Silicon Valley Self Regulation

409A Valuation

photo by photosteve101

photo by photosteve101



A 409A valuation is a formal report that provides the value of a company’s common stock. This report’s name comes from Section 409A of the IRS’s Internal Revenue Code, which was created to eliminate any legal grey areas following the abuses of stock options by companies like Enron. The law requires valuation of options under 409A, but it doesn’t require timely and repeated reports on the topic. Companies use regular report options, like CapShare and outside firms, as a sort of insurance against future headaches brought by events like new financing, IRS audits, and other events in which someone might need to know the value of common stock.

helpful resources

Jeron Paul's answer to What is a 409A valuation? at Quora

Travis W. Harms's 8 Things You Need to Know About Section 409a at Mercer Capital

Petra Loer and Kurtis Handa's Why you should care about 409A valuations at VentureBeat

Jeron Paul's Do I really need an expensive 409A valuation report to tell me that my startup is worth nothing? at CapShare

Larry Kim's 7 Things You Need to Know About 409A Valuation at Inc.

Yoichiro Taku's What is Section 409A? at Startup Company Lawyer