409A
409A is the section of the Internal Revenue Code that regulates the tax treatment of “non-qualified deferred compensation.”
In order to avoid extremely adverse tax consequences, startups comply with Section 409A by issuing stock options at least at fair market value.
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Ryan Roberts is a startup lawyer and represents technology companies through all phases of the startup process, including incorporation, seed & venture financings, and exit transactions. Click here to learn more about his practice.
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The cross-purchase is one of the two main ways ("stock redemption" the other) a buy-sell agreement can be structured to provide your company with a succession plan.
Under a cross-purchase plan, each company shareholder agrees in advance to buy the shares of the withdrawing shareholder while the withdrawing shareholder agrees to sell his or her shares to the remaining shareholders. The corporation is not involved in the transaction.
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