Can You Sell Private Stock? How Employees Sell Shares in a Private Company

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

Yes, you can sell stock in a private company, but only through the doors the company opens. In practice that means a company tender offer or buyback, a company-approved secondary sale to an outside investor, or an acquisition or IPO. You cannot simply list the shares like public stock, because your stock agreement and the company’s bylaws almost always require company consent and give the company a right of first refusal.

For a California or Washington family earning $750,000 to $3 million, where one parent holds shares in a late-stage startup or biotech, the harder questions come after “can I?”: which shares you actually own, how the sale is taxed in your state, and what share of the family’s net worth should stay tied to one private company. This guide walks through each, with a worked example.

What you need to own before you can sell private stock

Many employees think they hold shares when they hold something that cannot yet be sold.

• Stock options (ISOs or NSOs) are a right to buy. You must exercise them, and pay the exercise price, before there are shares to sell. Some tender offers let you exercise and sell in one step.
• RSUs at private companies usually vest on two triggers: time served plus a liquidity event such as an IPO or acquisition. Until the second trigger, no shares have been delivered, so there is nothing to sell. Our guide to RSUs at private companies explains the double trigger.
• Exercised or early-exercised shares are real shares. If you early-exercised and filed an 83(b) election within 30 days of the transfer, your capital gain holding period started then. See how the 83(b) election letter works.

The four ways employees sell shares in a private company

A tender offer is the most common route for employees at well-funded private companies. We cover the mechanics in how a tender offer works, and what happens to your shares in a sale in if a company sells, what happens to my stock.

Can a shareholder sell private shares to anyone?

Usually not. Three layers of rules apply.

1. Your stock agreement and the bylaws. Most startups require board approval for any transfer and hold a right of first refusal, which lets the company (or its investors) buy your shares on the same terms a buyer offered. Some prohibit secondary sales outright.
2. Securities law. A private company’s shares are not registered with the SEC, so resales must fit an exemption. In practice, buyers are institutions or accredited investors, and the paperwork runs through the company’s lawyers.
3. Insider and blackout rules. If you have material information about a pending financing or acquisition, the company may block sales until it is announced.

Read your option or stock purchase agreement and the company’s equity policy before you talk to any buyer. A broker platform cannot override those documents.

How the sale is taxed in California versus Washington

The federal tax depends on what kind of shares you sell and how long you held them.

• Shares held more than one year after exercise (or after an 83(b) election) produce a long-term capital gain (ISO shares also need two years from grant; see below). For 2026, a married couple filing jointly pays 20% on long-term gains once taxable income passes $613,700, plus the 3.8% net investment income tax once modified AGI passes $250,000. At a $750,000-plus household income, that typically means 23.8% federal on the gain.
• Shares held one year or less produce a short-term gain, taxed at ordinary rates up to 37% for 2026, plus the 3.8% net investment income tax at this income.
• ISO shares sold too early (within two years of grant or one year of exercise) are a disqualifying disposition under IRC §422. Part of the gain, generally the spread at exercise, becomes ordinary compensation income.
• A tender price above fair value can create compensation income for part of the payment in some cases. The tender offer documents usually say how the company will report it; read that section before you sign.

California taxes capital gains as ordinary income, with no lower rate for long-term gains (FTB). On the 2025 schedules, joint filers reach 12.3% above $1,485,906 of taxable income, and the 1% Behavioral Health Services Tax applies above $1,000,000, for a top rate of 13.3%. California also does not follow the 2025 federal expansion of the qualified small business stock (QSBS) exclusion, so assume a California resident owes state tax on QSBS gain.

Washington has no wage income tax in 2026, but it does tax long-term capital gains on stock: 7% on gains above the standard deduction ($278,000 for 2025, the latest published figure) and 9.9% on taxable gains above $1,000,000 (WA DOR). From 2028, Washington adds a 9.9% income tax on AGI over $1,000,000, so a large sale planned for 2028 or later needs a second look.

Worked example: a $600,000 gain in San Mateo and in Seattle

Assumptions (illustrative): a married couple with $950,000 of W-2 income and two children, ages 4 and 7. One parent exercised 20,000 NSOs two years ago when the fair market value was $10 per share, so the tax basis is $10. The company runs a tender offer at $40 per share, and they sell all 20,000 shares in 2026.

