409A Process

Capshare 409A Process

Thanks for choosing Capshare for your 409A!  We are excited to work with you at this exciting time in your company’s history.  In this post, we’ll walk you through Capshare’s 409A process.

Capshare believes that you are more protected against the risk of an IRS audit if Capshare partners with 3rd-party independent valuation services firms.

These firms model, review, and sign your valuation–though Capshare provides software and quality control throughout the process.

Timing

You can expect to receive a full valuation within 10 business days.

You can often issue stock options based on the draft valuation.  So that means it is frequently possible to start issuing options based on our work within 5 business days.   Expedited valuations are available for an additional cost.

Please note that we cannot start working on the valuation until we have received the information we request from you.  So these turnaround times only apply once we have received the information.

Please fill out the 409A survey as soon as possible to make sure that we can hit your valuation deadlines.

Payment and Survey

Your salesperson will provide you with a link to a secure payment site in the closing e-mail she or he sends to you.

Your salesperson will also provide a link to a customized electronic survey that looks like this:

The survey will guide you through providing us with all of the information we need.  At the end of the survey, you will be able to sign the engagement letter.

Valuation Date

Selecting the valuation date is a topic of frequent confusion for 409A clients.

First, the valuation date is different than the delivery date of the valuation report.

The IRS requires that you value your company on a particular day.  Like July 3rd of this year.  That may sound strange but it is common practice for many tax valuations. It is a called a point-in-time valuation estimate.

To comply with 409A, you will need a point-in-time valuation estimate.

This means that we will need to agree on a particular date.

Why should you care?

409A valuations are generally good for 12 months after that date.   Some valuation firms try to scare you into believing that you need multiple valuations every year but that just isn’t true (except in rare cases).

So you generally want to pick a valuation date as late as you can without messing up the employees who are waiting for the 409A-approved stock grants.

Several other factors could affect the date.  If you are raising money, it’s often advantageous to get a 409A valuation before you sign the term sheet.  This can help you get the lowest strike prices that is defensible.

In general though you are fine to pick a date anytime around the time you reach out to the valuation firm.

What if you want to get a valuation report for options granted in the past.  This is definitely possible but you should call us to talk about it.

Draft Report

After 5 business days, you should receive a draft of the valuation report.  You can then review this report with your valuation provider.  Feel free to ask questions but know that we do generally try to get you the lowest defensible strike price.

Final Report

After 5 more business days, you will receive a copy of the final 409A valuation report.  Be sure to keep a copy for your records, although we keep copies as well.

Audit Review (When Needed)

If your auditor ever needs to talk with us or our partner valuation firms, we are happy to do so.  We include full audit support in our 409A valuation work.

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