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Pros and pitfalls around accepting privately held stock

  • 1.  Pros and pitfalls around accepting privately held stock

    Posted 5 days ago
    Good morning, Colleagues:

    I've been asked to tap the collective wisdom out here around accepting privately held securities. Do any of you have specific acceptance policies around this potential contribution you might be willing to share? Are there any "best practices" which give guidance on what an organization should consider before heading down this path? Any particularly outstanding success stories around accepting privately held stock that you might like to share?

    And, if you're willing, it would be great if I could schedule a time for my colleague here to chat in a bit more detail around the ups and downs of accepting privately held securities. 

    Many, many thanks - Amy


    Amy J. Phillips
    Director of Advancement Services, Gift Acceptance
    Division of University Advancement
    The Catholic University of America
    620 Michigan Avenue, B016 O'Connell Hall
    Washington, DC 20064
    Phone: 202-319-6919


  • 2.  RE: Pros and pitfalls around accepting privately held stock

    Posted 5 days ago
      |   view attached

    Hi!

     

    We have accepted privately held stock. In our system (RE 7/NXT) we entered it as a stock gift with the addition that we included what Raiser's Edge refers to as a gift subtype of closely held stock. This enables the gift to post to the GL in Financial Edge and moves the "cash" into a specially designated fund within our Finance Department, so that they may track it. (As the stock may never be sold!) I attached our SOP, which is still in development, and only refers to gift entry, not receipting.

     

    As several on this ListServ have mentioned before, the amount of shares, transfer date, and issuer may be stated in the receipt, but no value. You can likely find these topics in the archives, but I'm sure others will pipe in!

     

     

     

    Hillary Cote(she/her/hers)

    Manager of Advancement Services

    Fort Lewis College

     

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  • 3.  RE: Pros and pitfalls around accepting privately held stock

    Posted 5 days ago
    Thanks so much, Hillary!

    We would probably go with a gift subtype for tracking, as well. I am curious as to what practice you've established for valuing the stock for current recording and reporting purposes. Does Fort Lewis College have any restrictions, from Finance or other impactful parties, that would determine when and if closely held stock would be acceptable (or not)?  For example, would a donor be asked to provide an estimated time frame in which the stock might be converted to cash?  Would not being able to project a timeline be reason to decline the stock?

    Thanks again - Amy


    Amy J. Phillips
    Director of Advancement Services, Gift Acceptance
    Division of University Advancement
    The Catholic University of America
    620 Michigan Avenue, B016 O'Connell Hall
    Washington, DC 20064
    Phone: 202-319-6919







  • 4.  RE: Pros and pitfalls around accepting privately held stock

    Posted 5 days ago

    Hi!

     

    We use the appraised value determined by most recent audit of the donor's company multiplied by the shares given in the donor's gift agreement. The agreement only references stock shares and no gift value. We maintain both financials in our records.

     

    We report the total gift amount (input for our own internal purposes) to external stakeholders such as the board, but receipted the donor only with a description of the amount of shares and issuer.  

     

    Our Gift Acceptance Committee, on the board, reviews gifts at this level due to the complexity, but we do not have a "sell by date." (We are assuming the risk for this donation.) Each donation of closely held stock might not be approved, due to the risk assessment by this committee. As we use the gift subtype and therefore use the GL linking in Raiser's Edge, Finance moves the revenue from Raiser's Edge into a special fund in Financial Edge due to the fact we may never see the revenue. This fund holds the shares and the Finance Manager is able to record value changes for accounting reporting.

     

    When we sell, the revenue will go into "Stock Sold" into Raiser's Edge. The Finance Manager will then be able to move the money into one of our common accounts. He will see both amount transferred and sold, as well as fees associated. (Finance magic will come into play as he accounts for depreciated value!)

     

    -Hillary

     

    Hillary Cote(she/her/hers)

    Manager of Advancement Services

    Fort Lewis College

     

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  • 5.  RE: Pros and pitfalls around accepting privately held stock

    Posted 5 days ago
    Thanks again, Hillary!  That this goes through a Gift Acceptance Committee review certainly resonates both loud and clear. Essentially accepting closely held stock becomes a form of conditional commitment and likely falls into the same parameters of how transactions might be recorded and recognized in advancement and then either booked as an outright asset by Finance or only tracked at time time revenue (if any) is realized.

    Very, very help and again much appreciated!  -Amy








  • 6.  RE: Pros and pitfalls around accepting privately held stock

    Posted 5 days ago

    Haven't had gift acceptance on my plate for a while now, but I saw a few back in the day and some of the some possible issues may persist.

     

    One set of issues is around the value and the ability to transact the stock.  So, are there recent sales or is there a recent appraisal, is the donor restricting your ability to sell, are there willing buyers (other than the donor).  In one case that I looked at back in the day, there was a recent appraisal that we were provided, the donor was not restricting our ability to sell, and the company itself would be willing to buy the stock at the appraised price, so we accepted the gift.  Any arrangement where the donor requires that you sell the shares back to the donor is a big red flag.

     

    I was never really sure how common this was, but the thought at the time was that there was a possible scam where the company and its stock had no real value, but there was an apparently-legitimate appraisal and then a series of gifts with different nonprofits where the nonprofit would receive the gift and then sell it back at the appraised price, all apparently aboveboard.  But then that transaction history would be used to establish the stock price, which the scammer would use to sell essentially worthless shares to investors.  So, at the time, we did due diligence about the company, how long it's been around, whether there had been any recent setbacks or change of ownership or change of leadership or loss of contracts or anything like that, to establish that the company was a legitimate going concern.  In the case I'm thinking of, it was a well-established privately-held company, with ongoing leadership and ownership and ongoing government contracts, and even a long history of making such gifts of the closely-held stock, so it all checked out and we did accept the gift.

     

    My US$0.02 worth; the usual disclaimers apply.

     

    Good luck!

     

    Alan

     

    Alan S. Hejnal    (he/him/his)

    Data Quality Manager

     

     






  • 7.  RE: Pros and pitfalls around accepting privately held stock

    Posted 5 days ago
    Hey there, Alan - Thanks much for the feedback. The only time I can recall having closely held stock hit my processing radar was way back in my days at the Museum of Science in Boston. I vaguely recall questions and concerns about valuation though I think we were given to understand that the stock might be available to sell within an 18 month time frame [small start-up with plans to go public, I think?]. I can certainly see where requirements around how long to hold, who gets to buy, et al, could be significant flags. It will be interesting to hear of any rewards or regrets from other organizations that relate to accepting closely held stock, too. 

    All the best - Amy

    Amy J. Phillips
    Director of Advancement Services, Gift Acceptance
    Division of University Advancement
    The Catholic University of America
    620 Michigan Avenue, B016 O'Connell Hall
    Washington, DC 20064
    Phone: 202-319-6919