extensive due diligence, representations and warranties, and a negotiated subscription agreement. In a secondary transaction, the buyer acquires an existing shareholder’s position with potentially limited access to current company financial information, management projections, or investor-level reporting.
Existing shareholders’ agreements may or may not give the secondary buyer the right to conduct due diligence before completing the purchase, and the company may decline to provide information to a prospective secondary buyer who is not yet a shareholder. Secondary investors typically navigate this by using whatever public information is available — Companies House filings in the UK, Handelsregister filings in Germany, Registre du Commerce filings in France — supplemented by information from the selling shareholder and, where accessible, published rounds and valuation data from databases such as Crunchbase, PitchBook, or national ecosystem reports.
The valuation basis for secondary transactions ranges from a negotiated discount to the most recent primary round price, to a fresh independent valuation, to a formula-based price derived from the company’s financial metrics. Secondary transactions at a discount to the primary round price are common in compressed market conditions; transactions at or above the primary round price reflect secondary buyer confidence that the company’s progress since the primary round has increased the value beyond the headline primary valuation.
Tax Considerations
The tax treatment of secondary share sales for selling founders, employees, and investors varies significantly by jurisdiction and by the legal status of the seller. In France, capital gains on the sale of shares in a French company by individual shareholders are subject to the flat tax (prélèvement forfaitaire unique) of 30%, though an option to apply the progressive income tax scale is available if more favourable. Shares in companies eligible for the PEA (Plan d’Épargne en Actions) held for the required minimum period benefit from exemption from income tax (though social contributions remain). Employee options that vest and are exercised under the qualifying French BSPCE or stock-option schemes have specific tax regimes governing the gain at exercise and the subsequent capital gain on disposal.
In Germany, capital gains on shares held by individuals are subject to the Abgeltungsteuer (final withholding tax) of 25% plus solidarity surcharge, provided the shareholder holds less than 1% of the company. For shareholders holding 1% or more — which will frequently be the case for founders in secondary transactions — the gain is taxable under the partial income method (Teileinkünfteverfahren), under which 60% of the gain is subject to income tax at the individual’s marginal rate. The German tax treatment therefore depends critically on the exact shareholding percentage at the time of disposal.
Belgian individual shareholders generally benefit from the exemption of capital gains on shares, provided the sale represents the normal management of private assets and is not characterised as speculative or professional activity. This exemption makes Belgium an attractive jurisdiction for founder-held shares but requires that the transaction is structured and documented as a genuine arm’s length transaction at market value rather than a transaction that could be characterised as professional or speculative trading.
The Role of Secondary Platforms and Specialist Intermediaries
The growth of secondary market activity has created a specialist intermediary ecosystem that includes dedicated secondary funds, secondary platforms, and advisors who facilitate the matching of sellers and buyers. Platforms such as Nasdaq Private Market, ADDX, and various European equivalents operate secondary matching services for qualified investors, while dedicated secondary funds including Lexington Partners, Ardian, and various European GPs acquire secondary interests as a primary strategy. For larger secondary transactions — founder sales above EUR 5 million, or block purchases of multiple shareholders’ interests — these intermediaries can provide market-making liquidity and sophisticated documentation that individual secondary buyers might not have the capacity to provide.
Conclusion
Secondary share sales in Continental European private companies are a growing and commercially important market, but they operate in a legal environment defined by transfer restriction regimes, corporate law formalities, and tax rules that vary significantly across jurisdictions. Sellers and buyers who approach secondary transactions with the assumption that they are straightforward commercial agreements risk running into the procedural and legal constraints that Continental European company law imposes on share transfers — constraints that, if not managed carefully, can result in a transfer being void, pre-emption rights being triggered unexpectedly, or tax consequences that were not anticipated in the deal economics. Specialist legal advice in the relevant jurisdiction is a precondition for any secondary transaction of meaningful size.