Entrepreneurs: Prepare Now for Future Liquidity Events
Long before you begin preparing your company for a sale or initial public offering (IPO), we think it’s important to focus on what you want your wealth to accomplish.
Key pre-liquidity event questions for entrepreneurs
• Are my shares eligible for qualified small business stock (QSBS) treatment? The treatment of QSBS is of great interest to entrepreneurs and founders of U.S. C corporations. If applicable, it can reduce the U.S. capital gains tax rate to as low as 0% on your first $15 million of gains.
• When should I exercise my options? Many entrepreneurs exercise options, particularly ISOs, well before the option expiration date. The primary reason for doing this is to start the long-term capital gains clock running on all future share appreciation once the options are exercised.
• Can I sell shares or options in a secondary sale transaction? We’re seeing more private company founders and executives selling a small portion of their company equity in conjunction with a new round of fundraising or in a structured sale to an investor.
• Should I plan to gift shares to an irrevocable trust for family members? If you are an entrepreneur who has generated more wealth than you will use in your lifetime, we encourage you to gift shares in your company to an irrevocable trust for the benefit of your family. Ideally, this gift should be made while the shares’ fair market value is still low. Assets transferred to an irrevocable trust (and all future appreciation of trust assets) are outside of the taxable estate of the entrepreneur, thereby reducing or eliminating the 40% U.S. gift or estate tax that otherwise can apply to wealth transfers.
• Should I be thinking ahead to future charitable giving? Most entrepreneurs with significant philanthropic objectives will make gifts to charity after an IPO or sale of the company.
Gifts to charity are usually made with highly appreciated assets such as post-IPO stock, as the charitable income tax deduction is generally based on the fair market value of the gift. Any embedded appreciation on shares gifted to charity can forever avoid capital gains tax.
We can help
At J.P. Morgan Private Bank, we are deeply familiar with entrepreneurs’ financial opportunities and challenges. Reach out to your J.P. Morgan team for thoughtful counsel that can help you address the many dimensions of your financial life.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for
J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “Entrepreneurs: Prepare now for future liquidity events,” Stephen L. Faulkner, vice chair, head of private business advisory, Sept. 8, 2026.
