What is a 409A valuation?

A 409A valuation is the appraisal of the fair market value (FMV) of common stock and is a crucial process for companies to determine the price at which stock options can be granted to employees and other stakeholders without tax penalties. A 409A valuation is required every 12 months, or sooner if there is a material event. Material events can include a new round of funding, a significant change in the business, or a major shift in market conditions.

Why is an external 409A valuation required?

Stock options must be granted at or above the FMV to avoid potential tax penalties, such as immediate taxation of the non-compliant option grants at income tax rates, a 20% additional tax, and interest on the unpaid taxes.

By working with a third-party, companies receive an objective and unbiased assessment that ensures compliance with IRS regulations. An independent valuation also provides transparency for stakeholders and credibility for potential IRS, acquirer, future SEC, or investor scrutiny.

For companies preparing for an audit or looking to go public, it is especially critical to choose a provider that understands the differences between and additional rigor for financial reporting valuations or SEC-reviewed common stock valuations versus valuations for simply tax compliance.

Our Approach

In partnering with Stout, you can expect dedicated senior-level attention and unparalleled responsiveness. We focus on building strong relationships and delivering responsive, human-centered service while leveraging technology. This contrasts with other providers that offer a technology platform but lack a consultative advisory approach to guide you through this important process.  For a 409A valuation, we will work closely with you to collect, analyze, and develop a comprehensive valuation that is accurate and defensible for your financial or tax reporting needs. Our 409As are based on the following information gathered from you and the market during the valuation process:

• Financial statements (income statements, balance sheets, and cash flow statements)
• Capitalization tables
• Corporate structure and governance documents
• Employee and option plan information
• Business plan and projections
• Recent funding and valuation information
• Intellectual property and other assets
• Any known risk factors or uncertainties
• Industry information

In addition to 409A valuations, we provide other relevant services for a range of clients at various life cycle stages, including emerging growth companies, such as:

• Accounting Advisory
• Office of the CFO Advisory
• Transaction Advisory (Quality of Earnings)
• Intellectual Property Disputes
• Complex Securities and Financial Instruments Valuation
• Financial Reporting Valuation (Purchase Price Allocations)

Who We Serve

• Small, privately held companies
• Lower middle-market and middle-market companies
• Private equity-owned companies
• Venture-backed private companies
• Private companies looking to go public