Valuing Employee Stock Options for Closely Held Companies

Sponsored By Business Valuation Resources

Topics:

Banking & Capital Markets > Equity

Employee Benefits & Human Capital > Compensation

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Abstract:

While the valuation of employee stock options (ESOs) has been an issue in numerous tax cases and matrimonial disputes, the level of sophistication and accuracy of the models used by appraisers has not historically received close scrutiny. However, with the release of SFAS No. 123R by the FASB and regulations pertaining to IRC Section 409A by the U.S. Treasury, the bar has clearly been raised. The goal of this article is to alert business appraisers to common misconceptions related to the valuation of employee stock options. Additionally, we demonstrate that the incorrect application of popular option valuation models can result in significant errors in the valuation of not only ESOs, but the common stock of closely held companies which grant ESOs.

DETAILS

Sponsored by: Business Valuation Resources

Released: August 07, 2008

Length: 6 pages

Format: PDF (66 kb)

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