Structuring an Employee Tender Offer Program: Key Considerations for Private Companies

Private companies are increasingly establishing recurring tender offer programs to provide employees with liquidity on vested equity. What was once an ad hoc exercise is becoming a standing feature of compensation strategy. Companies considering a tender program should evaluate the following considerations at the outset.

Federal Securities Law Framework

A threshold question is which federal tender offer rules apply. Rule 13e-4, which governs issuer self-tenders, applies only to issuers with a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (Exchange Act), or that file reports under Section 15(d) thereunder (in either case, a “reporting company”). Most private companies do not satisfy either condition, which means Rule 13e-4 does not apply to their tender offers.

Although a private company may not be a reporting company subject to Rule 13e-4, this does not mean that the tender offer is unregulated. Regulation 14E under the Exchange Act applies to all tender offers — including those made by non-reporting issuers — and imposes anti-fraud requirements under Rule 14e-1, prohibitions on purchases outside of the tender offer under Rule 14e-5, and minimum offering period requirements. Historically, tender offers have been required to remain open for at least 20 business days, though recent Division of Corporation Finance relief may permit a shorter period for qualifying issuer tender offers, as discussed below.

Tender Offer Duration

Rule 14e-1(a) requires tenders to remain open for at least 20 business days. However, on April 16, 2026, the Division of Corporation Finance issued an exemptive order permitting issuer tender offers to remain open for as few as 10 business days, provided certain conditions are met. The conditions for tender offers by non-reporting companies are:

• The tender offer must be made by the issuer of the securities sought in the tender offer, or by the issuer’s wholly owned subsidiary;
• The consideration offered in the tender offer must consist only of cash at a fixed price;
• Any change in the offer price or in the percentage of the subject securities sought in the tender offer (other than the acceptance for payment of an additional amount of securities not to exceed two percent of the subject securities) must be communicated no later than 9 a.m., Eastern Time, on the fifth business day before the tender offer expires; and
• Any other material change in the terms of the tender offer must be communicated no later than 9 a.m., Eastern Time, on the second business day before expiration of the offer.

The exemptive order does not specify any method for disseminating the notice to holders of the subject securities. Companies should evaluate whether their tender offers qualify for this abbreviated timeline.

Rule 701 Monitoring

While the tender itself is a repurchase, it is part of a broader equity compensation ecosystem. Specifically, the underlying equity grants that created the shares being tendered were sales from the company to its employees, and those issuances exist within a regulatory framework that requires ongoing monitoring, especially under Rule 701.

Rule 701 exempts compensatory equity grants from Securities Act registration but requires enhanced disclosure, including financial statements, once aggregate sales exceed $10 million in any 12-month period. A well-designed tender program should be coordinated with the company’s Rule 701 compliance calendar.

In addition, Rule 701 is a federal exemption and does not preempt state securities laws. Most states impose independent registration or qualification requirements on compensatory equity issuances, with their own exemptions that must be separately satisfied. Many states require notice filings or the filing of a Form D equivalent as a condition to relying on a state-level exemption, and those filings often carry their own deadlines and fee schedules. Companies operating a recurring tender offer program should confirm that the underlying equity compensation program remains in compliance with applicable state requirements, as a deficiency in the original issuance can create downstream complications when those shares are later tendered.

Governance and Board Authorization

Each tender offer must be authorized by the board of directors (or a duly delegated committee). Under Delaware law, share repurchases must be made out of surplus (as set forth in Section 160 of the Delaware General Corporation Law), and the board will need to confirm that the company has sufficient surplus to fund the repurchase at the proposed tender offer price. For companies with multiple classes of stock and investor consent rights, the board also must confirm that the tender offer does not require investor approval under the charter, investors’ rights agreement, voting agreement, or any other agreement or arrangement. Relatedly, companies should evaluate whether the tender offer interacts with existing transfer restrictions, rights of first refusal, or co-sale obligations, and secure any necessary waivers before commencing the offer.

Cap Table Management and Tracking Valuation

A recurring tender offer program demands disciplined cap table administration. Employee tender offers can involve hundreds of participants. Each tender creates transfers that must be reflected across the capitalization table, valuation records, and equity plan administration platform. In situations where an outside investor is acquiring shares, the company should track changes to its beneficial ownership profile for purposes of any contractual thresholds that trigger information rights or board observer rights.

In addition, recurring tender offers can influence a company’s valuation in connection with a future IPO. Companies conducting repeated tender offers at escalating valuations are creating a paper trail that the SEC staff may examine in reviewing any future IPO registration statement, particularly if the IPO pricing comes in below that of the last tender offer. In this context, the history of a company’s independent appraisal of its common stock’s fair market value (also known as a “409A valuation”) and the company’s tender offer pricing trajectory can be a key disclosure and risk factor issue in the IPO.

Internal and External Communications

Communications with eligible employees should be carefully scripted. The tender offer memorandum should disclose the material terms of the offer, the basis for the purchase price, tax consequences of participation, and risks associated with the company’s equity. Even for non-reporting issuers that are not subject to Rule 13e-4’s disclosure requirements, Section 14(e) of the Exchange Act prohibits material misstatements or omissions in connection with any tender offer.

Externally, the company should ensure that existing investors receive appropriate notice to satisfy contractual notification obligations and to manage expectations about dilution, valuation benchmarks, and cap table changes. Where the tender offer is paired with a primary fundraising activity, the company should coordinate messaging to avoid inconsistencies between tender offer materials and fundraising offering materials.

As employee tender offers become a recurring feature of private company compensation programs, the legal and operational complexity compounds with each successive tender offer. Companies that invest in building a compliant, repeatable framework at the outset will be better positioned to execute efficiently, retain talent, and avoid missteps that could complicate a future capital raise or public offering.

If you have any questions or would like more information about the issues discussed in this publication, please contact the authors of this article.