A company-sponsored liquidity transaction occurs when a private company buys its employees’ equity in the company, which has become more common in recent years. Company-sponsored liquidity transactions are often structured as a buyback of shares by the company, funded either with balance sheet cash or cash provided from a recent equity financing. Alternatively, the transaction may be structured as a direct purchase of shares by a third party, either paired with a primary equity financing of the company or as a standalone transaction.
In a company-sponsored transaction, the company will need to decide which stockholders may sell their shares and what limits, if any, to place on them. For example, it is not uncommon to limit a liquidity transaction to current employees of the company, to provide a reward for their years of effort and value creation. In that scenario, it is fairly typical to limit the amount any one employee may sell to a small percentage of his or her vested shares (e.g., 10%), to ensure that the employee continues to have meaningful equity incentives going forward.