Consequences of backdating stock options datingsitevergelijken com
In contrast to past practice, the Section 409A regulations (the final version of which was issued by the IRS in 2007) contained detailed guidelines for determining the fair market value of the common stock of a privately held company by requiring a “reasonable application of a reasonable valuation method”, including a few presumptively reasonable valuation methods or "Safe Harbors." These rules have reshaped private company common stock valuation and option pricing practices.This article first briefly describes pre-Section 409A common stock valuation practices — the time-honored appropriate discount method.Backdating is dating any document by a date earlier than the one on which the document was originally drawn up.Under most circumstances, backdating is seen as fraudulent and illegal, although there are some situations in which backdating can be used in a legal and beneficial way, such as backdating a claim for a past period.Under Section 409A, unless certain requirements are satisfied, amounts deferred under a nonqualified deferred compensation plan (as defined in the regulations) currently are includible in gross income unless such amounts are subject to a substantial risk of forfeiture.In addition, such deferred amounts are subject to an additional 20 percent federal income tax, interest, and penalties.Finally, it describes the best practices we have seen evolve thus far.
Section 409A was added to the Internal Revenue Code in October 2004 by the American Jobs Creation Act.
It’s not unusual for parties to a contract to want the written agreement to cover a period before it’s actually signed.
There are any number of contexts where this comes up — some legitimate and others not exactly aboveboard — but the logistics of negotiating and signing contracts are such that the issue is unavoidable.
Stock option backdating has erupted into a major corporate scandal, involving potentially hundreds of publicly-held companies, and may even ensnare Apple's icon, Steve Jobs.
While the focus of the Securities and Exchange Commission ("SEC") centers on improper accounting practices and disclosures, thereby violating securities laws, a major yet little explored consequence to the scandal involves potentially onerous taxes on those who received these options.