Venture First supports entrepreneurs, VC Portfolios, Family Offices and Estates with the many facets that go into their valuation. Many of the companies Venture First works with use equity as a form of compensation. Doing so has tax ramifications for both the Company and the employee.
Internal Revenue Code (IRC) 409a requires that equity-based compensation, including common stock options, must be issued at Fair Market Value at the time of the grant. However, Fair Market Value can be tricky to determine. If the strike is set incorrectly, a company could face penalties and fines from the IRS. A valuation report from Venture First not only allows this value to be determined correctly, but also provides the company safe harbor from the IRS. The IRS has been quick to enforce regulations as seen with a $5 million penalty in the Sutardja v. United States Federal Court Case.
A professional 409a valuation also protects the Company’s employees. By undervaluing or overvaluing the company, management risks option contracts being cancelled, reissued or in some cases, leaving option holders left with out of the money options.
In addition to the benefit of getting the right strike price, a professional valuation allows the Company’s accounting team to verify that option expensing was calculated correctly. Venture First works with top tier audit firms (all of the big 4 as well as regional CPA firms) to ensure our valuations pass audit, since there can be a domino effect of consequences associated with a failed audit.
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Contact a Venture First professional to see if your company could benefit from a 409a valuation.