If you already know you need to file an 83b election then the first question you probably have is how do I determine the fair market value of the “property” for the election?
There are a few ways to go about determining the fair market value of the shares in your 83b election. If your company is early days, i.e. pre-revenue, pre-investment (arm’s length or otherwise), pre-IP, and has minimal assets on the books, then you might be able to use the par value of the shares for the fair market value (verify this with your lawyer/accountant). However, if your company does not fit these criteria then you will need to calculate the fair market value using the accepted AICPA guidelines.
The three accepted approaches for determining the fair market value of your company are the Asset Approach, the Income Approach, and the Market Approach. After using the appropriate approach to determine the fair market value of your company you will then need to determine the value of your relevant share class. If your company only has one share class of shares then you can divide the enterprise value by the number of common shares and apply any relevant discounts (a discount for lack of marketability for example) to determine the value of your individual shares. If your company has more than one share class then you may need to leverage the option pricing model or an alternative method to determine the value of your individual shares.
Do you need a professional determination of your company’s fair market value? If so please <a href=”https://simple409.wpengine.com/contact-us/”>contact us</a> for a free consultation.