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Stock As Deferred Compensation: Regulatory compliance

The first in a series of three articles on the complexity of 409a compliance by leading valuation firm Arcstone Partners

By Alex Hodgkin

Offering equity participation as a form of compensation is nothing new: companies have long enticed potential employees and partners with a piece of the company as a portion of their overall compensation package. That’s certainly true in this era of entrepreneurship. However, with changes made to the IRS code over the last few years, both public and privately held companies have struggled with the complexity of incorporating equity participation into their compensation plans for employees. Today, the term “409A,” which refers to the section of the IRS code that governs equity participation, is very much a part of the everyday business lexicon of most compensation professionals. It is a complex issue: debate rages and confusion abounds about just how companies achieve compliance with 409A when developing their compensation policies and practices.

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