Impact of founder stock sale valuations on 409A valuations
In today's tough economy, founders of small companies are figuring out a
way to get more liquidity for their stocks by partially liquidating
their holdings with existing investors. This could mean that founder's
common stocks are being bought at the latest preferred stock prices,
thereby creating implied valuations that may make the minority common
stock price jump by a degree of magnitude. Founders and employees, of
course, are alarmed by such big jumps in value and try to find ways to
minimize the valuation and tax impacts. In recent conversations with
PriceWaterHouseCoopers (PwC) audit professionals, we have come to understand certain
conforming treatments that would be in line with the spirit of the 409A
guidelines when valuing such scenarios and may help minimize such
impacts for the founders. Contact us for a more detailed analysis of
your situation and to discuss our understanding of such situations.
Bambi Francisco Roizen
