Understanding Forward Contracts for Private Company Shares

What Is a Forward Contract?

A forward contract is a customized agreement between two parties to buy or sell an asset (in this case, private company shares) at a specified price on a future date. Unlike immediate sales, forward contracts allow shareholders to receive liquidity today while transferring the actual shares at a later date.

How Forward Contracts Work for Private Company Shares

1. Agreement: The buyer and seller agree on a share price and future delivery date
2. Payment: The buyer pays the seller immediately (or on an agreed schedule)
3. Transfer: The actual shares transfer ownership on the settlement date
4. Documentation: A legal agreement outlines all terms, conditions, and obligations

Benefits for Sellers

Immediate Liquidity

One of the most significant advantages of forward contracts is receiving cash now while formally transferring shares later. This provides liquidity without immediately giving up your equity position.

Price Certainty

The share price is locked in at the time of agreement. This protects you from potential future price decreases, providing certainty in what can be a volatile private market.

Tax Planning Opportunities

Forward contracts may offer tax advantages compared to immediate sales. The structure can potentially allow for more favorable tax treatment, though this varies by individual circumstance. Always consult with a qualified tax advisor.

Simplified Process

Forward contracts typically require less paperwork than traditional secondary sales, especially when working with a buyer experienced in these transactions.

Benefits for Buyers

Access to Shares

Buyers gain exposure to companies they believe will increase in value, even when immediate share transfers aren't possible due to company restrictions.

Risk Management

The price certainty helps buyers manage their investment costs in advance.

Common Questions About Forward Contracts

Are forward contracts legally binding?

Yes. Forward contracts are legally binding agreements that obligate both parties to fulfill their commitments.

What happens if the company is acquired before the settlement date?

Most forward contracts include provisions that address various scenarios such as acquisitions, IPOs, or other liquidity events before the settlement date.

Can I sell just a portion of my shares?

Yes, you can specify exactly how many shares you wish to sell through the forward contract.

What documentation will I need to review?

Typically, you'll receive a forward purchase agreement that outlines all terms and conditions. We recommend having this reviewed by your legal advisor.

Current Opportunity for Private Company Employees

We're currently facilitating forward contracts for shares in select private companies. If you're interested in learning about specific opportunities, please contact our team to discuss current valuations and available allocation.

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This article is for informational purposes only and does not constitute legal, tax, or investment advice. Please consult with appropriate professional advisors before entering into any forward contract agreement.