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Dear Subscriber,
Welcome to the re-launch of our business valuation
newsletter. For owners of privately held businesses
and their advisers, this is an exciting and challenging
time. The value return on effective business strategic
planning has never been higher; and the penalties for
failing to plan effectively are substantial. We
will contribute our thoughts on business exit planning
and valuation issues on a regular basis. Plus we will
keep you up to date
on Axiom Valuation's activities. We appreciate your
feedback on our newsletter and website.
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Valuation Videos and Podcasts
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Multi-media Sources of Valuation Information
We are adding additional media options for learning
about valuation. Check our website for podcasts that
you can play on your computer or you can download to
a media player. The first podcast is on the new 409A
valuation requirement for stock options and other
deferred compensation vehicles.
Be sure to
check out our valuation video as well.
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New Guide to Private Firm Valuation
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Fabozzi's Handbook of Finance (Wiley, forthcoming)
Stan Feldman, Axiom Valuation's chairman, has
contributed a chapter to the forthcoming Fabozzi
Handbook of Finance. A pre-publication PDF is
available by request at our web site. Click on the link
below to request a copy.
This chapter is essential reading for business
owners, CFOs, CPAs, and other professional
advisers on the current valuation standards for private
firms.
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New Valuation Requirement for Companies with Stock Options
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Section 409A Requires FMV for NonQualified Stock Options
Effective January 1, 2006, private companies that
issue non-qualified stock options must grant the
options at or above the fair market value of the
underlying common stock to meet the requirements
of IRS Section 409A. There are substantial tax
penalties to stock option recipients, if the IRS
successfully concludes that the stock options were
granted at below fair market value.
While this change affects all private firms issuing non-
qualified stock options or other non-qualified deferred
compensation, the biggest impact is on early stage
companies, e.g. companies that do not yet have
revenue, or companies with limited revenue but
substantial expenses being applied to new product or
market development.
Early stage companies often rely the most on using
non-qualified stock options as a key compensation
incentive for executives and other employees. Prior
to Section 409A, the board of directors of early
stage companies would set the grant price for
common stock options, and it would be presumed to
be reasonable. With the advent of Section 409A, the
burden of proof of fair market value has been shifted
to the board.
Early stage companies intending to issue non-
qualified stock options in 2006 must now decide how
best to meet these new requirements to establish a
fair market value option grant price. The most certain
route to Section 409A compliance is to retain an
independent valuation firm.
Axiom Valuation is the
right choice to conduct these valuations. Contact us
for a complimentary consultation.
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