Are you going to offer stock options to key employees? You’ll need a valuation under 409A regs

Neil Beaton, National Valuation Partner for Grant Thornton and a great friend to BV.com, reminds our readers that stock options require annual business valuations.   He was quoted on this subject last week by Business Week: “In 2004 legislation was passed that resulted in IRS code section 409A, which governs deferred compensation. Most stock options are granted for compensation. One of the rules in the code says that if you don’t know the value of your company in accordance with generally accepted valuation principles, you must obtain an independent third-party valuation, ” Neil told BW.   The practical result of this rule was “a lot of competition between business appraisers. Specialty practices like ours started to work on 409A valuations. That’s because there are various appraisal methods that are unique to early-stage companies, whereas traditional business appraisers have been trained in working with going concerns.”