How to Donate Shares of Privately Held Companies

Business owners often hold the majority of their wealth in the company they built, not in a brokerage account. That can create tension between the desire to give generously and the difficulty in accessing the assets themselves, which are often illiquid, closely held, and governed by documents most donors have not read since the day they signed them.

Privately held shares can be donated, and when the gift is structured correctly, it is one of the most efficient charitable transactions available to a business owner. It is also one of the most procedurally demanding. Timing, valuation, consent, and documentation all have to line up, and the order in which they happen matters as much as the fact that they happen at all.

This guide will walk you through the process of donating privately held shares to charity step by step. Keep reading, or contact Greater Houston Community Foundation today at 713-333-2210 to get started.

Key Insights

• Donating privately held shares before a sale is under negotiation is the most important factor in preserving the intended tax treatment of the gift.
• Your company’s operating agreement, shareholder agreement, or bylaws may restrict transfers, so eligibility must be confirmed in writing before any gift is planned.
• A qualified independent appraisal is required for gifts valued above $5,000, and the appraisal establishes the amount you can deduct.
• Many operating charities cannot accept illiquid private shares, which is why donors frequently route these gifts through a donor advised fund at a sponsoring organization like Greater Houston Community Foundation.
• Because private shares can generate taxable income without generating cash, gifts of business interests should often be paired with a cash contribution to cover taxes, fees, and administrative costs.

Table of Contents

• What are privately held shares?
• Can I donate privately held shares?
• How to donate privately held shares: a step-by-step process
• Can you donate stock to avoid capital gains tax?
• Determining the value of stock donation to charity
• IRS rules for donating stock to charity
• How does unrelated business income tax affect a donation of privately held shares?
• FAQ about donating privately held stock
• Ready to donate privately held shares? We can help.

What are privately held shares?

Privately held shares are ownership interests in a company whose equity is not listed or traded on a public exchange. Ownership is typically concentrated among founders, family members, key employees, and a limited group of outside investors, and there is no daily market price to reference.

In practice, the term covers a range of ownership structures that show up regularly in charitable planning:

• Shares of stock in a C-corporation
• Shares of stock in an S-corporation
• Membership interests in a limited liability company (LLC)
• Limited partnership (LP) interests
• Interests in family holding companies and other closely held entities

The defining difference between these interests and publicly traded stock is not value—private companies can be enormously valuable—but liquidity and price transparency. A public share can be sold in seconds at a quoted price, while a private share generally cannot be sold at all without finding a buyer, satisfying the company’s transfer restrictions, and agreeing on what the interest is actually worth. 

Those two constraints shape nearly every step of the donation process described below, and they are also what distinguishes privately held shares from other types of noncash charitable contributions.

Can I donate privately held shares?

In most cases, yes. Interests in C-corporations, S-corporations, LLCs, and partnerships can all be given to charity, provided the transfer is permitted by the company’s governing documents and the receiving organization is equipped to accept and hold the asset.

The qualifier matters. Eligibility to donate private shares depends on three things working together:

1. Permission. The company’s bylaws, shareholder agreement, operating agreement, or buy-sell provisions must allow a transfer to a charitable organization, or the necessary waivers must be obtained.
2. Capacity. The recipient organization must be able to hold an illiquid, non-marketable asset, comply with the reporting obligations that come with it, and eventually manage a sale.
3. Timing. The gift must be completed before a sale of the company is effectively locked in, a point covered in detail below.

Not every charity can say yes to all three. This is the most common reason a well-intentioned gift of business interests stalls, and it is why donors pursuing complex asset donation typically work with an organization, like Greater Houston Community Foundation, that handles these transactions routinely rather than approaching an operating nonprofit directly.

How to donate privately held shares: a step-by-step process

The following sequence shows how these gifts move from idea to completed transfer.

Step 1: Review your company’s governing documents

Before anything else, determine whether your shares can be transferred at all. Charitable transfers are frequently restricted, and discovering a restriction after you have planned a gift is an expensive way to learn about it.

Pull the following documents and review them with corporate counsel:

• Articles of incorporation or organization
• Bylaws or the LLC operating agreement
• Shareholder or partnership agreements
• Buy-sell agreements and rights of first refusal
• Any voting agreements, transfer restrictions, or lender covenants

You are looking for three things specifically: whether a transfer to a non-family, non-employee third party is permitted; whether other owners hold a right of first refusal that must be waived; and whether the charity would be admitted as a full owner or would hold only an economic interest. The answers determine how the rest of the process is structured.

Step 2: Start well before a liquidity event

Timing is the difference between a gift that works and a gift that is disallowed. When a donor transfers shares after a sale has been effectively negotiated, the IRS may treat the donor as having sold the shares, which means the capital gain is attributed back to the donor even though the charity received the proceeds.

