Private Company Tender Offers: Questions to Ask Before Selling Shares

Employees and early investors at private companies usually hold shares that cannot be sold on a public market. A tender offer is one of the few occasions when the company, or an outside buyer, invites holders to sell some of those shares at a stated price. What a holder owes depends less on the offer than on the kind of equity being sold.

How a tender offer works

In an issuer tender offer, the company itself buys shares from holders, often with cash from a recent financing. In a third-party tender offer, an outside investor buys shares from existing holders, usually with the company’s approval. Either way, the company sends an offer document that states the price per share, the number of shares sought, who may take part and the date the offer expires. Holders decide whether to sell and how many shares to tender, and the buyer accepts shares according to the stated rules.

The price is often tied to a recent financing round or a valuation report. Common shares held by employees are sometimes priced below preferred shares, because preferred shares carry additional rights. Tender offers are structured to fit federal and state securities laws, so the offer documents and any legal notices matter, and holders cannot assume that another offer will follow.

How the tax treatment depends on what is sold

The tax result follows the type of equity, not the tender offer itself.

Shares held outright produce a capital gain or loss measured from the holder’s basis. A sale of shares held more than one year is long term. For 2026, the federal long-term rates are 0%, 15% and 20%, and the 20% rate begins at taxable income above $545,500 for single filers and $613,700 for married couples filing jointly. A sale after a holding period of one year or less produces a short-term gain taxed at ordinary rates.

Shares delivered from restricted stock units were already reported as wages when delivered, and that amount is the basis, as described in our article on performance stock units. Only the change in value after delivery is capital gain or loss, and the holding period began on the day after delivery.

Stock options work differently. When a holder exercises a nonqualified option and sells the shares in the same transaction, the spread between the exercise price and the sale price is wages, reported on Form W-2 and subject to payroll tax withholding. When a holder exercises an incentive stock option and sells in the same transaction, the sale is a disqualifying disposition, and the ordinary income is generally the lesser of the spread or the actual gain. For shares acquired by exercise, the holding period begins on the exercise date.

When the company itself buys the shares, Section 302 of the Internal Revenue Code decides whether the payment is treated as a sale or as a dividend, based on how much the holder’s ownership percentage falls. Offer materials often describe the expected treatment. For a Texas resident, these results are federal only. Holders report sales on Form 8949 and Schedule D whether or not they receive a Form 1099-B.

Terms in the offer worth reading closely

Price is the first term to read: how it was set, and how it compares with prior valuations and with the price for preferred shares. Eligibility comes next, including whether only current employees may sell, whether only vested shares count and whether unexercised options must be exercised first, which requires cash for the exercise price and for tax. Offers also set a limit per holder, often a percentage of holdings or a dollar amount, and explain how shares are prorated if more are tendered than the company will buy. Timing covers the expiration date, the payment date and whether any of the price is held back in escrow or paid later. Withholding describes how the company collects tax on any wage income created by an option exercise. Finally, conditions may require a seller to accept new restrictions, such as a lock-up on remaining shares or a release of claims.

Limits on selling

Even when an offer is open, other limits can apply. A company’s governing documents and stock plan often include transfer restrictions and a right of first refusal, which lets the company or its investors buy shares before an outside sale. Federal antifraud rules apply to sales of private company stock as well, so company policies may restrict participation by people who hold material information that has not been shared with all holders. Eligibility can end when employment ends, and former employees may be offered a shorter window or none.

Offers are usually limited to part of a holder’s shares. The remaining shares stay illiquid, and the timing of the next opportunity to sell is uncertain.

What holders weigh before tendering

• The cash needed to exercise options and pay tax, since proceeds may arrive after those costs are due.
• The share of total net worth tied to one private company, including salary and benefits from the same employer.
• The holding period, because a sale just before one year is reached produces short-term treatment.
• The difference between the offer price and earlier valuations, and the uncertainty about later prices.
• The possibility that the offer will not be repeated, and that unsold shares may be harder to sell later.

A tender offer comes with a deadline and limited information, so questions are best raised before the window closes. A tax professional can explain how a sale and any option exercise would be reported. Your adviser can discuss how a sale fits with your remaining holdings.

This article is provided by Austin Wealth Management for general educational purposes only. It is not financial, investment, tax or legal advice, it does not consider your individual circumstances, and it does not create an advisory relationship. Austin Wealth Management provides advice and services only under a signed advisory agreement, and the terms of that agreement govern. Rules and limits change, so information here may not be current. Consult a qualified financial professional before making financial decisions.