The standard pre-IPO secondary sale — a founder or employee selling shares to a new investor at a negotiated price, with company consent and right-of-first-refusal compliance — is a well-understood transaction. What has changed, particularly in the current cycle, is the proliferation of more creative structures that carry the "secondary" label but involve very different legal and tax mechanics. Structured liquidity programs, tender offers organized by the company, SPVs, forward contracts, and derivative-style arrangements all exist in the market and all look different from each other in ways that matter. Gurpreet S. Bal, who has seen most of these variations in practice, keeps his guidance simple: "The word 'secondary' covers a lot of ground. Some of it is straightforward. Some of it is not."
Gurpreet is a corporate partner representing investors and companies in fundraising and exit transactions, and is known for a straightforward, cut-to-the-chase approach in dealings with clients and counterparties. When the transaction being offered is not straightforward, Gurpreet's instinct is always to slow down and understand the structure before moving forward.
A standard secondary sale involves a shareholder who owns common stock, typically vested founder or employee shares, negotiating a sale to a third-party buyer at an agreed price per share. The company's involvement is usually limited to consent (if required), ROFR compliance, and transfer agent mechanics. When the governing documents are clean and counsel is appropriately engaged, these transactions tend to move efficiently. Complications arise when the structure departs from this baseline, which is increasingly common.
The standard pre-IPO secondary sale involves a shareholder who owns common stock (typically vested founder or employee shares) negotiating a sale to a third-party buyer — often a secondary-focused fund or a new investor entering the cap table — at a price per share agreed between the parties. The company's involvement is typically limited to consent (if required by the investor rights agreement or charter), ROFR compliance, and transfer agent mechanics. Gurpreet S. Bal notes that these transactions, when the company's governing documents are clean and the company's legal counsel is appropriately engaged, tend to move efficiently. The complications arise when the transaction structure departs from this baseline — and in the current market, departures are increasingly common.
Non-standard structures each carry a distinct legal and tax profile. SPV structures, where a vehicle holds the shares and investors participate in the SPV rather than holding shares directly, raise securities law questions about registration of SPV interests and applicable exemptions. Forward contracts and derivative arrangements can create complex tax recognition timing issues separate from the economic terms. Company-organized tender offers involve SEC rules that apply even to privately held companies. None can be assessed by analogy to the standard transaction.
Gurpreet S. Bal works through the non-standard structures with founders and employees in detail before they sign anything. SPV structures — where a vehicle is formed to hold the shares and investors participate in the SPV rather than holding shares directly — raise securities law questions about the registration of SPV interests and the applicable exemptions. Forward contracts and derivative arrangements that reference pre-IPO shares can create complex tax recognition timing issues that are entirely separate from the economic terms the parties negotiated. Tender offers organized by the company itself involve SEC rules that apply even to privately held companies. Each of these structures has legitimate uses. Each also has a distinct legal and tax profile that cannot be assessed by analogy to the standard secondary transaction.
In 2026, secondary market activity for pre-IPO companies has accelerated significantly. A slower IPO market in prior years, high late-stage valuations, and employee equity that has been illiquid for five to seven years have created strong demand on both the seller and buyer sides. The increased volume has attracted a broader range of intermediaries, some with deep expertise and others less regulatory sophisticated, along with more creative structuring that makes legal review essential before committing to any transaction.
In 2026, secondary market activity for pre-IPO companies has accelerated significantly. The combination of a slower IPO market in prior years, high valuations at late-stage rounds, and employee equity that has been unvested or illiquid for five to seven years has created strong demand on both the seller and buyer sides. The volume of secondary market activity has attracted a broader range of intermediaries — some with deep expertise and strong legal infrastructure, others operating with less regulatory sophistication. Gurpreet S. Bal notes that the increase in market activity has been accompanied by an increase in the creative structuring that makes legal review essential before committing to any transaction. "If someone is offering you a creative liquidity structure, the first call is to your lawyer, not to your friends who have done it," he says.
Tax consequences are not uniform across transaction types, and this is the dimension founders and employees most often underestimate. The timing of income recognition, the character of the gain (capital versus ordinary), the application of Section 83(b) or Section 1202 QSBS considerations, and state tax treatment all vary by structure, not just economics. A forward contract delivering liquidity today may have a very different tax profile than an outright sale, and an SPV participation may not receive the same treatment as a direct share sale.
The tax consequences of pre-IPO secondary sales are not uniform across transaction types, and Gurpreet S. Bal consistently flags this as the dimension that founders and employees most frequently underestimate. The timing of income recognition, the character of the gain (capital gain versus ordinary income), the application of Section 83(b) or Section 1202 QSBS considerations, and the state tax treatment all vary depending on the structure of the transaction — not just the economics. A forward contract that delivers economic liquidity today may have a very different tax recognition profile than an outright sale. An SPV participation that looks economically equivalent to a direct share sale may not receive the same tax treatment. The first call before signing is to a lawyer, as Gurpreet says — and the second call is to a tax advisor.
Gurpreet S. Bal is a corporate partner with 16 years advising on private equity, merger transactions, and public offerings for companies and investors at three of the world's top law firms. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. For more information and to get in touch, visit gurpreetbal.com.