Questions

Do we need to do a 409A valuation before offering equity to our first employee ?

We are going to hire our first sales rep(and that will be our first employee). We are going to offer the sales rep some equity.

3answers

Not necessarily. As long as you have the stocks to be issued.
Have a prior contract agreement between owners of what equity is available, the vesting period.
(Some do it on % base points per year, i.e. 50% in year 1 and 50% in year 2, or 1k hours worked) if they walk away in first year they take what has been accumulated.
Or is the vesting automatic? - not recommended.

LLC, only allow for equal member ownership rights, but and you all save money having bonuses rather than salaries, equity is a good way to offset that as well.

So I'm short- there are other factors to consider more than actual valuation which at the end is just a guess since you have no outside investors and large sales (I'm assuming)
Offer a %, of the business if is LLC. You could have a limited partnership LLC as well. Or if is a C or S Corp you can definitely offer shares at book value which at this point would probably be in the .00001 or less range per share.


Answered 7 years ago

An IRS Section 409A valuation is an independent appraisal of the fair market value (FMV) of a private company's common stock that determines the “strike price” for equity. If your company is planning to offer options, you'll need a 409A valuation.


Answered 4 years ago

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