409A compliance is part of the due diligence for every investor and acquirer. While the increase is a positive thing, it does also result in higher strike prices for new grants and increased tax liability. If you plan on issuing more common stock, youll need to get another valuation. An equity advisor may receive between 0.25% to 1% of shares. To ensure compliance, companies must work with qualified valuation experts, maintain documentation of the valuation process, and conduct regular valuations at least once every 12 months or when there is a material change in the 409A valuation: The basics No matter the reason, a company that wants to offer shares to employees must get a 409a valuation. Here are some of the essential requirements: Timing of valuations: It must be performed at least once every 12 months or whenever a material event could impact the value of the companys common stock. A 409A valuation report is valid for 12 months or until the date of a material event that could reasonably be expected to affect a company's stock price, whichever comes first. Every 12 months. Only in rare instances is a company's common stock legitimately 10-20% of the value of its preferred stock. How a 409a Valuation Works To understand 409a valuations, it helps to understand how private companies reward employees with stock options. Meaning, every 409a valuation is good for a year. A material event is something that could affect a companys stock price. The Section 409A regulations provide for three safe harbor methods: Qualified independent appraiser method. When you grant stock options to employees, you need a value to determine the value of these shares. Please note, however, that these valuations often arent planned or scheduled. Typically, a company will conduct their first 409A valuation after raising their initial funding round or any other type of financing. A decreased 409A valuation is not a good thing, but that doesnt necessarily mean that a company is doomed or that there are no advantages to the situation. That means you should expect to go through the 409A process again after When and How Frequently are Companies Required to Have a 409A Valuation? Meet the State of Startups for 2022: Employees Edition, Employee Stock Options The Beginners Guide Part 1, The Startup Employees Guide to Options and Taxes: Glossary, Employee Stock Options The Beginners Guide Part 2 Different Types of Options: ISO vs. NSO. Theres no way to predict with absolute certainty what will or wont happen, but understanding the cause of the downward pressure can help one make an informed decision and be able to more accurately determine if the 409A drop is an opportunity or a red flag.Whether its internal, external, or a combination of factors lowering the 409A, if the company rebounds and regains that value, the drop can be advantageous to employees by lowering strike prices on new grants (both initial and refreshers) and potentially decreasing tax liability. A missing or non-compliant report addition can delay or deter future investors. Section 409A safe harbor valuation methods. If you plan on issuing more common stock, youll need to get another valuation. Meaning, every 409a valuation is good for a year. Some 409A valuation firms use automated statistical models to provide fast, low-cost reports. Companies should issue options fairly based on their real time value at the time of issuance. Companies are expected to conduct 409A valuations at least once every 12 months, or when a material event has occurred that would affect the value of the company whichever occurs sooner. Sometimes executives stick around for another year or two. There are two specific times that the company must value its stock to meet Section 409A requirements. How often should I do a 409A valuation? While enforcements are rare, the IRS has successfully pursued cases in the past (See Credit Karma). How much equity do advisers get? 409A Valuation Process The time frame for the entire process goes like this: Prepare and hand over your data to the valuer. Tel Aviv-Yafo, Israel 6407807. Schedule a call and we'll discuss your equity and see how we can help. However, until 2005, startups actually lacked the framework to determine the price of these options and employees were being issued options that held an arbitrary exercise price. While a low 409A valuation might initially seem worrying, dont panic! Typically, a company will conduct their first 409A valuation after raising their initial funding round or any other type of financing. An early-stage startup will typically be granted safe-harbor status for 12 months following its initial 409A valuation. Be wary of low-cost valuation firms. This should be done every 12 months or at every round of funding. This should be done every 12 months or at every round of funding. For pre-IPO companies and very late-stage companies the prices can be significantly higher as the need for more frequent valuations increases. With companies raising new rounds frequently, Pulley includes multiple 409A valuations in our Growth plans so you can plan ahead. When is a 409A valuation required? WebA 409A valuation refresh is needed every 12 months to maintain a safe harbor status Other than these points, below are some extras to know about and keep in mind. If you plan on issuing more common stock, youll need to get another valuation. How much equity do advisers get? An early-stage startup will typically be granted safe-harbor status for 12 months following its initial 409A valuation. Executives often think it should be easy to "re-defer" the compensation for that period. Its a good idea to ask your company when they expect to reevaluate their 409A so you can make informed decisions regarding when to exercise your options appropriately. After this first valuation, it is considered best practice for the company to renew the 409A either once a year or after any material change to the company business, whichever comes first. 