409A Valuations - USA
Employee Stock Options qualify as Incentive Stock Options under 409A and enjoy favorable tax treatment at the time of grant, exercise, exit, or sale. The board of directors at your startup will have a statutory obligation to only offer shares or stock options to employees and advisors at what is known as “fair market value.”
“I’ve lost sleep. I can’t eat. I cannot pay, and we’re ruined.” is not what you want to hear from an employee or a former employee to set your reputation in the markets.
Fair market valuation using IRC safe harbor provisions avoids the IRS tax trap when done right. One way of determining a fair price per share for your startup’s common shares is by getting an independent external valuation service to provide a valuation for the company and complete what is known as a 409A valuation.