409A Valuation
US corporations that hire US citizens as employees are required to obtain a 409A valuation report prior to granting ESOPs.
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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.
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Mandatory for
Startups 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
Obtain a 409A valuation before issuing your initial common stock options, after completing a round of venture financing, annually or after a significant event, and when approaching an IPO, merger, or acquisition.
Companies for IRS compliance and impartiality often prefer external appraisals, as independent experts ensure accurate evaluation of complex factors. This results in well-supported reports, reducing inaccuracies and conflicts with tax authorities.
Yes, a 409A valuation can and should be updated if there are material changes in your company's financial situation or other significant events.
Still have questions?
Reach out to our support team if you have any additional questions regarding filing.
