A 409A Valuation is used to determine fair market value of a startup’s options. Section 409A of the Internal Revenue Code regulates the treatment of nonqualified deferred compensation to service providers for federal income tax purposes. A company must issue stock options at fair market value in order to legitimately benefit from this section of the code and will typically hire a third-party agency to issue a report determining exactly what that is. The report is commonly known as a 409A valuation.
We have to get our 409A valuation completed before we can issue the next round of options.