What is 409A Valuation?
The independent appraisal that sets a defensible strike price for the options you grant employees.
409A Valuation: definition
When a private company grants stock options, the IRS requires the strike price to be at least the fair market value of the common stock on the grant date. Because private stock has no public price, companies obtain a 409A valuation - an independent appraisal - to establish that FMV. A valid 409A gives "safe harbor" protection; granting below FMV can trigger severe tax penalties for employees.
- Sets the minimum strike price for option grants
- Must be refreshed at least every 12 months or after a material event (like a financing)
- Independent appraisal gives IRS "safe harbor" against challenge
- Distinct from the preferred (venture) valuation - common is usually lower
How Fintra handles it
Fintra’s equity module stores your current 409A valuation and applies it automatically to new option grants, so every grant is priced at or above FMV. When a new 409A lands (after a raise or annually), Fintra updates the strike price for subsequent grants and flags grants that need repricing - keeping the cap table and the ASC 718 stock-comp expense consistent with the appraisal.
Worked example
Frequently asked questions
Why do you need a 409A valuation?
To set a defensible fair-market strike price for stock options and qualify for IRS safe harbor. Without a valid 409A, granting options risks penalties: options priced below FMV can be treated as deferred compensation with immediate taxation plus a 20% penalty for the option holder.
How often do you need a new 409A?
At least every 12 months, and sooner after a material event such as a priced financing round or a major change in the business. An expired or stale 409A loses its safe-harbor protection. Fintra flags when your valuation is due for a refresh.
Why is the 409A price lower than the preferred price?
Preferred stock carries liquidation preferences and other rights that common lacks, so common is worth less. The 409A appraises common specifically, which is why employee strike prices are typically well below the per-share price investors paid.
How does Fintra use the 409A?
Fintra stores your current 409A and enforces it as the FMV floor on new option grants, updates strike prices when a new valuation lands, and keeps the resulting ASC 718 stock-comp expense consistent - so grants stay compliant and the books tie to the cap table.
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