We often talk about simplifying equity management at Capdesk, but the truth is, it’s not always that straightforward. There are heaps of technical terms, acronyms and buzzwords associated with the equity space, and more are cropping up each year. What’s more, every subdivision seems to come with its own dialect to decode.
Valuations are no different. That’s why we’ve pulled together a special edition of our equity glossary, focusing exclusively on the terms you need to know to make sense of company valuations.
Looking for a more expansive list? Check out the original Capdesk Equity Glossary.
409A valuation |
An independent assessment of the fair market value of a company’s ordinary shares, named after section 409A of the IRS Internal Revenue Code (IRC). |
Actual market value |
A company’s share price, determined by valuing share options in light of certain restrictions found in shares issued to minority shareholders like employees. Restrictions include veto on transfers, risk of forfeiture and pre-emption provisions, among others. |
CSOP |
A government-approved share scheme in the UK, in which options are available for exercise three years after the grant date and capital gains tax applies at the point of sale. Income tax and national insurance contributions do not apply. |
EMI |
The UK’s most popular employee share scheme. It provides a tax-efficient means of rewarding, incentivising and retaining qualifying employees. Among other benefits, participants pay no tax upon exercising their options, and only 10% capital gains tax on selling their shares. |
ESOP |
A government-approved share scheme for awarding share options to employees. Entitles the company and employees participating in the scheme various tax benefits. |
Fair market value |
The accepted current value of a private company’s common shares, as determined by a 409A valuation. |
HMRC |
Her Majesty’s Revenue and Customs, commonly abbreviated to HMRC. The UK government department responsible for collecting taxes from individuals and businesses. EMI and ERS annual returns are filed with HMRC. |
HMRC valuation |
An umbrella term for a company valuation approved by HMRC, for the purpose of issuing option grants under an EMI, CSOP or SIP scheme in the UK. It determines the lowest share price at which a company can issue options to its employees. |
Internal Revenue Service (IRS) |
The US federal government’s revenue service, responsible for collecting US federal taxes and implementing the Internal Revenue Code (IRC). |
Options |
A type of equity award which gives the optionholder the right to buy a certain number of shares at a fixed price in the future. |
Pre-clearance |
A term used to signify a company valuation approved by HMRC. While it’s not essential to secure HMRC pre-clearance before issuing option grants, doing so benefits a company and its employees. |
Safe harbor |
A legal provision which means 409A valuations performed by an independent provider are presumed to be reasonable. |
Shares and assets valuations (SAV) |
A specialist team within HMRC that manages requests for share scheme valuations, and ensures share options are issued to employees at a fair price. |
Significant event |
An event which affects a company’s value, and therefore its share price. Significant events call for a new company valuation to be performed. Known as a material event in the US. |
Unrestricted market value |
A company’s share price determined by valuing all shares as if they have no restrictions, presuming all shares can be sold equally easily. |
VAL231 |
The form submitted to HMRC in order to get an EMI valuation. Must include a proposed unrestricted market value and actual market value. |
Fast, accurate valuations, whenever you need them.
Discover 409A and HMRC valuations from Capdesk:
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