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Fair market value (FMV) refers to the present value of a company’s common shares. With public companies, you can look up the FMV by checking the current stock price. But private companies may need to get a third-party appraisal and 409A valuation to determine their FMV.
The FMV of each of your company’s common stock is important for founders, investors, and employees who receive stock or options.
You might get your first valuation to determine the FMV of your common stock before you issue common stock options. Then, you’ll need a new 409A valuation after material events, such as a funding round or acquisition, and no less often than once every 12 months. Hiring a qualified third-party appraiser to determine your FMV value can be important because the IRS can reject a grossly unreasonable valuation.
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