How often should you update your business valuation?Articles
Any private company that issues equity-based compensation to U.S. employees (and advisors) would need to comply with Section 409A of the U.S. Internal Revenue Code, which essentially requires, among other things, that stock options and other equity incentives issues are not priced below fair market value when issued.
How often do companies need to update their 409A valuation? A new 409A valuation must be performed whenever there is a material corporate event, including:
- Issuing employee stock options or shares for the first time
- Raising a round of funding
- Turnover of significant employees in leadership positions
- Any significant change to business operations or plans
- Generating first revenue or achieving profit
- A previous 409A valuation is over one year old
Non-compliance with 409A can expose both companies and their U.S. employees (and advisors) to significant tax penalties including a 20 percent federal income tax penalty and varying state tax penalties.
For more information, contact Aspen Valuations Inc, member of Accounting in a Box