Tender Offer: Should I Sell My Private Company Stock or Hold On?
- Marcel Miu, CFA, CFP®
- Sep 10
- 7 min read
Updated: Sep 17
Selling your shares in a tender offer gives you cash now but often comes with a higher tax bill. Holding on means you keep the potential for future growth and often better tax treatment, but you also keep the risk (the risk you never get a chance to cash out again). Your best move depends on your personal goals, how much risk you can handle, and the tricky tax details of the offer itself.
The Golden Email: A Tender Offer Lands in Your Inbox
You open your inbox and there it is. An email from the company announcing a tender offer. Suddenly, all that "paper wealth" you have been accumulating for years feels real. This is one of the first major liquidity events for many startup employees, and the stakes are high. Investors are offering to buy your private company shares for cash. The excitement is immediate, but a wave of questions follows.
What does this mean for my taxes? How many shares should I sell? What if I sell and the company’s value skyrockets next year? This is not a simple transaction. It's a major financial decision that can affect your ability to buy a house, pay off debt, or reach financial independence. A rushed decision, made without a plan, often leads to costly and permanent mistakes.
First Things First: What Exactly Is a Tender Offer?
Before you decide what to do, you need to understand what is being offered. A tender offer is a structured, time-sensitive event where an investor or the company itself offers to buy shares from existing shareholders at a set price. It's a formal process for creating liquidity where none existed before.
Companies do not do this on a whim. They usually have one of two goals in mind, which creates two distinct pathways for you.
A Structured Liquidity Tender Offer is a company-organized sale where you sell shares to outside investors. The main reason for this is often to provide you with cash, which helps the company retain and attract talent without issuing new shares and diluting ownership.
A Controlled Liquidity Tender Offer usually happens alongside a new funding round. Here, the company controls who can buy and sell. They use the event to bring in strategic investors while managing their list of shareholders.
Will This Tender Offer Give Me a Tax Surprise?
Yes, it absolutely could. One of the biggest and costliest mistakes employees make is assuming all their profit from a tender offer will be taxed as a capital gain. Even in the case where you exercised your incentive stock options (ISOs) to qualify for long-term capital gains, the IRS can reclassify a portion of your tender offer proceeds as "compensatory". This means it shows up as W-2 income and gets hit with higher ordinary income taxes. An employee expecting a long-term capital gains rate gets a nasty surprise when their net proceeds are far less than they calculated.
This happens when a tender offer is deemed "compensatory." The IRS looks at several factors to make this call. They often see the premium paid over the 409A value not as an investment gain for you, but as a disguised bonus for your performance or for sticking around.
A simple rule of thumb is "Employee-only + Premium to the 409A valuation" likely leans toward having a portion of the gain treated as compensatory income (i.e., higher tax rate). If the offer is only for current employees and the price is well above the current 409A valuation, the IRS has a strong case to call it compensation.
It's also important to note that different forms of equity get taxed differently. The same logic applies regarding compensatory vs non-compensatory. But you'll need to be mindful of the varying tax treatments, especially if you have multiple types of equity.
The 'Sell vs. Hold' Gut Check: A Framework for Your Decision
A tender offer decision is personal. It should not be based on a feeling or what your colleagues are doing. A disciplined approach starts with asking yourself a series of questions to see how this event fits into your broader financial life.
Do I need liquidity in the next 12-18 months? If you have short-term goals like a home down payment or paying off high-interest debt, a tender offer provides a clear path to cash. Holding means your wealth stays illiquid and subject to market risk.
Am I overexposed to my company's stock? Financial planning best practices suggest having no more than 25-30% of your net worth in a single stock. A tender offer is a rare chance to prudently diversify before an IPO, when lockup periods could prevent you from selling even if the stock price drops.
Would this be a disqualifying disposition of my ISOs? This is a critical tax question. Selling Incentive Stock Options before meeting the holding periods means your entire gain is taxed as ordinary income. You must model this tax hit to understand your true net proceeds.
Am I eligible for QSBS treatment? If your shares qualify as Qualified Small Business Stock and you are close to the five-year holding period, holding could mean 0% federal tax on millions in gains. Selling early gives up this incredible benefit.
Do I believe the company will be worth significantly more in 1-3 years? This is the core risk and reward question. If you are confident about the company’s future, holding on could yield much greater returns. If the future is uncertain or you think the growth is slowing, locking in gains now is a smart move.
Beyond 'All or Nothing': How to Optimize Your Tender Offer Strategy
Most people see a tender offer as a simple binary choice. Sell or do not sell. But sophisticated participants see it as a tool. The goal is not just to get cash. The goal is to use that cash strategically to improve your entire financial picture. This often means selling a calculated portion of your shares, not everything you are allowed.
