By Jeff Faust, CVA, Director of Valuation Services
As VC-backed companies mature, they may not be ready for an IPO or a sale, but private secondary transactions on common stock are a way to get some liquidity for the founders prior to an exit.
Any secondary transaction with the Company’s common stock should be carefully evaluated to determine the relevance and the potential impact on the common stock price for 409A Valuation purposes. The AICPA guide: Valuation of Privately-Held-Company Equity Securities Issued as Compensation establishes a clear set of rules regarding this issue. (more…)
By Jeff Faust, CVA, Director of Valuation Services
ASL Business Valuation Services
Recently, the IRS began pushing back on discounts used within estate and gift valuations, specifically the discount for lack of control (DLOC) and the discount for lack of marketability (DLOM), calling for lower discounts to be applied. Valuation discounts have always been critical in estate and gift valuations because they measure the restrictions on the ownership interest being valued. These discounts also can be used as a planning tool to help lower overall estate and gift taxes. As a result, the IRS reviews these discounts carefully and can push back on them. The DLOC is typically applied when the non-controlling interest is being valued and the DLOM is applied to account for the limited liquidity of the ownership interest. (more…)
By Jeff Faust, CVA, Director of Valuation Services
ASL Business Valuation Services
First, a little background, 409A is an IRS Code section that requires companies to grant stock options at Fair Market Value (FMV), meaning no discounts anymore. In order for a company to prove they granted stock options at FMV, they’ll need to follow the valuation rules surrounding 409A. (more…)
By Jeff Faust, CVA, Director of Valuation Services
ASL Business Valuation Services
With the signing of the Tax Cuts and Jobs Act (TCJA) in December 2017, valuation analysts have been tasked with incorporating the changes to the tax law into their analysis. Changes, such as the lowering of corporate tax rates and restrictions on interest deductibility, must be factored into valuation analysis to capture the effects of the TCJA on company value. When valuing a US company, valuation analysts must now consider the following: (more…)
By Jeff Faust, CVA, Director of Valuation Services
ASL Business Valuation Services
Company owners face many decisions when it comes time to transition responsibilities and ultimately ownership to the next generation. For those owners who wish to sell their shares gradually and transition out of their responsibilities over a period of years, an Employee Stock Ownership Plan (ESOP) might be the right fit. An ESOP is a qualified defined contribution employee benefit plan that primarily holds the employer company’s stock. An ESOP functions similarly to a stock bonus plan that provides a retirement benefit to employees in the form of the company’s stock. As a “qualified” plan, an ESOP is established by the employer for the benefit of the company’s employees and qualifies for certain tax benefits, both for the company and the selling owners. (more…)
By Jeff Faust, CVA, Director of Valuation Services
ASL Business Valuation Services
Earlier this year we wrote about the looming regulations affecting valuation discounts under the IRS Proposed Section 2704 Regulations. The proposed regulations would have curbed valuation discounts, resulting in increased estate taxes on the deaths of owners of family businesses.
The Treasury, after extensive deliberation in furtherance of the policies stated in Executive Order 13789, decided to withdraw these regulations entirely for the following reasons: (more…)
By Jeff Faust, Director of Valuation Services
ASL Business Valuation Services
The recent reports by PitchBook and the Silicon Valley Business Journal indicate that 2017 will be a healthy year for Venture Capitalists. Experts believe that the Venture Capital (VC) industry is coming back to “normal” levels after the boom of activity in 2015.
Interestingly, there was a lot of talk recently about the VC funding cooldown which raised concern about the Series A funding crunch. The recently published 1Q 2017 PitchBook report confirms that angel and seed financing continued to decline in 2017, and it is getting more difficult to secure Series A financing. In fact, first-financing activities have been falling since the middle of 2015. (more…)
By Jeff Faust, Director of Valuation Services
ASL Business Valuation Services
Late last year, we wrote a few times about the looming regulations affecting valuation discounts under the IRS Proposed Section 2704 Regulations.
The comment period ended on November 1st and the public hearing in Washington D.C. was held on December 1st to a capacity crowd. Here are some quick highlights from the hearing that were published by BV Wire: (more…)
By Jeff Faust, Director of Valuation Services
ASL Valuation Services
Earlier this year, we wrote about the looming regulations affecting valuation discounts. Now the IRS’ Proposed Section 2704 Regulations have been officially presented and they intend to eliminate discounts currently available for gifts between family members inside family controlled entities. Despite court cases and revenue rulings to the contrary, the IRS’ proposals assume that families always work together and do not keep the restrictions in place that are the basis for the minority interest discount. (more…)
