What is the primary aim of a 409A valuation?

  • Finance

The primary aim of a 409A valuation is to determine the fair market value of a private company’s common stock in compliance with Section 409A of the Internal Revenue Code. This ensures stock options and other equity awards are issued at or above fair market value, preventing adverse tax consequences. A properly prepared valuation provides safe harbor protection, reduces IRS audit risk, and supports compliant equity compensation practices. It also helps companies set defensible strike prices and maintain trust with employees, investors, and auditors throughout growth and fundraising stages?

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.