409A Valuations

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"When Do I Need a 409A Valuation?"

There's been a LOT of challenges, and many companies have cut employees, lost customers, shut their doors, and even eliminated bonuses.

Now is the perfect time to get a new 409A because this is a way you can provide value to your employees as a

new 409A may yield a different exercise price based on the current economic backdrop.

What is a 409A?

A 409A for start-ups ensures that the company can be in compliance when granting options.

It is meant to ensure that the proper federal income taxes are paid on deferred compensation plans, but it also ensures that company options are covered by the IRS Safe Harbor.

Not complying will result in the federal government taxing you and your employees for that stock and slapping you with heavy fines - usually a 20% tax - as well as interest payments.

It will not only make your employees extremely unhappy (to say the least), but it can also put the acquisition of your company in jeopardy. After all, what buyer wants to deal with the tax risk and indemnities you’ve incurred for not following the tax code?

When issuing stock or stock options to yourself or your employees, if you do it at a value other than "fair market value", then you are likely creating compensation and income. And we all know... where's there's income, there's tax.

In order to avoid unnecessary taxes, the IRS provides a "Safe Harbor" as long as you have a 3rd party determine the fair market value.

That's exactly what a 409A valuation is, and exactly why you need GrowthLab!