.svg)
At Infinite Giving, we believe that every nonprofit should be able to accept stock donations. The question has occasionally come up from our clients "Can my donors gift private shares of stock?" The answer is yes, although it is a slightly more complex process.
Though these private shares gifts are less straightforward than publicly traded stock donations, they can be fruitful and impactful. Nonprofits should work to say "yes" to this type of gift but must proceed with care. Unlike public shares, private shares require additional legal and administrative processes. Attorneys typically guide these transactions, though financial advisors can offer valuable insights.
Private shares come with unique challenges that demand careful planning:
- Illiquidity: Nonprofits may struggle to convert private shares into cash.
- Complex Restrictions: Shareholder agreements or bylaws may impose limitations on transfer or sale.
- Valuation Disputes: The IRS may scrutinize the valuation of private shares.
Despite these challenges, private share donations can unlock significant opportunities for nonprofits when handled properly. Here’s an outline of what’s typically required to manage this process effectively:
1. Preparation by the Donor
- Valuation of Shares: Donors must obtain a qualified appraisal to determine the fair market value of the shares, as required by the IRS for tax deductions.
- Legal and Tax Consultation: Donors should collaborate with advisors to understand the tax implications and ensure compliance with legal requirements.
- Nonprofit Acceptance: Donors need to confirm that the nonprofit can accept private shares and has a policy for handling illiquid assets.
2. Nonprofit Review
- Gift Acceptance Policy: Nonprofits must assess their internal policies to determine whether they can accept private shares and the conditions for doing so.
- Due Diligence: The organization should evaluate the nature of the shares, including liabilities, transfer restrictions, or any responsibilities tied to shareholder agreements.
- Board Approval: Many nonprofits require board or committee approval to accept such complex gifts.
3. Transfer of Ownership
- Legal Transfer: The donor and nonprofit must complete the necessary legal paperwork to officially transfer ownership.
- Stock Certificates or Equivalent: Documentation of ownership must be provided to the nonprofit.
- IRS Form 8283: Donors must complete this form, which nonprofits sign to acknowledge the gift, though it does not confirm the valuation.
4. Post-Gift Considerations
- Liquidation Strategy: Nonprofits must determine how and when to convert private shares into usable funds. Options include selling shares back to the company, finding other buyers, or holding them until a liquidity event occurs (e.g., an IPO or acquisition).
- Compliance and Reporting: As shareholders, nonprofits may need to comply with reporting requirements or other obligations.
Why Nonprofits Should Embrace Private Share Donations
While private share donations are complex, they can provide nonprofits with substantial financial resources. For donors, such gifts often come with significant tax benefits, including deductions based on the fair market value of the shares and the avoidance of capital gains taxes. For nonprofits, saying "yes" to private shares opens doors to new, often untapped sources of funding.
As a Registered Investment Advisor for nonprofits, Infinite Giving is here to help your organization navigate the complexities of accepting and managing private share donations. From reviewing your gift acceptance policies to providing investment guidance, our team is committed to helping your nonprofit maximize its impact.
