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Financial Terms and Glossary

Secondary shares

Secondary Shares

Secondary shares refer to shares of a company that are sold by existing shareholders, such as insiders, institutional investors, or early backers, in a secondary offering. These shares have already been issued by the company during a primary offering, and the sale of secondary shares does not raise new capital for the company. Instead, the transaction allows existing shareholders to sell part or all of their stakes in the company to new investors.

Example

A founder of a tech startup decides to sell 10% of their holdings in the company, offering secondary shares to new investors after the company has gone public.

Key points

• Shares sold by existing shareholders rather than new shares issued by the company.

• Common in secondary offerings and allows shareholders to exit or reduce their stake.

• Does not raise new capital for the company.

Quick Answers to Curious Questions

What is the difference between primary and secondary shares?

Primary shares are new shares issued to raise capital, while secondary shares are previously issued shares sold by existing shareholders.

Why might insiders or institutional investors sell secondary shares?

They may sell to liquidate part of their investment, diversify their holdings, or take profits without diluting the company’s shares.

Does selling secondary shares affect the company’s capital?

No, the sale of secondary shares does not affect the company’s capital, as the proceeds go to the selling shareholders, not the company.

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