Unissued Startup Equity: Navigating 409A, Deferred Compensation Issues, Tax Issues, and Cleanup Measures

Unissued startup equity can present several pitfalls for companies during fundraising, employee recruitment and retention, and potential exit events. Employee benefits and tax counsel must be aware of complexities stemming from certain tax rules, valuation issues, and other key items impacting the allocation of shares and compensation arrangements.

Unissued equity are shares that a startup is legally permitted to issue but hasn't yet distributed to shareholders or employees. These shares are typically used for future capital raising, employee incentive programs, or mergers and acquisitions. However, in the context of equity compensation and the tax regulations governing it, utilizing unissued equity for stock option grants must be carefully structured. If an equity award violates Section 409A, the award may be immediately taxable.

Listen as our panel discusses key issues with unissued startup equity and implications stemming from Section 409A, other tax rules, and deferred compensation arrangements.

I. Utilizing unissued startup equity

II. Navigating Section 409A

III. Deferred compensation arrangements

IV. Best practices to mitigate tax risks

The panel will discuss these and other key issues:

• What factors must be considered when allocating shares?
• What are the potential tax implications under Section 409A?
• What is the impact on deferred compensation arrangements?
• What are the best practices in utilizing unissued equity to minimize adverse tax consequences?

Learning Objectives

After completing this course, you will be able to:

• Understand the tax implications of deferred compensation under IRC Section 409A
• Identify key issues stemming from tax rules under Section 409A(b)
• Ascertain tax planning strategies to minimize tax liability under IRC Section 409A
• Recognize key tax issues in 409A deferred compensation design and implementation

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business, legal or public firm experience at mid-level within the organization, providing tax planning and preparing complex tax forms and schedules for partnerships and LLCs; supervisory authority over other preparers/accountants. Knowledge and understanding of partnership and LLC structure, equity compensation in these entities, Section 409A, and 83(b) elections; familiarity with equity compensation alternatives, capital interest, profit interest and equity interest for pass-through entity employees, members and partners.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).