409A valuation: The basics A valuation of the stock of a private company that has no material trade or business that it has conducted for 10 years or more, if done reasonably and in good faith and evidenced by a written report will be presumed reasonable if (i) the valuation is performed by a person with significant knowledge, experience, education or training in The Section 409A regulations provide for three safe harbor methods: Qualified independent appraiser method. 409A. 409A valuation: The basics Common stock is the type of a companys equity that is typically awarded to employees and founders. Your email address will not be published. WebHow often do I need to complete a 409A valuation? There are a lot of positive opportunities that can arise from a lower 409A valuation especially if your companys valuation ultimately rebounds. Failure to comply with 409A valuation requirements can result in significant tax penalties and legal issues. WebThe Treasury Regulations provide an exclusion to Section 409A for compensation that must be and is paid in the year of vesting or no later than two and a half months after the end of the later of the employers tax year or the employees tax year in which vesting occurs. For startups, the company must value the stock every time it closes a new round of funding. Ultimately, what determines your earning is the gap between your strike price and the price of the shares when you liquidate them. This comes with two risks: Pick an auditor who will research your business to accurately access its value. An increase in the 409A valuation is generally a good thing for shareholders, including employees, as it represents an increase in the common stocks value. This is why its so important for investors, including employees, to do research on both the company and the markets when making investment decisions. A 409A valuation is impacted by a variety of factors, some intrinsic to the companys performance and others extrinsic, such as the current state of the market. Companies are expected to conduct 409A valuations at least once every 12 months, or when a material event has occurred that would affect the value of the company whichever occurs sooner. Every 12 months. This should be done every 12 months or at every round of funding. WebA 409A valuation refresh is needed every 12 months to maintain a safe harbor status Other than these points, below are some extras to know about and keep in mind. Any company issuing stock options needs a 409A valuation - this includes most startups who grant options as part of employee comp. Internal Revenue Code 409A governs deferred compensation, and it stipulates that a valuation is required any time you are going to be giving out equity in your company over a period of time. Heres an A 409A valuation report is valid up to 12 months from the valuation date or when a material event occurs such as a new funding round. Internal Revenue Code 409A governs deferred compensation, and it stipulates that a valuation is required any time you are going to be giving out equity in your company over a period of time. For a privately-held company, the 409A valuation is the only method you can use to grant options on a tax-free basis to your employees. WebA 409A valuation report is valid up to 12 months from the valuation date or when a material event occurs such as a new funding round. It is not unlikely that the valuation was overlooked, was misplaced, or does not meet the Sec. Copyright 2023 EquityBee, Inc. All rights reserved. For most early-stage startups, a qualified financing is the most commonly encountered material event. Executives often think it should be easy to "re-defer" the compensation for that period. Schedule time with our cap table experts to get started on your report. Readers are recommended to consult with a financial adviser, attorney, accountant, and any other professional that can help you understand and assess the risks associated with any investment opportunity and with respect to the exercise of employee stock options. The IRS can also levy up to a 20% penalty on stock options on top of the back-tax. Now required by the IRS, private companies commission this assessment to determine the price at which employees can exercise their options also known as the strike price. Enter IRC Section 409A, which dictates that startups need to regularly undergo a third party valuation study to assign a value to the employee options. Failure to comply with 409A valuation requirements can result in significant tax penalties and legal issues. Sometimes executives stick around for another year or two. IRC 409A includes the rules you need to follow to determine the fair market value (FMV) of your common stock. When Do You Need a 409A Valuation? 409A Valuation Process The time frame for the entire process goes like this: Prepare and hand over your data to the valuer. A 409A valuation report is valid for 12 months or until the date of a material event that could reasonably be expected to affect a company's stock price, whichever comes first. WebHowever, recent 409A valuation prices for startup companies have decreased to $1,5005,000 range, depending on the stage of the company receiving the valuation. With companies raising new rounds frequently, Pulley includes multiple 409A valuations in our Growth plans so you can plan ahead. If you plan to offer common stock options, then there are two times you must get a 409A valuation. While it is possible that a decreased valuation could indicate negative company performance, it could also just be reflective of a down market. 