A secondary sale is the sale by an existing stockholder of shares in a private company to a third party that does not occur in connection with an acquisition of the company. When a lot of secondary sales happen together as part of the same transaction, it is sometimes referred to as a liquidity round. A secondary sale may be subject to various restrictions, such as rights of first refusal held by the company or by investors, and many companies have implemented a general prohibition on secondary sales to third parties without board consent.
Secondary sales can affect the option exercise price used for employee options, and can also raise concerns under securities, tax and antitrust laws. It is generally a good idea to have company counsel review any proposed secondary sale paperwork, even if the company is not going to be a party to the agreement.