Qualified Small Business Stock (QSBS)

What’s new

Companies using Carta for 409A will now be additionally assessed for qualified small business eligibility at no extra cost to the company.

Certificates issued by a qualified small business as determined by Carta will have a "QSBS" tag in the product to indicate that the shares represent Qualified Small Business Stock (QSBS). The goal of these tags is help stakeholders make more informed selling decisions.

The IRC’s definition of a qualified small business is restrictive yet vague and open for interpretation at the edges, so potential holders of QSBS should consult their tax advisor before making decisions to sell and claiming the QSBS tax benefit.

How it works

Based on company-provided information during the valuations process, Carta will assess the following criteria for qualified small business eligibility:

  • Company's gross assets are $50M USD or less
  • Company is an active business
  • Company is a C-corp
  • Company does not operate in excluded industries

If a company is identified as a qualified small business, a new badge will appear in the 409A dashboard:

If a stakeholder receives a certificate from a qualified small business but hasn't yet met the 5 year holding period for QSBS, they'll see a "QSBS eligible" tag in their portfolio:

Drilling into the security, the stakeholder will see some additional information about the QSBS status of the certificate:

Stakeholders who have held shares issued by a qualified small business for 5 years will see a "QSBS" tag in their portfolio instead:

Additional Resources

For detailed information about QSBS in Carta, please refer to our QSBS support article.

Who this affects

Companies using Carta for 409A and their stakeholders.

Timing

  • Available now to 50 randomly selected 409A customers
  • General availability for all 409A customers coming in two weeks

Material event making your 409a stale?

What’s coming: Let your employees know your 409a is out of date and their taxes may be impacted if exercising.

Who this affects: 

  • Users: Equity administrators and option holders
  • Packages: Starter, Growth, Scale, and IPO-Ready will receive this functionality.  Any customer with 409a in their subscription.

What’s better: 

Proactive, in-app communication: When enabling this functionality, all option holders, upon exercising, are shown a disclaimer that the FMV is stale and this could impact their taxes. See the full disclaimer below in “Option Holder view”.

Equity Administrator view:

Option Holder view:

Timing: Rolling out to all 409a customers on September 30th.

Announcing (new and improved) Release Notes

Over the last few months, we’ve been listening to your feedback on our changelog and identified usability and customization as two areas for improvement. Today, we are announcing our new and improved Release Notes in order to provide you with up-to-date information and news on Carta product changes. 


Key features of our Release Notes include:

Filter by label

You can now filter out notes to only include the ones you care about most. You will be able to filter by Carta product area (Corporations, Investor Services, Platform, and CartaX), customer type (Employee, Equity Administrator, Board Member, etc. ), or release stage (General Audience, