Preventive care for your personal wealth

Well before the sale or public offering of your company, you can put strategies in place for conserving and optimizing your personal wealth. 

After years of hard work, you’ve built a highly successful business. As a founder or executive of your organization, you need to plan for getting the most value out of your equity interests as you prepare for a sale or an initial public offering (IPO).

Reviewing your personal finances long before a transaction will help you optimize the value of your equity interests—and the potential impact of taxes.

Ask these four questions to start your pre-transaction planning, before there is a significant increase in your company’s share price.

“For a founder or executive,
pre-transaction planning can take
many forms, depending on individual
objectives,” says Jordan Sprechman,
Head of U.S. Wealth Advisors at J.P. Morgan
Private Bank.
“And such preparation covers many
considerations, including liquidity needs, estate planning and philanthropic goals.”

What do I Hold? 

From the start, make sure you fully understand your equity interests in your business—tax and gifting considerations vary for shares, options or restricted stock—and know whether the options are incentive stock options (ISOs) or non-qualified stock options (NQSOs).

With your equity interests identified, consider which holdings are subject to vesting; whether your business permits early exercise of options; whether you should make an 83(b) election for non-vested equity interests within 30 days of grant; and whether your business permits the intrafamily transfer of NQSOs.

Know your stock options

The question of whether and when to exercise or hold both ISOs and NQSOs takes careful planning before a transaction. These options vary significantly, and their characteristics are complex.


  • Only company employees can receive ISOs, but both employees and independent contractors or non-employee board members can receive NQSOs.
  • The exercise of ISOs is not subject to ordinary income tax, but the spread—the difference between the strike price and market value—is subject to the alternative minimum tax (AMT).
  • The exercise of NQSOs is considered compensation income, and the spread is subject to tax at ordinary income tax rates.

Many entrepreneurs exercise their options, particularly ISOs, well before the option expiration date. One reason you might do so is to seek a favorable long-term capital gain tax rate on future share appreciation.

How does an 83(b) election work?

With respect to restricted stock, within 30 days of a grant, you may consider making an 83(b) election, which would classify your shares of company stock as a capital asset for tax purposes.

This strategy assumes the shares will have appreciated in value and you will still be at your company when the interest vests. If both assumptions hold, your vested interests would be treated as a capital asset, not as compensation income—so any proceeds on their sale would be taxable at lower, long-term capital gains tax rates rather than at ordinary income rates.

But consider this strategy carefully. If neither assumption plays out, you might owe taxes on worthless or forfeited stock.

Should I opt for cash?

If you want to reduce the risk of overexposure in your holdings while diversifying your portfolio, you might opt to receive some of your proceeds from your sale or IPO in cash.

If that’s your plan, make sure to structure any sale or redemption of your interest in the company to minimize any tax liability.

But be conscious of how fellow shareholders and executives, a potential buyer, and the public, might interpret your action. Could anyone use your decision to receive cash to question your motives (or the value of your business)? You’ll need to form a strategy to manage any misperceptions as part of your pre-sale planning.

How do I best transfer my wealth? 

Now is the time to think ahead about how to transfer wealth to your family and to the causes you care about. Things to consider:

  • Plan ahead. Estimate your cash flow and spending needs over time. Once you have a plan that leaves you with enough assets to support yourself and your family, you can then think about how to transfer your interests in the business, or the proceeds of a sale or IPO, to family as well as charities and important causes.
  • Set up a trust. As you plan, you might consider setting up a trust for transfers to family for those assets that you expect to appreciate. A trust can allow the transfer of those assets with valuable tax efficiency.
  •  Funds and foundations. When gifting to charities, you might establish a donor-advised fund (DAF) or private foundation as a charitable giving vehicle, depending on your longer-term philanthropic goals.
  •  Give strategically. You might make a gift to charity of a highly appreciated asset, such as post-IPO stock, because the charitable income tax deduction is generally based on the fair market value of the gift.
  • Time it right. You may have the option to gift pre-sale private company stock to charity. Timing is important: This strategy can help you offset the high-income year when you sell your business with a corresponding charitable contribution.

Get ahead of the game

In your situation, you have to anticipate the sale or IPO of your business and start planning now. By doing that, you’ll accomplish three valuable things:

  • You’ll inform yourself about what assets you will likely have after the liquidity event and how to handle them.
  • You’ll start developing the strategies you need to have in place at the time of the sale or IPO.
  • You’ll know how you’re going to transfer wealth when the time comes.

To learn more about the J.P. Morgan Private Bank team in the Carolinas, visit their Charlotte office page.

This material is intended to help you understand the financial consequences of the concepts and strategies discussed herein very general terms. The strategies discussed often involve complex tax and legal issues. Your own attorney and other tax advisors can help you consider whether the ideas illustrated here are appropriate for your individual circumstances. JPMorgan Chase & Co. does not practice law, and does not give tax, accounting or legal advice. We are available to consult with you and your legal and tax advisors as you move forward with your planning.
The views and strategies discussed here may not be suitable to all investors. This information is provided for informational purposes and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Past performance is not indicative of future returns.
Lines of credit are extended at the discretion of J.P. Morgan, and J.P. Morgan has no commitment to extend a line of credit or make loans available under the line of credit. Any extension of credit is subject to credit approval by the lender in accordance with the terms contained in definitive loan documents.
Investors should be cautious when holding a highly concentrated stock position, which is generally defined as any individual holding that constitutes more than 30% of overall investment holdings. Tax consequences, including the avoidance of capital gains through selling, do not eliminate the risks of overexposure to a particular company
or business sector.
JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB”) offer investment products, which may include bank-managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. JPMCB and JPMS are affiliated companies under the common control of JPMorgan Chase & Co.

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