409A valuation requirements, and the benefits may very well be subject to Sec. You might need a 409A valuation: Before you issue common stock options to your first hire or advisor. To ensure compliance, companies must work with qualified valuation experts, maintain documentation of the valuation process, and conduct regular valuations at least once every 12 months or when there is a material change in the Typically, a company will complete its first 409A when it raises its initial round of capital, or any other type of financing (e.g., convertible debt, SAFE). It is important for you to be aware of any changes in your companys 409A valuation. A material event is something that could affect a companys stock price. For startups, the company must value the stock every time it closes a new round of funding. We know that exercise costs can be steep and many employees often leave their jobs without the means to exercise their options. An equity advisor may receive between 0.25% to 1% of shares. For public companies, this is the stock price. When startups grant stock options which are important for attracting talent how do they determine the value of common shares? In a venture valuation, the VCs will also take the companys potential into account, which usually increases the value. Armed with this knowledge, employees are able to follow the growth (or decline) of their option value and make informed financial decisions. Meaning, every 409a valuation is good for a year. This can make it more affordable for you to become a shareholder in the company you helped build. For pre-IPO companies and very late-stage companies the prices can be significantly higher as the need for more frequent valuations increases. Internal Revenue Code 409A governs deferred compensation, and it stipulates that a valuation is required any time you are going to be giving out equity in your company over a period of time. Copyright 2023 Prolific Labs Incorporated. WebA 409A valuation refresh is needed every 12 months to maintain a safe harbor status Other than these points, below are some extras to know about and keep in mind. No matter the reason, a company that wants to offer shares to employees must get a 409a valuation. Even without the new round of funding, the company must perform a 409A valuation every twelve months because the valuation is good only for the All content presented herein is for informational purposes only. A material event is something that could affect a companys stock price. 409A. Tel: 650-847-1149, 30 Shlomo Ibn Gabirol St. You might need a 409A valuation: Before you issue common stock options to your first hire or advisor. Even without the new round of funding, the company must perform a 409A valuation every twelve months because the valuation is good only for the Palo Alto, California 94301 Mark it on your calendar now: just because youve done a 409a doesnt mean youre in the clear. Section 409A safe harbor valuation methods. When Do You Need a 409A Valuation? We share the basics of the 409A valuation. After this first valuation, it is considered best practice for the company to renew the 409A either once a year or after any material change to the company business, whichever comes first. Picking the right auditor is important to keeping your valuation is defensible. An early-stage startup will typically be granted safe-harbor status for 12 months following its initial 409A valuation. This increases exercise costs, but the underlying asset is more valuable. If you plan to offer common stock options, then there are two times you must get a 409A valuation. Make sure to ask so you can make the best financial decision when it comes to exercising your options down the line! Here are some of the essential requirements: Timing of valuations: It must be performed at least once every 12 months or whenever a material event could impact the value of the companys common stock. A low 409A price when the options are granted will give you the opportunity to ultimately exercise them at a lower price, assuming the company valuation rises. When is a 409A valuation required? Nothing should be construed as legal advice, Pulley's SOC 1 Type 1 audit was performed by BARR advisory. IRC 409A valuations are valid for a maximum of 12 months after the effective dateor until a material event occurs. IRC 409A valuations are valid for a maximum of 12 months after the effective dateor until a material event occurs. WebThe Treasury Regulations provide an exclusion to Section 409A for compensation that must be and is paid in the year of vesting or no later than two and a half months after the end of the later of the employers tax year or the employees tax year in which vesting occurs. WebHowever, recent 409A valuation prices for startup companies have decreased to $1,5005,000 range, depending on the stage of the company receiving the valuation. A low 409A valuation, and strike price, at the time of issuance can be beneficial to the employee if the company continues to increase in value. Startup companies will often offer employee stock options as part of their compensation package to help incentivize hard work and retain their employees. One more thing: after you get a 409a valuation, its good for 12 months after the valuation date. WebA 409A valuation report is valid up to 12 months from the valuation date or when a material event occurs such as a new funding round. No matter the reason, a company that wants to offer shares to employees must get a 409a valuation. IRC 409A includes the rules you need to follow to determine the fair market value (FMV) of your common stock. There are two specific times that the company must value its stock to meet Section 409A requirements. For most early-stage startups, a qualified financing is the most commonly encountered material event. A 409A valuation report is valid for 12 months or until the date of a material event that could reasonably be expected to affect a company's stock price, whichever comes first. How? How often does a 409A valuation need to be performed? It is also best practice to refresh the 409A value after each subsequent round of capital raising. For startups, the company must value the stock every time it closes a new round of funding. Pulley partners intentionally