ESOPs are sold in the unlisted market only after they have been exercised and converted into actual shares. The option itself cannot normally be sold or transferred to anyone; what changes hands is the share that results from exercising it, and it changes hands through a privately negotiated off-market transfer between two parties, usually settled in demat. The three things that decide whether a sale is possible at all are your company's rules on transfer, whether a buyer exists for that particular company at a price you accept, and whether you can fund the exercise cost and the tax that falls due at exercise.
What you actually hold at each stage
An ESOP moves through four distinct stages, and only the last one is sellable. Grant is the promise: your employer awards you a number of options at a fixed exercise price, recorded in a grant letter. Vesting is the earning of the right, usually over three or four years with an initial cliff. Exercise is the act of paying the exercise price and converting vested options into shares in your name. Holding is what you have afterwards: ordinary equity shares of an unlisted company, sitting in your demat account or on the company's register.
Until the exercise step is complete, you own a contractual right, not a security. This distinction is the single most common source of confusion among employees who ask how to sell their ESOPs.
You cannot sell the options themselves
Employee stock options in India are personal to the employee and are generally not transferable. Company law and standard scheme documents treat granted options as non-transferable, non-assignable and incapable of being pledged, mortgaged or otherwise encumbered. In most schemes the right also lapses on death or on leaving, subject to whatever exercise window the scheme allows.
The practical consequence is that any conversation about "selling my ESOPs" is really a conversation about two separate decisions taken in sequence: first whether to exercise, and then whether to sell the resulting shares. They have different costs, different timing and different tax consequences. Exercising is a cash outflow. Selling is a cash inflow. Some employees exercise and hold for years; some exercise only when a sale is already lined up.
The company's rules come first, not the market's
Before any buyer is approached, the company's own documents decide what is permitted. Articles of association of most private companies restrict the transfer of shares. A right of first refusal is common, meaning the company, its founders or its existing investors must be offered the shares before an outsider can buy them. Board approval for the transfer is frequently required. Shareholder agreements may add tag-along, drag-along or standstill provisions, and some ESOP schemes impose a lock-in after exercise.
Read the grant letter, the scheme document, the articles and any shareholder agreement you have signed, then ask the company secretary in writing what the transfer process is. A sale agreed with a buyer but refused by the board is worse than no sale. Where a company does not permit secondary transfers at all, no amount of buyer demand will change that.
The routes available to an employee
There are four realistic ways an exercised ESOP holding turns into money.
A company-run liquidity event. Many growth-stage Indian companies run periodic secondary sales or ESOP buybacks, where the company or an incoming investor purchases a defined proportion of employee holdings at a set price. In a company-run buyback or tender, paperwork, price and approvals are handled centrally. It happens on the company's timetable, not yours.
A sale to an existing investor or founder. An existing shareholder wanting to increase their stake is often the natural buyer, particularly where a right of first refusal exists.
A privately negotiated sale in the unlisted secondary market. The open route: shares are offered to buyers outside the cap table, matched through dealers, family offices, wealth managers or enquiry desks that track who is buying which company. Price is negotiated, not quoted.
Waiting for a listing. If the company completes an IPO, the holding becomes a listed share subject to any lock-in applying to pre-IPO shareholders. This is the slowest route and it is not guaranteed, since many companies never list.
How the price is arrived at
There is no exchange, no order book and no closing price for unlisted shares, so price is a negotiated outcome, not a quotation. Reference levels circulate among dealers and desks and are published as indicative prices — the level at which trades have recently been discussed or done, not a live quote and not an offer to deal. You can see the kind of coverage that exists across the 237 companies BUS tracks to understand what a reference level looks like and how dated it is.
Several things move the actual number you are offered. Small parcels usually fetch less than large clean blocks. Perceived proximity to an IPO tends to narrow the discount buyers demand. Scarce names trade tighter than names with plenty of supply. Transfer restrictions widen the discount, because a buyer who must wait for board approval is carrying risk. And the gap between an advertised level and what a seller actually nets can be material once brokerage, stamp duty and taxes are counted. Treat any published price as the start of a conversation, not a valuation of your holding.
How a private secondary sale settles
The mechanics are not complicated but they are exacting, and mistakes cause delays.
- Exercise and allotment. You pay the exercise price, the company allots the shares and updates its register of members.
