Reference · Deal types & structures
Forward contract
An agreement to transfer shares (or their economic value) at a future date — used when transfer restrictions block a sale today.
Worked example
A worked example of a forward priced ahead of a lock-up expiry (illustrative figures):
- A buyer and seller want to transact today, but the seller's shares are inside a 6-month post-tender lock-up and can't legally transfer yet. They agree on a forward contract: $15/share for 5,000 shares, cash to change hands and title to transfer once the lock-up expires.
- Six months later, the company's next primary round prices at $20/share. The buyer still only pays the agreed $15/share — capturing a $5/share unrealized gain (5,000 × $5 = $25,000) purely from the price move over the forward's term.
- The risk sits on the other side too: if the company runs into trouble in the interim, or simply refuses to process the eventual transfer (some companies' agreements prohibit forwards outright), the buyer can be left holding a contractual claim with no actual shares behind it.
- Forwards let deals happen around timing restrictions that would otherwise block them entirely, but they substitute one risk (illiquidity) for another (counterparty and company-cooperation risk) — worth pricing explicitly, not assuming away.
Where this trips people up
A forward is frequently sold as a way to 'sell now' when the underlying shares cannot be transferred — but the buyer is exposed to a counterparty rather than to shares, and the seller may still be the legal owner of the position with all the obligations that entails. Some companies treat forwards as a prohibited transfer, which is the risk both sides underestimate.
Frequently asked
Why use a forward contract at all?
Because it is sometimes the only structure available when transfer restrictions prevent an outright sale. It converts a share sale into a contractual promise to deliver value at a future event.
What is the main risk in a forward?
Counterparty performance and enforceability. If the company deems the arrangement a prohibited transfer, or if the counterparty cannot pay when the event occurs, the holder may be left with neither the cash nor a clean position.
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