How is the Fair Market Value determined for a private company?

October 26, 1999

From:   James

Regarding Non-Qual. Stock Options: Right now I have NQSO’s in a private company which plans to go public w/in 2 years. If I exercise these options, I understand the spread between the option price and the “Fair Market Value” will be taxed as ordinary income. My question is: how is the “Fair Market Value” determined for a company which is not public, yet? Can the company arbitrarily set a price we have to live with? Thanks for the feedback. Your website has a lot of good information.



Date:   Tue, 26 Oct 1999

Hello James,

When a company isn’t public, yet, an employee has little choice but to rely on the figures give to him or her by the company as the fair market value. To have an appraisal done to determine yourself if it is prohibitively expensive would cost $15,000 to $20,000, and requires extensive time and cooperation by the company’s accounting personnel and accounting firm.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report <“Executive Tax and Financial Planning For Non-Qualified Stock Options”.

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