Section 409A governs “deferred compensation” which is defined as the legally binding right to receive compensation in a future year, after it is no longer subject to a substantial risk of being forfeited by the recipient. The IRS has created a special exception from the application of Section 409A for stock options, but only if the options are (1) priced at not less than the fair market value on the date of grant and (2) do not contain “deferral” features (e.g., liquidation preferences or put/call rights above fair market value).
Glossary