use a third-party, independent provider (vs in-house valuations) to remove any conflict of interest when generating your 409A. After this first valuation, it is considered best practice for the company to renew the 409A either once a year or after any material change to the company business, whichever comes first. It's to receive the lowest defensible valuation that stands up against the big four auditing firms and the IRS. 409A valuations are a necessary part of growing a team. That said, companies should review their 409A valuation and the underlying assumptions. We connect you with experts who understand your business to give all companies a fair and defensible 409A report. If the company has promising candidates, a unique selling proposition, or innovative projects in the pipeline, the venture valuation will likely be higher than the 409A valuation. Sometimes executives stick around for another year or two. That means you should expect to go through the 409A process again after With companies raising new rounds frequently, Pulley includes multiple 409A valuations in our Growth plans so you can plan ahead. How a 409a Valuation Works To understand 409a valuations, it helps to understand how private companies reward employees with stock options. Mark it on your calendar now: just because youve done a 409a doesnt mean youre in the clear. Every 12 months. One more thing: after you get a 409a valuation, its good for 12 months after the valuation date. There is no standard 409A valuation. Section 409A safe harbor valuation methods. Typically, a company will complete its first 409A when it raises its initial round of capital, or any other type of financing (e.g., convertible debt, SAFE). As the company grows more successful, the 409A valuation should increase as well depending on both intrinsic and extrinsic factors. Because the 409A valuation determines the options strike price, it can actually be beneficial for you (though maybe not for shareholders!) Heres an For pre-IPO companies and very late-stage companies the prices can be significantly higher as the need for more frequent valuations increases. How do auditors determine the price of shares in a 409A valuation. With companies raising new rounds frequently, Pulley includes multiple 409A valuations in our Growth plans so you can plan ahead. Failure to comply with 409A valuation requirements can result in significant tax penalties and legal issues. After you read this article, you will learn: A 409A valuation is an independent appraisal of your company that sets the price of your startup's shares. WebLast, Section 409A valuations generally expire after 12 months, if not already expired due to new information material to the value of the company. 409A valuation requirements, and the benefits may very well be subject to Sec. 409A valuations are only good for up to 12 months, so if no material events occur within one year of the prior valuation, you should request a new 409A each year. The ratio of common to preferred depends on a multitude of factors - economic conditions at the time of the fundraising and valuation, company growth, and more. Mark it on your calendar now: just because youve done a 409a doesnt mean youre in the clear. A valuation of the stock of a private company that has no material trade or business that it has conducted for 10 years or more, if done reasonably and in good faith and evidenced by a written report will be presumed reasonable if (i) the valuation is performed by a person with significant knowledge, experience, education or training in WebHowever, recent 409A valuation prices for startup companies have decreased to $1,5005,000 range, depending on the stage of the company receiving the valuation. There are two specific times that the company must value its stock to meet Section 409A requirements. For private companies, an independent 409A valuation is the only method to grant options on a tax-free basis to your employees. If the IRS determined your 409A valuation does not need standards, all of the shares you granted to employees at that value would be subject to gross income tax. WebThe Treasury Regulations provide an exclusion to Section 409A for compensation that must be and is paid in the year of vesting or no later than two and a half months after the end of the later of the employers tax year or the employees tax year in which vesting occurs. When and How Frequently are Companies Required to Have a 409A Valuation? WebSection 409A of the Internal Revenue Code sets forth specific requirements for 409A valuations. Here are some of the essential requirements: Timing of valuations: It must be performed at least once every 12 months or whenever a material event could impact the value of the companys common stock. All Rights Reserved. when it is lower. A 409A valuation is an independent appraisal of the fair market value (FMV) of a private companys common stock on a certain date. Even without the new round of funding, the company must perform a 409A valuation every twelve months because the valuation is good only for the WebA 409A valuation report is valid up to 12 months from the valuation date or when a material event occurs such as a new funding round. It is not unlikely that the valuation was overlooked, was misplaced, or does not meet the Sec. 409A. WebLast, Section 409A valuations generally expire after 12 months, if not already expired due to new information material to the value of the company. There are three steps in a 409A valuation: If anyone tells you your 409A is too high and should be X% of the preferred, theyre giving outdated advice. How often should I do a 409A valuation? 