409A Valuation
US corporations that hire US citizens as employees are required to obtain a 409A valuation report prior to granting ESOPs.
Deadline for this form has passed. Contact us if you've missed the deadline.
409A Valuation Report
Obtaining an independent 409A valuation before issuing initial common stock options is a recommended best practice for those providing equity or intending to do so.
.svg){kind=icon}
Mandatory for
Companies in their initial phases and their founders also require 409A valuations to prevent shareholders from incurring potential tax penalties that the IRS could impose.
Penalties
Deferred compensation from prior and current years becomes immediately taxable, with accrued interest and an added 20% tax.
Due date
You need to refresh your 409A valuation every 12 months or sooner for significant events impacting your company's value.
FAQs
Before you issue your first options, then after each priced round, and otherwise roughly every 12 months.
A material event, a funding round, an acquisition offer, a large revenue change, resets the clock early. Granting options on a stale valuation exposes employees to tax on the difference. More on 409A valuations.
Technically you can do it internally, but an independent appraisal gives you safe harbour, which shifts the burden to the IRS to prove the valuation was unreasonable.
Without that protection, the company and the employees carry the risk. Almost every funded company uses an external provider. More on 409A valuations.
Yes, and it should be. A material event makes the existing valuation stale, and issuing options against a stale number is the risk you are trying to avoid.
New funding, a large revenue shift, or an acquisition approach all count. More on 409A valuations.
Still have questions?
Reach out to our support team if you have any additional questions regarding filing.
