Facebook, Zynga Impose Fees on Private Sales of Shares
Facebook Inc. and Zynga Game Network Inc. are charging fees of at least $2,500 for each sale of company shares, a move legal experts say discourages employees from putting equity in the hands of large numbers of outside owners before an initial public offering.
Context & Ripple Effects
Facebook Inc. and Zynga Game Network Inc. have both confirmed to Bloomberg that they now charge a minimum $2,500 fee every time an employee sells shares on the private market, a structure legal experts read as a deliberate brake on equity reaching large numbers of outside owners before an IPO. For two of the most sought-after private companies of 2010 — Facebook coming off its August Places launch and its early-October Groups revamp, Zynga dominant in social gaming — employee stock is valuable paper that outsiders actively want.
The practical effect is that the fee functions less as cost recovery than as a toll gate: a fixed $2,500 charge bites hardest on the smallest sales, which is precisely the segment of secondary activity most likely to scatter shares across many hands. Neither company has framed it that way publicly; the legal experts quoted do it for them.
First-order effects
- Employees at Facebook and Zynga seeking liquidity see their proceeds cut by at least $2,500 per transaction, pricing small sellers out of the private market entirely while leaving larger blocks relatively unaffected.
- Buyers of private shares in these two companies face thinner supply of small lots, concentrating new outside ownership in bigger, institutional-sized purchases.
Second-order effects
- Other heavily valued private technology companies gain a ready-made template for controlling shareholder counts ahead of an IPO, shifting leverage over the secondary market from brokers and sellers to issuers themselves.
- Private-share marketplaces and brokers that route these transactions lose deal flow at the small end, pressuring them to court companies for sanctioned, issuer-controlled offerings instead of open matching.
Third-order effects
- If the fee model spreads, pre-IPO liquidity migrates from open secondary trading toward company-sanctioned windows, giving boards effective veto power over who joins the cap table — a structural change to how startup wealth gets distributed before public listings.
- Regulators and underwriters watching shareholder-count dynamics get a de facto private-sector solution, reducing the pressure for formal rules on how widely private equity can disperse before an offering.
The trend: Hot private technology companies are asserting direct control over their own secondary markets, trading employee liquidity for a cleaner, more concentrated cap table heading into an IPO.