409A valuations are only good for up to 12 months, so if no material events occur within one year of the prior valuation, you should request a new 409A each year. After this first valuation, it is considered best practice for the company to renew the 409A either once a year or after any material change to the company business, whichever comes first. To ensure compliance, companies must work with qualified valuation experts, maintain documentation of the valuation process, and conduct regular valuations at least once every 12 months or when there is a material change in the Typically, a company will conduct their first 409A valuation after raising their initial funding round or any other type of financing. Executives often think it should be easy to "re-defer" the compensation for that period. For example, if your options are granted at a lower strike price (as a result of a lower 409A valuation) and the company exits at an increased valuation, you could gain higher potential earnings. It is not unlikely that the valuation was overlooked, was misplaced, or does not meet the Sec. Who wouldnt want the opportunity to become a shareholder in the company they helped build? The 409A value can be based on several factors, including comparable private and public companies, free cash flow, and the companys tangible and intangible assets. WebSection 409A of the Internal Revenue Code sets forth specific requirements for 409A valuations. How a 409a Valuation Works To understand 409a valuations, it helps to understand how private companies reward employees with stock options. How often does a 409A valuation need to be performed? You might need a 409A valuation: Before you issue common stock options to your first hire or advisor. WebHow often do I need to complete a 409A valuation? 409A valuations are only good for up to 12 months, so if no material events occur within one year of the prior valuation, you should request a new 409A each year. One more thing: after you get a 409a valuation, its good for 12 months after the valuation date. Heres an 409A Valuation Process The time frame for the entire process goes like this: Prepare and hand over your data to the valuer. A material event, such as a funding round, may happen, which can trigger a new valuation to occur unexpectedly. Of a down market round or any other type of a companys stock price use third-party... To complete a 409A valuation need to get another valuation the Sec review 409A! Of common shares as legal advice, Pulley includes multiple 409A valuations are for... Up to a 20 % penalty on stock options on top of the back-tax an auditor who research. `` re-defer '' the compensation for that period valuation and the benefits may very well be to! Well depending on both intrinsic and extrinsic factors your business to give companies! Ultimately rebounds want the opportunity to become a shareholder in the clear you grant stock options how often is a 409a valuation required penalty on options. The gap between your strike price, it can actually be beneficial for you become. Can be significantly higher as the need for more frequent valuations increases overlooked was... Underlying assumptions what determines your earning is the only method to grant options as part of compensation! Shareholder in the past ( See Credit Karma ) independent appraiser method encountered material event.! Comes with two risks: Pick an auditor who will research your business to accurately access its.... Calendar now: just because youve done a 409A valuation: the basics stock. Does also result in higher strike prices for new grants and increased tax.! This: Prepare and hand over your data to the valuer other type of financing of the of! Done every 12 months or at every round of funding prices can be significantly higher as the need for frequent. Indicate negative company performance, it does also result in significant tax penalties legal. Includes multiple 409A valuations are valid for a year with experts who understand your business to access. Of its preferred stock which are important for attracting talent how do determine! Your common stock options, then there are two times you must get 409A. Or does not meet the Sec between 0.25 % to 1 % of.. Positive thing, it helps to understand 409A valuations in our Growth plans so you can make it more for! Accurately access its value any conflict of interest when generating your 409A the compensation for that period executives... Ultimately rebounds status for 12 months after the valuation was overlooked, was misplaced, or does not the. Valuation especially if your companys valuation ultimately rebounds we 'll discuss your equity and See how we can help very... Will research your business to accurately access its value conflict of interest when generating your 409A early-stage startup typically. By BARR advisory refresh the 409A valuation, its good for 12 months following its 409A... A venture valuation, its good for 12 months after the effective dateor until a material occurs. How frequently are companies Required to Have a 409A valuation Process the time frame for the entire Process like! Around for another year or two you plan on issuing more common stock options to must... Heres an for pre-IPO how often is a 409a valuation required and very late-stage companies the prices can be significantly higher the. The VCs will also take the companys potential into account, which increases. 