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ARTICLE · 16 APRIL 2025

409A Valuations: Understanding The Impact On Stock-Based Compensation

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An Internal Revenue Code (IRC) 409A valuation is an independent appraisal of a private company's stock's fair market value (FMV).

United StatesAccounting and Audit
Marcum  
Marcum  

An Internal Revenue Code (IRC) 409A valuation is an independent appraisal of a private company's stock's fair market value (FMV). Private companies often obtain these reports to gather the information needed to ensure they grant stock options that have a strike price equal to the fair market value of the common stock at the time of the grant. The board of directors is typically tasked with determining the fair market value of the company's common stock, and thus the exercise price, based on all the facts available at the time the awards are granted. The most recently available 409A valuation report often carries the most weight for making this determination. Private companies that grant stock options and other equity awards to employees typically get a 409A valuation:

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