- Get the shares into demat. Most unlisted secondary transactions settle in dematerialised form. Unlisted public companies are required to hold and transfer securities in demat, and dematerialisation requirements have been progressively extended to many private companies as well. If your holding is still in physical form, dematerialising it is a prerequisite that can take weeks. A demat account that supports unlisted holdings is the practical starting point.
- Company approvals. Right of first refusal waivers, board approval and any no-objection required under the shareholder agreement are obtained in writing.
- Terms agreed. Price, quantity, settlement date and who bears which cost are fixed, usually in a short share purchase or transfer agreement.
- Off-market transfer instruction. The seller submits a delivery instruction to their depository participant, marking the transaction as an off-market transfer with the buyer's demat details, quantity, ISIN, consideration and the correct reason code. Errors here are the most common cause of failed settlement.
- Funds and delivery. Payment and share delivery are exchanged, typically within a day or two of the instruction, often with a mutually acceptable sequencing or escrow arrangement because there is no clearing corporation standing between the parties.
- Records updated. The company's register reflects the new holder.
There is no settlement guarantee in an off-market trade. Counterparty risk sits with the two parties, which is why sellers commonly transact through an intermediary with a settlement track record rather than directly with a stranger.
Tax lands in two separate places
ESOPs are taxed twice on two different gains, and employees are regularly caught out by the first one.
At exercise, the difference between the fair market value of the share on the exercise date and the exercise price you paid is treated as a perquisite and taxed as part of your salary income. Your employer is generally required to deduct tax on it, and for unlisted shares the fair market value is established by a valuer's report rather than a market price. This tax falls due whether or not you have sold anything, which means exercising can create a cash liability with no corresponding cash inflow. Certain eligible start-ups can defer the point at which this tax is payable, subject to conditions.
At sale, the difference between your sale consideration and the fair market value already taxed at exercise is a capital gain. For unlisted shares the holding period that separates short-term from long-term is longer than for listed shares, and it is counted from the date the shares were allotted to you on exercise, not from grant or vesting. Rates, surcharge and the treatment of indexation have changed in recent years, and residency status affects both the rate and the withholding. Buyers can also face a tax consequence if they acquire shares meaningfully below fair market value.
The interaction of these two events, and the timing choice between them, is the part most worth taking professional advice on. Our general explainer sits at unlisted share taxation, and you should confirm your own position with a chartered accountant before exercising.
What commonly goes wrong
Exercise windows expire. Employees who leave often have a short period to exercise vested options before they lapse, and the exercise cost plus the perquisite tax has to be found inside that window. Buyers disappear for names with no news flow. Board approval takes longer than either party assumed. Physical shares turn out not to be in demat. Valuation reports go stale. And the IPO everyone was waiting for gets deferred, which is not rare.
These are process constraints rather than obstacles. Each dependency is worth confirming in writing before a price is agreed, and each one takes time.
Where BUS fits
BUS publishes research and indicative pricing on unlisted and pre-IPO companies and operates a buy-and-sell enquiry desk. For an employee holder, that means we can tell you whether there is current buyer interest in your company, what reference levels have looked like recently, and what the transfer mechanics typically involve for that name. Execution and settlement happen through separately registered intermediaries. We are not a broker, not an exchange, not a registered investment adviser and not a research analyst, and we do not tell anyone what to do with their money. Whether a market exists for your holding is a question for the enquiry desk.
FAQ
explain how esops are sold in the unlisted market
They are sold as shares, not as options. The employee exercises vested options and pays the exercise price, the company allots shares, and those shares are dematerialised. Subject to the company's transfer restrictions and any board approval, the shares are then sold to a buyer in a privately negotiated off-market transfer, settled through the depository system with funds exchanged directly between the parties.
how to sell my employee stock options on the private market?
You cannot sell the options themselves, as they are personal and non-transferable. The sequence runs: vested options are exercised first, perquisite tax arises at exercise, and the company's own rules determine whether a secondary transfer is permitted at all. Then dematerialise the shares, obtain any board approval or right-of-first-refusal waiver, agree terms with a buyer, and settle by off-market transfer instruction.
This guide is information only. It is not investment advice, not a recommendation to buy, sell or hold any security, and not tax advice. Prices referred to on this site are indicative over-the-counter reference levels, not exchange quotes and not an offer to deal. Availability, price and transferability of any unlisted holding vary by company and by transaction, and execution and settlement take place through separately registered intermediaries. Confirm your own tax and legal position with a qualified professional before acting.