Do I really need a 409A valuation?

The short answer is probably. Companies that issue any kind of deferred compensation can greatly benefit from an independent IRC409A valuation before issuing that deferred compensation. Stock options is most common type of deferred compensation, but the law that is IRC409A covers all forms of “nonqualified deferred compensation,” which it defines very broadly. We believe that most legal advisors would say that companies issuing compensation for services that will be in the future, must comply with IRC 409A. However, in the context of a startup, 409A is mostly focused on stock options.

If you plan to offer equity, you must comply with IRC 409A. In essence that generally means obtaining a 409A valuation before issuing options on common stock. If properly executed, a 409A valuation will protect your option holders (i.e., your founders and employees!), from paying significant tax penalties that may otherwise be assessed by the IRS. The key to getting it right is to hire an independent, experienced, and reputable valuation firm to help your option holders take advantage of the safe harbors provided in the law.

Contact Eton today to discuss how to value your how a rigorous 409A can protect your equity and equity option holders. Get your valuation work done right. The first time.

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Get your valuation done right.

The first time.