Can I use a rule of thumb to arrive at the Fair Market Value of private company Common Stock?

Prior to the adoption of IRC 409A and given the difference in the rights and preference of Preferred Stock and Common Stock, board members and advisors would recommend using a 1:10, 1:6 or 1:5 ratio between the price of the last round of financing and the upcoming Common Stock issuance.

However, since the adoption of IRC 409A in 2009, the use of rules of thumbs or board decrees will not provide a “safe harbor” to the company or the taxpayer.

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