What is 409A Valuation?
409A Valuation
A 409A Valuation is an independent appraisal of a private startup's common stock value, required by IRS Section 409A to set tax-compliant option strike prices.
Why It Matters for Startups
Directly dictates the cap table and dilution structure during fundraising; understanding 409A Valuation helps founders model equity distributions when structuring rounds for irs tax code compliance audits.
Detailed Deep Dive
A 409A Valuation is an independent appraisal of a private startup's common stock value, required by IRS Section 409A to set tax-compliant option strike prices.
Frequently Asked Questions
Q:How often must a startup get a 409A valuation?
Every 12 months, or immediately following any event that materially affects the company's value (like a funding round).
Q:What happens if a startup sets option prices without a 409A?
Employees can face massive tax penalties, interest charges, and audit fines on their option grants.
Quick Facts
- CategoryFunding
- Key ApplicationIRS tax code compliance audits
Coverage Trend12 Weeks
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