Thursday, January 28, 2010
Founder Stock Sale and 409A valuation
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 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.