Table of Contents
When should I get a new 409A?
To take advantage of the IRS safe harbor (i.e. not be subject to certain IRS penalties), 409A valuations should be done annually or each time the company has a material event, like a new financing.
How long does a 409A last?
12 months
IRC 409A valuations are valid for a maximum of 12 months after the effective date—or until something called a “material event” occurs. A material event is something that could affect a company’s stock price. For the majority of early-stage startups, a qualified financing is the most commonly encountered material event.
When do I need a new 409A valuation?
After 12 months (or sooner, if there’s a qualified financing round or material event), your company will need a 409A “refresh” or updated valuation. Any event that may change the valuation of the company means you need a new 409A. What is 409A safe harbor?
What happens if a stock option does not comply with 409A?
As such, if the option did not conform to the section 409A requirements as of the original grant date, the extension results in triggering a retroactive section 409A failure with adverse tax consequences. Several actions can constitute the extension of a stock right so changes should be carefully considered.
What is Section 409A of the Securities Act?
Section 409A regulations provide guidelines for valuing stock that is readily tradable on an established securities market and stock that is not so traded. The regulations also establish with respect to stock that is not readily tradable on an established market certain safe harbor valuation approaches.
What is a material event under 409A?
Outside of a financing, whether an event is “material” varies case by case. These include acquisitions, divestitures, secondary sales of common stock, business model pivots, and missing or exceeding financial projections. If you aren’t sure, reach out to a 409A valuation provider or consult your lawyer.