How to Value Stock Options in a Private Company

April 18, 2013 By

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…]

Filed Under: Options, Securities, Tax Tagged With: , , ,

Should I Buy Stock with IP?

April 11, 2013 By

When founders of a company buy their initial shares of stock in a newly formed corporation, sometimes they wish to do so by exchanging intellectual property (IP) such as a business plan or a website, or other types of property (the below applies to many types of property, not just intellectual property). Purchasing stock with property raises a number of issues and risks that need to be addressed. This post is intended to help founders evaluate the issues when they buy stock with IP. [Read more…]

Filed Under: Business Formation, Securities Tagged With: , , ,