an assessment of the fair market value of company’s common stock

A 409A valuation is an assessment of the fair market value of company’s common stock.

a formal report that documents the value of your company’s common stock for the purpose of granting stock options

A 409A valuation is a formal report that documents the value of your company’s common stock for the purpose of granting stock options.

a method of calculating fair market value ( FMV

In other words, the 409A valuation is a method of calculating fair market value (FMV) according to the regulations under the Internal Revenue Code (IRC).

valuation report

This valuation report from a third party firm is called a 409a valuation.

An independent third party’s evaluation of the fair market valuer or the FMV of the equity shares of a private corporation

An independent third party’s evaluation of the fair market valuer or the FMV of the equity shares of a private corporation is known as a 409a valuation.

by law

A 409A valuation is required by law in order to issue stock options, and a 409A violation—for example, issuing options priced lower than your company’s FMV—comes with severe penalties for employees, even if their options have expired.

by third-parties

The valuation change was not triggered by a new funding round, but instead a new 409A price change; 409A valuations are set by third parties, which means that they are not tied to what a venture backer or other investor thinks.

the process that answers the question

A 409A valuation is the process that answers the question “how much is this company worth?”

an appraisal done for tax purposes

The 409A valuation is an appraisal done for tax purposes and done annually or upon a new round of financing.

stock options

Next, 409a stock options valuation describes the valuation rules that were established by the Section 409A.

a formal report that sets the current value of your company's common stock and the strike price to exercise an option to purchase that stock

A 409A Valuation is a formal report that sets the current value of your company's common stock and the strike price to exercise an option to purchase that stock.

will set the fair market value of your shares

A 409A valuation will set the fair market value of your shares.

one data point in the valuation process

A company’s 409A valuation is one data point in the valuation process, but there are many factors that can cause the current valuation to be higher or lower than the last 409A price.

an independent appraisal process used to establish the strike price for newly granted stock options

A 409A valuation is an independent appraisal process used to establish the strike price for newly granted stock options.

in order to issue stock options

A 409A valuation is required by law in order to issue stock options, and a 409A violation—for example, issuing options priced lower than your company’s FMV—comes with severe penalties for employees, even if their options have expired.

a valuation of the company as a whole

The 409A is a valuation of the company as a whole.

In other words as the strike price of stock options granted to employees

In other words, the 409A valuation is used as the strike price of stock options granted to employees, setting a base upon which profits are treated as capital gains by the IRS.

to quantify the valuation of the common stock for tax and financial reporting (stock compensation expense) purposes

The purpose of the 409A valuation is to quantify the valuation of the common stock for tax and financial reporting (stock compensation expense) purposes.

all the risks of the IRS arguing with you later on regarding the value of the stock and the taxes that people owe

The 409A valuation addresses all the risks of the IRS arguing with you later on regarding the value of the stock and the taxes that people owe.

required by law

To keep a 409A valuation simple, a 409A valuation is necessary as required by law.