What you can do is have the conversation around the gift as early as possible. Events that should prompt an immediate conversation about charitable planning include:

• A letter of intent or term sheet from a prospective buyer
• Early discussions with an investment bank about a sale process
• Preparation for an initial public offering or direct listing
• A planned recapitalization, merger, or ESOP transaction
• Advanced succession or ownership-transition planning

The practical guidance is straightforward: the earlier the gift, the cleaner the outcome. Donors who begin charitable planning a year or more ahead of an anticipated exit have far more flexibility than those who call after a term sheet has been signed.

Step 3: Choose the right charitable recipient

Not all charitable recipients can accept private shares, and the choice of recipient affects both the mechanics of the gift and the deduction you can claim.

For most donors, a donor advised fund at a public charity offers the best combination of acceptance, deduction treatment, and administrative support. Community foundations are particularly well suited to this role because they hold the asset, manage the reporting obligations, coordinate the eventual sale, and then allow you to recommend grants from the proceeds over time rather than forcing an immediate distribution decision.

Step 4: Assemble your advisory team

Gifts of private shares sit at the intersection of tax, corporate, and estate law, and no single professional covers all of it. Before the transfer is drafted, bring your team together so the gift is designed once rather than corrected later.

A typical team includes your CPA, your estate planning attorney, the company’s corporate counsel, your financial advisor, an independent valuation firm, and the Community Foundation. Coordinating early also lets you evaluate the gift in the context of your broader charitable giving financial planning: how to maximize the efficiency of every move, whether it should be paired with charitable estate planning strategies, and what it means for the generational wealth you intend to pass to your family alongside your charitable goals.

Step 5: Obtain the required consents and approvals

Once the structure is settled, the company itself has to sign off. Depending on the entity, this can involve board resolutions approving the transfer, written waivers of rights of first refusal from other owners, consent to admit the charity as a member or limited partner, and amendments to the capitalization table or membership ledger.

This step frequently takes longer than donors expect, particularly in family businesses where multiple owners must be consulted. Building four to eight weeks into the timeline for consents is realistic, and starting the conversation early avoids a year-end scramble.

Step 6: Secure a qualified independent appraisal

Because private shares have no quoted market price, the IRS requires a qualified appraisal by a qualified appraiser for noncash gifts valued above $5,000. This appraisal establishes the deductible value of your gift, and it must be prepared within the window the IRS specifies relative to the date of the contribution and your filing date.

A credible appraisal of a closely held interest will typically address:

• The valuation approach used, whether income, market, or asset-based
• The company’s financial history, projections, and industry position
• Any discount for lack of marketability, since the interest cannot be readily sold
• Any discount for lack of control, if the donated interest is a minority position
• The specific rights and restrictions attached to the donated shares

Do not treat the appraisal as a formality. It is the single document most likely to be examined if the deduction is questioned, and using an independent appraiser with genuine closely held business experience is worth the cost.

Step 7: Execute the transfer of ownership

With approvals and appraisal in hand, the transfer itself is relatively mechanical. Counsel prepares an assignment agreement or stock power, the shares are delivered and recorded, and the company updates its ownership records to reflect the charity as the new holder.

The date of the completed transfer is the gift date, and it governs both the tax year of your deduction and the valuation date. Because year-end transfers of private interests cannot be completed as quickly as a wire or a brokerage transfer, donors targeting a specific tax year should aim to have documents circulating well before December.

Step 8: Document the gift and file Form 8283

For noncash gifts above $5,000, you will file IRS Form 8283 with your return. Section B requires the appraiser’s signed declaration and an acknowledgment signed by the recipient organization, and the appraisal itself must be attached for gifts above certain thresholds.

Keep the following in your permanent file: the executed assignment documents, the completed appraisal, the charity’s written acknowledgment, the signed Form 8283, and correspondence establishing the gift date. 

Step 9: Put the proceeds to work

Once the shares are eventually sold, often when the company completes its liquidity event, the proceeds settle into your charitable fund. From there, you can recommend grants on your own timeline rather than making rushed decisions in the middle of a transaction.

This is where the planning pays off. A gift that started as an illiquid ownership interest becomes flexible charitable capital that can support organizations you care about for years, and in many families it becomes the foundation of a giving tradition that outlasts the business itself.

Can you donate stock to avoid capital gains tax?

Donating appreciated shares directly to charity, rather than selling them and donating the proceeds, is generally structured to avoid the capital gains tax that a sale would trigger. When you sell first, you pay tax on the appreciation and give away what is left. When you give the shares first, the full value goes to charitable use.

The same logic applies to marketable securities, and if you are weighing that path as well, our guide on donating stock to charity covers how the treatment compares.

Determining the value of stock donation to charity

The value of stock donation to charity is straightforward for publicly traded securities and considerably more involved for private ones. With a listed stock, the deduction is based on the quoted market price on the gift date. With a private interest, there is no quoted price, so the appraisal becomes the governing document.

Two factors most often surprise donors. 

First, appraised value is typically lower than the pro rata share of an enterprise valuation, because discounts for lack of marketability and lack of control reduce what a hypothetical buyer would pay for a minority slice of a company that cannot be sold freely. 

Second, the holding period drives the entire calculation: shares held longer than one year are generally deductible at fair market value, while shares held for one year or less are generally limited to cost basis.

