When you buy pre-IPO exposure on a secondary marketplace, you are usually choosing between two structures: a special purpose vehicle (SPV) that holds the underlying shares on your behalf, or a direct transfer of shares — or membership interests representing shares — into your own name. Both get you economic exposure to the same company. The choice determines almost everything else: your tax clock, your fee drag, your voting posture, and how long you wait between a liquidity event and actual cash in your account.
This guide is written for accredited investors evaluating a purchase. It is not tax or legal advice. You should work with a qualified CPA or attorney before executing any transaction.
What each structure actually is
Most secondary marketplace transactions settle in one of the first two forms. Forwards are a separate instrument and are not compared here.
The holding period and capital gains clock
Long-term capital gains treatment under current U.S. federal tax law requires a holding period of more than one year. In a direct transfer, your holding period generally starts on the trade date — the day the transfer becomes effective. In an SPV, the question is more nuanced.
When you buy into an SPV that already holds shares, you are purchasing a membership interest in that LLC, not the underlying shares directly. The IRS treats your holding period as beginning on the date you acquire your SPV interest — not on the date the SPV itself acquired the shares. If the SPV has held its shares for three years and you buy in today, you do not inherit those three years. Your clock starts at zero.
In a direct transfer, you acquire the underlying asset directly, so your holding period in the shares begins immediately. If you hold for more than a year before a liquidity event — whether a tender offer, secondary sale, or IPO — your gain is potentially long-term. The timing arithmetic is simpler.
QSBS eligibility: where structure can cost you millions
Section 1202 of the Internal Revenue Code — commonly called QSBS, or qualified small business stock — allows non-corporate taxpayers to exclude up to 100 percent of capital gains on qualifying shares, subject to a five-year holding period and other requirements. The issuing company must have had gross assets under $50 million at the time the shares were originally issued, among other conditions.
QSBS exclusion on secondary purchases is narrow and often unavailable. When you buy shares via a direct transfer in the secondary market, you are generally acquiring stock that was originally issued to someone else — not to you. Section 1202 generally requires that the taxpayer claiming the exclusion be the original acquirer of the stock from the company. Secondary purchasers typically cannot claim the QSBS exclusion on those shares. There are narrow exceptions, but they are fact-specific and require qualified tax counsel to evaluate.
In an SPV, the exclusion is even more remote. You hold a membership interest in an LLC, not stock in a C-corporation. Even if the underlying shares were originally QSBS-eligible, the interposition of the LLC typically breaks the eligibility chain for most investors. If QSBS exposure matters to your return model, raise it with your tax advisor before you pick a structure.
Fee drag: SPV economics in plain numbers
SPVs carry two standard cost layers that direct transfers do not: management fees and carried interest (carry). A typical SPV structure charges an annual management fee of one to two percent of committed capital, plus a carry of ten to twenty percent of profits above a hurdle (often zero). On a five-year hold in a company that doubles, those fees compound meaningfully.
Direct transfers do not carry these ongoing layers. You pay a transaction fee at settlement — typically a percentage of transaction value — and nothing more until you sell. The economic simplicity of a direct transfer is real, especially for longer hold periods.
The trade-off: SPV managers often absorb legal, administrative, and ROFR-navigation costs that would otherwise fall on you. For buyers who are unfamiliar with transfer consent processes or who want a manager handling ongoing corporate action notices, that administrative coverage has value.
Right of first refusal and consent: how structure interacts with company approval
Most private company cap tables are governed by a stockholder agreement or right of first refusal (ROFR) provision. When shares transfer, the company — and sometimes existing stockholders — have the right to match the purchase price and buy the shares instead. ROFR waiver timelines typically run fifteen to thirty days after the company receives formal notice.
In a direct transfer, the buyer and seller navigate ROFR together. The company reviews the proposed transfer, evaluates the buyer, and either waives or exercises its right. This process can delay settlement and, in some cases, causes the deal to fall through entirely if the company exercises its ROFR or withholds consent without cause.
In an SPV where the GP already holds the shares, a secondary buyer purchasing an SPV interest does not trigger a new ROFR, because no share transfer is occurring at the company level. The SPV membership interest is changing hands, but the cap table entry remains the GP's name. This can meaningfully accelerate settlement and reduce fall-through risk — but it also means your rights as a buyer are mediated entirely through the SPV operating agreement, not the company's charter.
Liquidity at exit: what happens when the company goes public or gets acquired
In a direct transfer, you hold shares. At IPO, those shares are subject to the standard lock-up period — typically 180 days after the listing date. Once the lock-up expires, you sell through your brokerage. The process is straightforward.
In an SPV, the GP manages the wind-down. The GP receives the IPO proceeds or acquisition consideration, the waterfall mechanics are applied (preferred return, carry, fees), and cash is distributed to members. This process can take weeks to months after the liquidity event. Investors who want speed and control at exit typically prefer direct transfers.
In an acquisition scenario, the GP negotiates or accepts the acquisition consideration on behalf of the SPV. Members have limited or no individual vote on deal terms unless the operating agreement requires a member vote. If you care about governance at exit, review the operating agreement before you buy.
A simple decision framework
- If your primary concern is holding period clarity and exit speed, lean toward a direct transfer — your clock starts immediately and you control your brokerage sale at IPO.
- If the company has a history of exercising ROFR or withholding consent, an SPV that already holds shares eliminates that risk for you as the incoming buyer.
- If the holding period will be short (under twelve months), the QSBS and long-term gains advantages of either structure are largely irrelevant — focus on fees and settlement speed.
- If you are investing a significant amount and plan to hold through IPO, model the carry impact explicitly. At twenty percent carry and a two-times return on a $500,000 position, carry alone costs $100,000 in gross proceeds.
- If you are uncertain about the SPV manager's incentives or the operating agreement terms, request the agreement and read it — or have counsel review it — before signing.
How Limen Markets handles this choice
Limen Markets lists both SPV interests and direct transfer opportunities across our 28 issuers, with each listing clearly labeled by structure type. For direct transfers, we run ROFR clearance in parallel with execution to compress timeline. For SPV interests, we provide the operating agreement in the deal room before you commit capital. Settlement runs one to five business days depending on structure and issuer. If you want to compare live supply across structures for a specific name, the marketplace is the right starting point.
The structure decision is yours to make — but it should be made with complete information, not after the term sheet is signed. Browse current listings at /marketplace or read our forward contract counterparty risk explainer if you are evaluating that third structure type.