409A VALUATIONS

The business valuation provided to satisfy the IRC 409A provisions is viewed by many recipients as a fungible product. That is to say that too many valuators treat the bidding process as a commodity. Thus, the prices for services have fallen to levels where many of the more professional firms refuse to play.

The question is really: Are all 409A studies the same, like a commodity? The Mentor Group carefully analyzes the various rounds of financing, to ensure that the appropriate terms and participations of various classes of shares (preferred and common) are considered within the waterfall of attributes. Part of our mission is to enlighten or educate the potential client as to each variable that impacts the different analyses and value.

Along with 409A valuations, some stock recipients or vested persons may also elect Internal Revenue Code Section 83(b). This part of the tax code allows the holder to declare a value and be taxed at that time. Presumably, the stock value is very low and the tax minimal. Once this tax is paid, any appreciation in share value is free of future taxation.