101 (or 409A)

Definition

Section 409A of the tax code that requires startup stock options to be valued at fair market value when granted; 101 refers to California corporate code. It's basically the IRS saying 'no, you can't just give away equity tax-free.'

Example Usage

We need to do a 409A valuation on our common stock, which will probably kill our option grants because we're overvalued.

Origin

Named after IRS Section 409A; became critical in tech startups after 2004

Fun Fact

409A valuations are expensive ($3-5K typically) and if done incorrectly, can trigger massive tax bills for employees.

Source: Tax Code / Tech Compensation

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