Question 1

What is a 409A valuation?

Accepted Answer

A 409A valuation is an independent appraisal of the fair market value (FMV) of a private company's common stock. The IRS requires this valuation under Section 409A of the Internal Revenue Code to ensure that stock options are issued at a strike price that is at least equal to the FMV. This prevents employees from facing immediate tax liabilities and penalties on their equity compensation.

Question 2

When do I need a 409A valuation?

Accepted Answer

You typically need a 409A valuation before you issue your first stock options to employees or advisors. Additionally, you must update your 409A valuation at least every 12 months, or sooner if a 'material event' occurs that could significantly change your company's value, such as raising a new round of funding, a major pivot, or significant revenue growth.

Question 3

What happens if I don't get a 409A valuation?

Accepted Answer

Issuing options without a valid 409A valuation can lead to severe tax consequences for your employees and your company. The IRS may deem the options as having been issued at a discount, triggering immediate income tax for the employee on the difference, plus a 20% excise tax and potential interest penalties. It can also create major issues during due diligence for future fundraising or an acquisition.

Question 4

How long does the 409A process take?

Accepted Answer

With GetDynasty, the 409A valuation process is streamlined and fast. Once we receive your required information (cap table, financials, and company details), our team typically delivers the draft report within 5 business days. This allows you to move forward quickly with hiring and granting equity.

Question 5

Is my 409A valuation audit-proof?

Accepted Answer

While no valuation is technically 'audit-proof,' our 409A valuations are designed to meet the IRS 'Safe Harbor' requirements. By using an independent, qualified appraiser and following accepted valuation methodologies, the burden of proof shifts to the IRS to demonstrate that the valuation is 'grossly unreasonable.' This provides significant protection for your company and employees.

Question 6

What information do I need to provide?

Accepted Answer

To perform a 409A valuation, we generally need: (1) Your current capitalization table (cap table), (2) Recent financial statements (balance sheet and income statement), (3) Articles of Incorporation, (4) Any recent term sheets or 409A reports, and (5) A brief projection of future revenue/expenses (if available). Our process is designed to make data collection simple and efficient.

409A Valuations.
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5 Day Turnaround

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When You Need a 409A

Before issuing stock options

After raising a round

Annual refresh

Material business changes

Simple Process

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409A Valuations.Fast. Affordable. Compliant.