Strategy 1: The "Sell to Exercise & Hold" Move
This is the most overlooked yet powerful strategy. Instead of just cashing out, you use the proceeds from the tender offer to fund the exercise of your other vested options, especially your ISOs.
Here is why it works. Exercising ISOs and holding them for at least a year is the only way to get preferential long-term capital gains treatment. But exercising costs money for the strike price and potential AMT. You can sell enough NSOs or disqualified ISOs to generate the funds needed to exercise and hold a larger block of ISOs. This starts the clock on a much larger potential tax-advantaged gain in the future.
Strategy 2: Deciding Which Shares Are "On the Chopping Block"
Not all shares are created equal from a tax perspective. The source of the shares you sell drastically affects your net proceeds.
Vested RSUs often have the highest cost basis (especially double-trigger RSUs). This is the market value when they vested. Selling them often results in a minimal capital gain. They can be a tax-efficient source of liquidity.
NSOs or Disqualified ISOs have a spread that is taxed as ordinary income. It makes sense to prioritize selling shares from grants with a higher strike price, as this reduces the taxable spread.
Qualifying ISOs or QSBS-eligible stock are your most valuable shares from a tax standpoint. You should only consider selling these if the need for liquidity outweighs the significant tax benefits you would be giving up.
FAQs
How is the price and my allocation determined?
The price is typically based on the company's latest 409A valuation (plus sometimes a premium to that). Your ability to sell is often capped per employee, for example, 25% of vested shares. If the offer is oversubscribed, meaning more sellers than the buyer wants, your sale amount will be reduced on a pro-rata basis.
Do I have to participate in the tender offer?
No, participation is completely optional. If you believe in the long-term value of your shares, you can choose to hold them.
What happens if I leave the company?
Eligibility rules vary. Some tender offers are open to ex-employees, which would favor a "non-compensatory" IRS classification. Others are only for current employees, which leans "compensatory." Check the offer documents carefully.
Your Next Steps
Navigating a tender offer requires a clear-headed, strategic approach. Follow this four-step framework to make an optimal decision.
Model the Tax Scenarios. Do not guess. Calculate your after-tax proceeds under different scenarios like selling NSOs, selling disqualified ISOs, and selling qualified ISOs. Crucially, model the potential impact of the sale being classified as compensatory versus non-compensatory.
Inventory and Rank Your Equity. Create a spreadsheet of all your equity grants. List the type, grant date, strike price, and vesting status. Rank them by tax efficiency to identify the best and worst shares to sell.
Connect Liquidity to Specific Goals. Instead of just aiming for the maximum sale, determine exactly how much cash you need for your goals. For example, you might need $200,000 for a down payment or $50,000 to pay off student loans. Sell what is necessary for your unique situation.
Evaluate the "Sell to Exercise & Hold" Strategy. Calculate the cost to exercise your remaining vested ISOs. Can the proceeds from the tender offer cover this cost and the associated taxes? This analysis could unlock significantly more long-term, tax-advantaged wealth.
From Illiquid to Intentional: Turning Your Equity into a Plan
A tender offer is a pivotal moment in your financial journey. It is a chance to convert years of hard work into tangible wealth that can accelerate your life goals. However, the complexity around taxes, allocation, and timing means that the most convenient choice is rarely the most optimal one.
By moving from a reactive "should I sell?" mindset to a proactive, plan-driven approach, you can make a decision that not only provides liquidity but also enhances your long-term financial security.
If you are navigating the complexities of a tender offer, you do not have to do it alone. Schedule a consultation with Simplify Wealth Planning to model the tax impact, weigh the trade-offs, and build a strategy that turns your equity into a clear path forward.
This blog is for educational purposes only and should not be taken as individual advice
Simplify Wealth Planning
Fast-Tracking Work Optional For Tech Pros | Turn Your Stock Comp Into Wealth, Cut Taxes & Live Life Your Way | Flat Fees Starting at $3k - Not Based On How Much Money You Have
Marcel Miu, CFA and CFP is the Founder and Lead Wealth Planner at Simplify Wealth Planning. Simplify Wealth Planning is dedicated to helping tech professionals master their money and achieve their financial goals.
Disclosures
Simplify Wealth Planning, LLC (“SWP”) is a registered investment adviser in Texas and in other jurisdictions where exempt; registration does not imply a certain level of skill or training.
If this blog refers to any client scenario, case study, projection or other illustrative figure: such examples are hypothetical and based on composite client situations. Results are for informational purposes only, are not guarantees of future outcomes, and rely on assumptions specific to the scenario (e.g., age, time horizon, tax rate, portfolio allocation). Full methodology, risks and limitations are available upon request.
Past performance is not indicative of future results. This message should not be construed as individualized investment, tax or legal advice, and all information is provided “as-is,” without warranty.
