Section 409A Valuation

Section 409A Valuation refers to the process by which a qualified independent third-party valuation firm determines whether stock options are exempt from Section 409A. To avoid adverse penalties under Section 409A, the exercise price per share of stock options must be equal to or greater than the fair market value of the company’s common stock as of the date of grant, as determined by the company’s board of directors. For a company to use a 409A valuation, it must be less than 12 months old and reflect all material information known at the time.