Private Company Stock Options: Determining Fair Market Value in ...

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Valuation Methods • For options granted after December 31, 2004, FMV can be determined using any reasonable valuation method under Notice 2005-1 or using the reasonable application of a reasonable valuation method under the proposed regulations • FMV means a value determined by the reasonable application of a reasonable method that takes into account all relevant circumstances 10
Valuation Methods • Factors to consider: 1. The value of tangible and intangible assets; 2. The present value of future cash flows; 3. The fair market value of stock of companies engaged in substantially similar trades or businesses that can be determined by objective means; 4. Control premiums or discounts for lack of marketability; and 5. Whether the valuation method is used for other purposes that have a material economic effect on the company, its stockholders or creditors. 11
Page 1 and 2: Private Company Stock Options: Dete
Page 3 and 4: The Law • American Jobs Creation
Page 5 and 6: The Law • 409A penalizes: - Disco
Page 7 and 8: The Law • Penalty for non-complia
Page 9: Valuation Methods • To qualify fo
Page 13 and 14: Valuation “Quasi” Safe Harbor
Page 15 and 16: Valuation “Quasi” Safe Harbor
Page 17 and 18: Case Study • Emerging technology
Page 19 and 20: Scenario 1 • IPO likely in 2006 o
Page 21 and 22: Scenario 3 • Neither IPO nor sale
Page 23 and 24: Modifications and Extensions • Mo
Page 25 and 26: Modifications and Extensions • Ex
Page 27 and 28: Remedial Measures • Alternative 1
Page 29 and 30: Accounting Considerations • AICPA
Page 31 and 32: GOODWIN PROCTER LLP Boston Exchange

Private Company Stock Options: Determining Fair Market Value in ...

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