• Proceeds: 20,000 x $40 = $800,000
• Long-term capital gain: 20,000 x ($40 minus $10) = $600,000
• Federal tax on the gain at 23.8% (20% plus 3.8% NIIT): about $142,800

If they live in California. Assume $930,000 of California taxable income before the sale. Using the 2025 schedules (2026 not yet published), the gain lifts taxable income to $1,530,000. California tax rises by about $68,200, plus about $5,300 of Behavioral Health Services Tax on the income above $1,000,000. Total state tax on the gain: about $73,500. Combined tax: about $216,300, or 36% of the gain. Net cash after tax: about $583,700.

If they live in Washington. Federal tax is the same $142,800. Washington capital gains tax is 7% x ($600,000 minus the $278,000 standard deduction) = about $22,540, using the 2025 deduction. Combined tax: about $165,340. Net cash after tax: about $634,660.

Two points stand out. First, the state difference on one sale is roughly $51,000. Second, had the parent sold within one year of exercise, the whole gain would have been short-term and taxed at ordinary rates, which at this income means 37% federal plus the 3.8% net investment income tax, before state tax.

The decision most families actually face: how much to sell

A tender offer rarely lets you sell everything, and when it does, the question is still how much to keep. A simple way to frame it:

1. Size the position. What share of the family’s net worth is this one company, after tax? When it is a large share, a single bad financing round can move the family’s plans.
2. Name the goal for the cash. Paying down the mortgage, funding 529s, or building a taxable account are different decisions, and each justifies a different sale size.
3. Check the holding periods. Selling shares that are a month short of long-term status can cost more than waiting for the next tender, if one is likely.
4. Coordinate with the rest of the year. A large vest, a bonus or ISO exercises in the same year change the bracket math and, for ISOs, the alternative minimum tax. Our tax management work usually starts with this year-level view.

Concentration risk is the quiet issue. Families who built wealth through one employer tend to feel safest holding more of it. Our investment risk management page explains how we think about the share of net worth tied to one company.

Can private shares be transferred to a family member?

Sometimes, with company consent. Most transfer restrictions allow gifts to family members or family trusts for estate planning, but the company still has to approve the transfer. For federal gift tax, the shares are valued at fair market value, which for private stock usually means an appraisal. For 2026, each parent can give $19,000 per recipient without using lifetime exclusion; gifts above that use part of the $15,000,000 lifetime exclusion and require Form 709 (Rev. Proc. 2025-32). Gifting pre-IPO shares to a trust for your children is a common estate step, and it belongs in the estate plan, not in a quick email to HR.

Common mistakes when selling private company stock

• Signing a tender offer without reading how the company will report the payment.
• Assuming withholding covers the tax. A capital gain has no withholding, so a $600,000 gain may call for an estimated payment in the quarter of the sale.
• Selling ISO shares early without checking the two-year and one-year dates.
• Moving from California to Washington right before a sale and assuming California will not tax any of it. Compensation income tied to California work can still be taxed by California (see FTB Publication 1100).
• Negotiating with a secondary buyer before confirming the company allows the sale.

What to write down for your children

A tender offer is one of the few moments when a family turns years of work into cash, and it is a decision your children will eventually want to understand. Write one page: the price, how much you sold, how much you kept and why, what the cash was for, and what you would do differently. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” That page becomes part of the family’s FamilyKnowledge® Library.

Frequently asked questions

Can you force a shareholder to sell their shares in a private company?

Only if the documents allow it. Many startup stock agreements include a drag-along right, which requires minority holders to join a sale that the board and a majority of investors approve. Some agreements also let the company repurchase shares when an employee leaves. Without a clause like these, a company generally cannot force a sale.

Can a private company sell shares to the public?

Not freely. A private company raises money by selling shares under SEC exemptions, mostly to accredited investors, or through smaller regulated offerings. To sell shares to the general public and have them trade on an exchange, it generally registers the offering with the SEC, which is what an IPO is. See the SEC overview of exempt offerings.

Where do I report the sale on my tax return?

A sale of shares is reported on Form 8949 and Schedule D of your federal return, using your basis from the exercise or purchase records. If you exercised ISOs, keep the Form 3921 your employer sent. California residents also report the gain on their state return; Washington residents who owe the state capital gains tax file a Washington capital gains return, with a copy of their federal return (WA DOR).

Your next step

Before the next tender window opens, gather your stock agreement, your exercise records and your last 409A value in one folder, and note which lots will be long-term by the tender date. If you would like help sizing the sale against your full tax picture, the Tax & Wealth Assessment from our Age Five Family Office™ is where we start.

This is general education, and the right move depends on your family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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