For donors deciding how to fund a gift in a given year, comparing the after-tax result of different assets is worth doing with your professional advisors at your side.

Continue reading:

Donating stock vs cash

Charitable giving strategies for tax savings

IRS rules for donating stock to charity

The IRS rules for donating stock to charity are much more demanding for private shares than for publicly traded ones, but they are predictable. Building the gift around them from the beginning is far easier than reverse-engineering compliance afterward.

The core requirements to plan around are:

• The recipient must be a qualified charitable organization.
• Shares must be held longer than one year to be deductible at fair market value.
• Gifts above $5,000 require a qualified appraisal from a qualified appraiser.
• Form 8283, Section B must be filed, signed by both the appraiser and the recipient organization.
• The deduction for appreciated noncash gifts to public charities is generally limited to 30% of AGI, with a five-year carryforward for the excess.
• The gift must be complete before a sale is effectively negotiated, or the gain may be attributed back to you.

One point deserves emphasis: whether a deduction is ultimately allowed is a matter between the donor and the IRS. We can structure the gift carefully, provide the required acknowledgment, and coordinate with your advisors, but we cannot guarantee a tax outcome. Please consult your own tax counsel before completing any transaction of this size.

How does unrelated business income tax (UBIT) affect a donation of privately held shares?

Charities are generally exempt from income tax, but they can owe unrelated business income tax (UBIT) on certain income tied to active business operations. Whether a gift of private shares creates UBIT exposure depends largely on how your company is taxed:

• C-corporation stock. Dividends from C-corporation shares, and gains when those shares are sold, are generally treated as passive investment income, which is typically excluded from UBIT. In most cases, the charity can hold the shares and sell them later without owing tax, so the full proceeds stay available for grants.
• S-corporation stock. S-corporations pass their income through to shareholders. As a result, a charity holding S-corporation shares is generally taxed on its share of the company’s income while it owns the shares, and on any gain when it sells them. That tax is typically paid out of the gift itself, which reduces the amount ultimately available for charitable use. A portion of the sale proceeds may also be held in reserve for a period after the sale to cover any remaining tax liability.

LLC and partnership interests can raise similar issues, because operating business income that flows through to the charity may be taxable. None of this rules out a gift of S-corporation stock, but it does change the math. When you contact us about a gift, one of the first things we’ll ask is how your company is taxed. That lets you and your advisors weigh the after-tax impact before any transfer happens.

FAQ about donating privately held stock

Can you sell privately held stock?

Yes, but not freely. Sales generally require finding a willing buyer, satisfying any rights of first refusal or transfer restrictions in the company’s documents, obtaining board or shareholder approval, and agreeing on a negotiated valuation. That process is why liquidity events such as a company sale or IPO are so often the point at which private shares finally convert to cash.

What are the tax implications of donating private company shares to a private foundation?

Gifts of closely held stock to a private foundation are treated less favorably than gifts to a public charity. The deduction is generally limited to the donor’s cost basis rather than fair market value, and the AGI limitation for appreciated property is generally 20% rather than 30%. Private foundations are also subject to excess business holdings rules and self-dealing restrictions that can complicate holding an interest in a family business. Donors who want the fair market value deduction typically use a donor advised fund at a public charity instead.

Can I donate privately held shares if I own only a minority interest?

Often, yes, provided the governing documents permit the transfer. The appraisal will likely apply a discount for lack of control, which reduces the deductible value relative to a proportional share of the whole company. That discount does not eliminate the benefit of the gift; it just changes the math.

How long does the process take from start to finish?

For a straightforward gift with cooperative co-owners, six to ten weeks is a reasonable expectation once the appraisal is underway. Complex ownership structures, multiple consenting parties, or an approaching transaction can extend that timeline considerably, which is another argument for starting early.

What happens to the shares after I donate them?

The recipient organization holds the interest until a sale becomes possible, typically alongside the company’s own liquidity event. Any subsequent sale is at the organization’s discretion and must be conducted at fair market value, including sales to related parties. Proceeds then flow into your charitable fund, from which you can recommend grants.

Ready to donate privately held shares? We can help.

Donating privately held shares rewards preparation. When the governing documents are reviewed early, the appraisal is credible, the consents are in hand, and the transfer is completed before a sale is on the table. The result is a gift that does more for the community and less for your tax bill than almost any other charitable transaction available to a business owner.

We handle these transactions regularly. We can review whether your shares are transferable, coordinate with your existing advisors and corporate counsel, help you engage a qualified appraiser, manage the ownership transfer and reporting, and hold the interest through a liquidity event so that your charitable capital is ready when you are.

To talk through a potential gift of privately held shares, connect with Greater Houston Community Foundation at 713-333-2210 or reach out directly to get started.

More Helpful Articles by Greater Houston Community Foundation: 

• Transitioning from a Private Foundation to a DAF—A Smarter, Simpler Alternative for Your Clients 
• What is a Private Foundation?
• How Giving Locally Can Impact Your Community
• A Guide to Charitable Giving Vehicles
• Choosing Between Donor Advised Fund Providers

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