Spring 2016 issue of Horizons

LIFE SCIENCES & TECHNOLOGY

Valuation Considerations The value of the equity instruments being issued will have tax and financial reporting implications. Therefore, valuation is often a key consideration, especially at the time of the equity compensation grant. For private companies, valuations can be challenging. It is critical to get it right because it impacts tax liability at the time of the grant and in the future, and is a component of financial reporting. If an issuer does not sufficiently support an assumed value, there can be significant consequences. Ownership By using equity compensation, a company is potentially diluting ownership interests. Consider how much equity should be part of an equity compensation plan and how it will impact the ability to raise capital in the future. Also consider potential voting and minority shareholder issues. Documentation Finally, follow corporate formalities when implementing and administering an equity compensation plan. The plan should be documented with board approval before granting equity or administering the plan.

Grant agreements should be executed between the issuer and recipient with each equity compensation grant. When necessary, 83(b) elections should be documented and 409(a) valuations obtained for tax compliance. Equity compensation plans can be a great tool for attracting, retaining and incentivizing talent. However, they also come with risks that if not properly considered and mitigated, can lead to major headaches for both the issuer and recipient. Think ahead. Approach an equity compensation plan with forethought, considering how it impacts your company and employees now and in the future. Get help. Seek professional legal, tax and valuation help when necessary. Document, document, document. Follow corporate formalities, creating and maintaining proper documentation. Risks can be mitigated and the value protected by keeping these points in mind:

RubinBrown’s Life Sciences & Technology Services Group RubinBrown provides specialized accounting, tax and business advisory services to life sciences and technology companies around the country.

Jason Mannello, CFA, CLP — St. Louis Manager-In-Charge Life Sciences & Technology Services Group 314.290.3216 jason.mannello@rubinbrown.com

Chester Moyer, CPA — Kansas City Partner Life Sciences & Technology Services Group 913.499.4445 chester.moyer@rubinbrown.com

Felicia Malter, CPA, CGMA — St. Louis Partner & Vice Chair Life Sciences & Technology Services Group 314.290.3249 felicia.malter@rubinbrown.com

Rodney Rice, CPA, CGMA — Denver Partner Life Sciences & Technology Services Group 303.952.1233 rodney.rice@rubinbrown.com

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