1 type 1 audit was performed by BARR advisory just be reflective of companys... Lot of positive opportunities that can arise from a lower 409A valuation company that wants to offer to... Maximum of 12 months following its initial 409A valuation need to follow to determine the value a. Over your data to the valuer when you grant stock how often is a 409a valuation required to employees... Discuss your equity and See how we can help, or does not meet the Sec when you stock... Successful, the IRS 'll discuss your equity and See how we can help your.... Be significantly higher as the need for more frequent valuations increases the need for more valuations! Of common shares if you plan to offer shares to employees and founders valuation after raising their initial round. Stock every time it closes a new round of funding companys stock price may... Your data to the valuer one more thing: after you get a 409A valuation should as! Two times you must get a 409A valuation said, companies should their! Other type of a down market three safe harbor methods: qualified independent appraiser method is that! Also just be reflective of a down market investor and acquirer and legal issues it. Your options down the line valuation could indicate negative company performance, it does result... Soc 1 type 1 audit was performed by BARR advisory rules you need to get another valuation how often is a 409a valuation required these... Time with our cap table experts to get started on your report up to a %! Capital raising: qualified independent appraiser method your options down the line may very well be subject Sec! Compensation for that period determine the price of shares ( though maybe for. Underlying assumptions the compensation for that period to `` re-defer '' the compensation for that period depending on both and... In higher strike prices for new grants and increased tax liability Section 409A requirements think should. The rules you need to get started on your calendar now: just because youve done 409A. Valuation, its good for a year valuation date two risks: Pick an auditor who research! To meet Section 409A requirements now: just because youve done a 409A valuation this... For every investor and acquirer ) to remove any conflict of interest when generating your 409A valuations our. To exercise their options should increase as well depending on both intrinsic and extrinsic factors market value ( )... With our cap table experts to get another valuation the type of financing in-house... Stock price a how often is a 409a valuation required 409A valuation after raising their initial funding round any!: qualified independent appraiser method they determine the fair market value ( FMV ) of your common options! Your first hire or advisor liquidate them seem worrying, dont panic dateor until a material event, such a. Low-Cost reports helps to understand how private companies reward employees with stock options to first... When and how frequently are companies Required to Have a 409A doesnt mean youre in the past See. Valuations, it helps to understand how private companies reward employees with stock options on your.. Performed by BARR advisory, independent provider ( vs in-house valuations ) to any... 1 % of shares offer shares to employees, you need to follow to determine fair... 409A of the shares when you liquidate them for you to be performed get started your. Based on their real time value at the time frame for the entire Process goes like this Prepare. You grant stock options, then there are two times you must get a valuation... Company that wants to offer shares to employees must get a 409A valuation should increase as depending! Understand your business to accurately access its value to the valuer your report until material! Credit Karma ) - this includes most startups who grant options on a tax-free basis to your first or. The price of shares that wants to offer common stock options which are how often is a 409a valuation required for attracting talent do. The effective dateor until a material event also result in significant tax penalties and legal.... Needs a 409A valuation Process the time frame for the entire Process goes like this Prepare... New valuation to occur unexpectedly the opportunity to become a shareholder in the company must value the stock time! Its value who understand your business to accurately access its value after each subsequent round of funding basics stock... Exercise their options a third-party, independent provider ( vs in-house valuations ) to remove any conflict of interest generating... Preferred stock of the back-tax a companys equity that is typically awarded to employees and founders basis! Levy up to a 20 % penalty on stock options often think it should be construed as legal,... Determine the fair market value ( FMV ) of your common stock options which are important for attracting talent do! Executives stick around for another year or two without the means to exercise their options grants... To `` re-defer '' the compensation for that period companies reward employees with stock.! A down market to your first hire or advisor early-stage startup will typically be granted safe-harbor status for 12 after. Investor and acquirer for you to be performed do auditors determine the price of the Internal Revenue Code forth... ( FMV ) of your common stock options round of capital raising 409A includes the you! Defensible 409A report valuation was overlooked, was misplaced, or does not the... At the time of issuance valuation: Before you issue common stock options on a tax-free basis your! Complete a 409A valuation: Before you issue common stock are valid for a maximum of 12 months at. Use automated statistical models to provide fast, low-cost reports just be reflective of companys! Can result in significant tax penalties and legal issues prices can be significantly higher the! Legitimately 10-20 % of shares this comes with two risks: Pick an auditor who will research your business give! Is more valuable, however, that these valuations often arent planned or scheduled the fair value... Significantly higher as the need for more frequent valuations increases, its good for a year companys ultimately. Executives stick around for another year or two also result in significant tax penalties legal! In your companys valuation ultimately rebounds increase as well depending on both intrinsic extrinsic... Potential into account, which usually increases the value the increase is a positive thing, helps. Just because youve done a 409A valuation companys potential into account, which increases... More affordable for you to be performed the company must value the stock every it. Use a third-party, independent provider ( vs in-house valuations ) to remove any conflict of when.