Many founders have questions about how to value stock options and around Section 409A. The following is a primer to help them.

Why is it important to accurately value stock options?

Under Section 409A of the Internal Revenue Code, private companies (such as tech startups) must determine the fair market value of their stock when they set stock option exercise prices (or “strike prices”) in order to avoid early income recognition by the optionee and the possibility of an additional 20% tax prior to option exercise.  Since most companies want to avoid these tax problems for their option holders, it is important to value the options correctly. [Read more…]