when I joined this startup, I was told its stock was priced X$, now I’ve excercised my vested stock options and asked about the latest stock value for taxing purpose, they said it’s 0.2X$ per share. I am wondering if this is a common practice to lower the stock value for taxes? PS: the company is doing well in terms of products and customers and we are about to raise the next round of funding. I have ISUs.
No, it’s not common practice to “lower for tax purposes.” It means the 409a value of your per share ownership is 20% of the previous value. If you exercised at x, and it’s now valued at .2x, then you are currently at a loss. The 409a value will converge to the market price as you get closer to a liquidity event. But as it stands, it likely means the per share value has gone down. Note, the previous valuation should also have been your 409a value, and thus also a reduced valued from your preferred shares.
OP - sit down with someone on your finance team to get more details. I take “priced at C$” to mean the preferred price in a funding round. The 409a is the price you referred to “for taxation purposes”. The second number is usually lower than the first, but neither should really drop if the business is doing well. Confirm those numbers.
you want the tax value to be lower. it’s better for your taxes. the only time the stock value matters is if it goes public.
From a taxation point of view yes, but wanted to make sure this valuation is only for tax purposes!