According to Section 1202, an individual must receive QSBS either directly from the issuing company or through a gift or inheritance. Partnerships or LLC are allowed to transfer QSBS to a partner but not vis versa. A partnership or LLC is not a stand-alone entity but a pass-through; therefore, if QSBS is gifted or transferred to the partnership the partners would be receiving the gift or transfer indirectly and not directly. Many high net worth individuals use a Family Limited Partnership (FLP) as tax shelter from current or future gifting taxes, but if the QSBS is transferred to the FLP it will not maintain its status.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.