This is the 4th post in the series of ESOP, you can read the earlier posts here –

What is ESOP (Employee Stock Ownership) ? – https://financegrail.com/what-is-esop-employee-stock-ownership/

ESOPs – Grant, Vesting, Exercise, Cliff ?? – https://financegrail.com/esops—grant-vesting-exercise-cliff/

ESOP – Exercise of shares and Cash Impact – https://financegrail.com/esop-exercise-of-shares-and-cash-impact/

Now lets talk about, when you have the shares which are vested, how and when you can cash it out i.e. sell the shares.

Following are the options which you can use –

1. Sale of shares in next fundraise by the company i.e. when company raises the funds from the investors then sometime it provides an option to its employees to cash-in some ESOPs which they hold. It is beneficial for all the parties i.e. employees get some cash, Investors get the share at approximately 20-30% discount to latest fund raise price and it helps company to reduce shareholders from the shareholders list. This is most common way to selling the ESOPs.

2. Sale of share back to the company or the ESOP Trust – Sometime company buyback their share from the ESOP holders to meet two objectives- i) when the company is growing and has spare cash then it is beneficial for company to buyback shares and then issue those shares at later date to the new investor at much higher prices or issue those shares to the future employees (in case buyback was done from ESOP Trust) and ii) to motivate their employees by giving them some liquidity in the form of cash.

3. Sale of share in case of Mergers or Acquisitions – As the company goes through its life cycle, many time it either merges into a another company or it gets acquired by the other company. At that time, generally there is an option for the ESOP shareholders to sell the part or full shares to the new company.

In some cases, ESOP shareholders are given shares in the new company. It entirely depends on how the deal is negotiated and how much cash new company wants to spend to acquire the existing company.

4. Sale of shares to 3rd Party – Generally it is hard to find the buyers for the non-listed company shares because the price is unknown and there are not many buyers so its not easy to resell for the purchaser. But, if you have the shares of companies like Flipkart, Ola, Oyo etc. (which are well know name) then you can find the brokers in the market which can help in facilitating the sale (this is called sale in Grey market!). This is more easy to do when shares in electronic form (also known as Demat form), so that transaction can be settled in real time with no dispute of ownership in the future.

Be mindful, that if you are buying a share of a company which is expected to go IPO soon with a hope that you can make some quick bucks, then please be aware that there is lock-in for 1 year. That means, if hold the share for less than 1 year at the date of IPO then you cannot sell it for one year.

5. Sale at IPO – This is ultimate objective for most of the companies to be listed one day and its a great day for the all the employees who have put their hard work to make the company successful. So, when the company goes IPO, generally there are two type shares are sold i) Issue of new share by the company to raise funds for the requirement of the company (which is primary objective!) and ii) Sale of shares by the existing shareholders like founders, investors, ESOP shareholders, so at this event ESOP holders have the opportunity to sell their share at listing price, if they like to.

Once the company is listed, then its like any other company in the market for which you can buy and sell the shares at your will.

One important thing to note for the ESOP shareholders, if you are an current employee of the company which has got listed or are connected with company in a manner that you get some confidential information, then you can sell the shares in only pre-defined window which company communicates to its employees.

Here are some recent buyback some by the big private companies in India for your reference

https://www.financialexpress.com/market/bumper-ipo-indigo-paints-creates-wealth-for-employees/2214195/

https://www.livemint.com/companies/news/razorpay-announces-esop-buyback-worth-10-million-11614838322662.html

https://www.hindustantimes.com/business/zerodha-plans200croreesopbuyback-101622254913383.html#:~:text=Online%20brokerage%20Zerodha%20aims%20to,company%20told%20Mint%20on%20Friday.&text=Zerodha%20will%20allocate%20newer%20ESOPs,8%25%20shareholding%20in%20the%20company.