Answer

Startup ecosystem · Exit

Secondary sale: founder selling shares before company exit

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  1. Facts

    A secondary sale is when a founder or early investor sells their shares to a new investor, not the company raising money (which is a primary transaction). The company receives no proceeds, the selling shareholder does.

  2. Provisions and law

    • IT Act, Sec 45 | FEMA 1999 | Companies Act 2013, Sec 56

  3. Analysis

    ROFR: Most SHAs give other existing shareholders right of first refusal before you can sell to an outsider. Check your SHA, failure to offer ROFR can invalidate the transfer. Tax: Same as acquisition exit above, LTCG at 12.5% if held 24+ months, slab rate if STCG. FEMA: If buyer is a non-resident, pricing must comply with FEMA pricing guidelines (Rule 11UA floor).

  4. Conclusion

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Listed shares and equity mutual fund gains, Sec 196 and 198 (old 111A and 112A; ₹1.25 lakh exemption, 31 January 2018 grandfathering)

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