409A Valuation
A 409A valuation is a third-party assessment that determines the fair market value of a private company’s common stock for tax purposes. This valuation is required when issuing stock options to employees, ensuring compliance with IRS regulations. Accurate 409A valuations help companies avoid penalties and offer employees tax-compliant stock options, playing a critical role in equity compensation packages.
Key Takeaways
- Determines the fair market value of private company stock.
- Essential for tax-compliant equity compensation plans.
- Required when issuing stock options to employees.
- Helps avoid IRS penalties for misvaluation.
