BarbriSFCourseDetails
  1. keyboard_arrow_leftBack
BarbriPdBannerMessage

Course Details

Course Information
  • smart_display Format

    On-Demand

  • signal_cellular_alt Difficulty Level

  • work Practice Area

    Banking and Finance

Date & Time
  • event Date

    Wednesday, January 22, 2020

  • schedule Time

    1:00 p.m. ET./10:00 a.m. PT

  • timer Program Length

    90 minutes

Credit Information

  • This 90-minute webinar is eligible in most states for 1.5 CLE credits.


  • Live Online


    On Demand

$347.00

This course is $0 with these passes:

CLE
ALL

This CLE course will examine legal, procedural, and regulatory issues associated with executing secondary sales. The panel discussion will include buyback vs. third-party purchases, securities compliance, pricing and tax considerations, and rights of first refusal and other provisions that can be included in corporate documents at the startup phase to exercise control over secondary sales.

Faculty

Shawn E. Lampron
Partner
Fenwick & West LLP

Ms. Lampron focuses her practice on executive compensation and employee benefits for emerging growth businesses, public companies, and venture and institutional investors. She works with clients to structure compensation and benefit programs covering the full spectrum of equity and cash compensation arrangements, including all types of employee stock options, restricted stock, employee stock plans, employment agreements, deferred compensation, and other fringe benefit arrangements. Ms. Lampron was most recently part of the team that represented Fitbit in its $732 million IPO in June 2015.

expand_circle_down Expand to View Full Bio expand_circle_up Collapse Bio
Marshall Mort
Partner
Fenwick & West LLP

Mr. Mort focuses his practice on representation of public and private technology and life sciences companies in a wide variety of corporate transactions. He advises on the issues that regularly arise with equity plans, executive compensation agreements and other employment benefit arrangements when clients are involved in mergers, acquisitions, public securities offerings, onboarding and terminations.

expand_circle_down Expand to View Full Bio expand_circle_up Collapse Bio

Description

Early-stage companies are generally closely or privately held, and underlying shares are neither registered with the SEC nor listed on a securities exchange. With companies remaining private longer, startup founders and employees may have equity securities of substantial value on paper and no easily accessible market in which to sell them. Properly structured, a secondary sale can provide private company shareholders with the desired liquidity without a public or private offering.

Company-sponsored transactions are often structured as a buyback of shares by the company. Alternatively, the transaction may be structured as a direct purchase of shares by a third party. The company will need to decide how involved to be in the sale, and if involved, the Company may want to direct which stockholders may sell their shares and what limits, if any, to place on those who sell and those who buy. It has become increasingly common for bylaws to require board approval of secondary transactions. A right of first refusal is also a useful device for controlling such transfers, to the extent that the company is willing and able to exercise it.

The transfer of securities must comply with applicable federal and state securities laws. It is essential that secondary sales not be viewed as an underwritten offering of securities by the company. Relevant to the analysis are such factors as how long the seller has held the stock, availability of pertinent information to a buyer, and whether the buyer is an "accredited investor." In addition, certain secondary sales could be subject to timing and disclosure requirements as a regulated tender offer.

A purchase of shares at a price above what the company's board of directors otherwise considers "fair market value" creates a risk that current or former employees or service providers selling shares will not be able to claim capital gains treatment on 100% of the sale price. The difference may need to be taxed as ordinary income (and sometimes as if they were wages). As a result, the company may have withholding obligations. This risk is particularly acute if the company is the purchaser, but can apply even if the purchaser is a third party.

Listen as our authoritative panel discusses these and other issues associated with secondary sales of privately held stock.

Outline

  1. Secondary sale: providing a liquidity event for founders and employees without an offering
  2. Executing a secondary sale: structuring alternatives
    1. Stock buyback
    2. Sale to third party
  3. Company and contractual controls
  4. Securities considerations and Tender Offer analysis
  5. Tax considerations: preserving capital gains treatment

Benefits

The panel will review these and other noteworthy issues:

  • When is a secondary sale an appropriate action for founders and employees who are otherwise unable to sell their shares?
  • What kinds of controls and limitations should a private company put on secondary sales, and how should they be documented?
  • What are the securities and disclosure implications of a secondary sale?
  • How should the price be determined in a share buyback, and what are the tax considerations?