409A Valuation
An independent appraisal of a private company's common stock fair market value, required under Section 409A of the Internal Revenue Code for the purpose of setting stock option exercise prices. Companies must obtain a 409A valuation to ensure that stock options are granted at or above fair market value, avoiding adverse tax consequences for employees. Boards rely on 409A valuations when approving equity compensation plans, and these valuations must be updated at least annually or after significant business events.
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