What is a founder secondary and when can I sell some of my shares?
By SuLe · Updated 4 July 2026
A founder secondary is a sale of some of your existing shares — usually to the investor leading your next round — so you take some cash off the table without the company raising money. The proceeds are yours personally and trigger a capital gains tax event; it is not fundraising for the business.
Key facts
- A secondary sells shares you already own; a primary raise issues new shares and the company keeps the cash.
- You normally need a buyer, a waiver or exercise of pre-emption on transfers, and any shareholders' agreement consents.
- Proceeds go to the founder personally and are a capital gains tax disposal, not company income.
- Business Asset Disposal Relief may cut the rate if you qualify — but rates changed recently, so check the current rate.
- Selling above market value in connection with employment can be taxed as income, not capital.
What is the difference between a secondary and a raise?
A primary raise means the company issues new shares to investors and banks the money to spend on the business. A secondary means you sell shares you already hold, and the cash goes into your own pocket.
The two often happen together: an investor puts most of its money into new shares (primary) and a slice into buying founder shares (secondary). For the company, only the primary part is new funding.
Founders use secondaries to de-risk personally after years of low pay — sensible in moderation, but investors watch the size, because selling too much can signal you are stepping back.
When can I actually sell some of my shares?
Two things have to line up: a willing buyer, and permission under your governing documents. The buyer is almost always the incoming lead investor, since there is rarely another market for private startup shares.
Permission comes from your articles and shareholders' agreement, which restrict transfers. You will typically need pre-emption rights on transfers waived or exercised — meaning existing shareholders get first refusal — plus any board or investor consent the agreement requires.
The Companies Act 2006 sets the baseline company-law framework, but your bespoke articles usually tighten it further. Selling around those restrictions can breach your agreements, so map the consents first. [More: What are pre-emption rights — and how are they disapplied?]
How is a founder secondary taxed?
Selling shares is a capital gains tax (CGT) disposal on your personal gain — broadly, sale proceeds minus what the shares cost you. Because founder shares are usually acquired at a tiny nominal value, most of the proceeds are gain.
Business Asset Disposal Relief (BADR) can reduce the CGT rate on qualifying disposals, subject to a £1m lifetime limit and conditions including holding at least 5% of shares and votes and being an officer or employee. BADR rates have moved recently, so treat the rate as volatile and check the current figure before modelling net proceeds.
Main CGT rates on shares have also changed. The honest position in mid-2026 is that rates are in flux — confirm the applicable rate with HMRC guidance or an adviser rather than relying on a number.
| Primary raise | Secondary sale | |
|---|---|---|
| What is sold | New shares issued by the company | Your existing shares |
| Who gets the money | The company | You, personally |
| Tax event | None for you | Capital gains tax on your gain |
| Consents needed | Allotment authority, pre-emption on issue | Pre-emption on transfer, investor consent |
| Purpose | Fund the business | Founder liquidity |
What are the traps founders miss?
The big one is employment-related securities rules. If you sell shares above their market value in connection with your employment, HMRC can tax part of the gain as employment income — taxed more heavily than a capital gain.
The fix is to price the sale at genuine market value and document it. Where an investor is paying a premium, get advice on structure before signing, not after.
The second trap is optics and size. Selling a large chunk can spook the very investor buying your shares, so agree the amount as part of the round rather than springing it late.
Worked example
Raj co-founded a B2B marketplace and holds 1,000,000 ordinary shares acquired at a nominal £0.0001 each. At his Series A, priced at £2.50 per share, the lead investor agrees to buy 200,000 of his shares as a secondary alongside the primary raise.
Raj receives 200,000 × £2.50 = £500,000. His cost base is negligible (200,000 × £0.0001 = £20), so his gain is essentially £499,980. The sale needs pre-emption on transfers waived and investor consent under the shareholders' agreement, all handled inside the round documents.
The £500,000 is Raj's personally and is a CGT disposal. If he qualifies for BADR the rate is lower up to the lifetime limit — but with rates changing, he confirms the current rate before treating any net figure as fixed.
Where founders go wrong
Assuming the cash is company money
— a secondary pays you, not the business; it is not a substitute for raising funds.Ignoring transfer restrictions
— pre-emption on transfers and investor consents usually apply; skipping them breaches your agreements.Selling above market value carelessly
— a premium tied to your employment can be taxed as income, not capital.Banking on an old tax rate
— CGT and BADR rates have shifted recently; check the current rate before you count your net proceeds.
Related questions
Is a secondary the same as raising money?
No. In a primary raise the company issues new shares and keeps the cash. In a secondary you sell shares you already own, and the money goes to you personally. It is a partial cash-out, not funding for the business.
When can I sell some of my founder shares?
Usually only when there is a buyer — typically an incoming investor at a priced round — and your shareholders' agreement and articles allow it. You will normally need pre-emption on transfers waived and any required board or investor consents.
What tax do I pay on a founder secondary?
Selling shares is a capital gains tax event on your personal gain. Business Asset Disposal Relief may reduce the rate if you qualify, but rates have changed recently — check the current rate before you model your net proceeds.
Do I need investor consent to sell?
Usually yes. Share transfers are restricted by the articles and shareholders' agreement, so pre-emption rights on transfers must be waived or exercised and any investor consent obtained. Selling around those restrictions can breach your agreements. [More: What are pre-emption rights — and how are they disapplied?]
Can selling above market value cause a tax problem?
It can. If you sell shares above market value in connection with your employment, part of the gain may be taxed as employment income rather than capital. Get the price and structure checked so the whole sum is not recharacterised.
A founder secondary looks like a simple share sale, but the transfer consents, the market-value pricing and the fast-moving CGT and BADR rates all shape what you actually keep. A SuLe solicitor can structure the sale inside your round and flag the employment-securities trap before you sign. Book a free consultation with a startup solicitor to get it right the first time.
Keep reading: How is a Series A different from a seed round legally? · What are pre-emption rights — and how are they disapplied? · What legal prep does a startup need before an exit? · Share sale vs asset sale — what's the difference for founders? · What is a cap table and how do I keep it clean? · How do liquidation preferences play out in an exit waterfall?
Primary sources: Companies Act 2006 · BVCA — British Private Equity & Venture Capital Association
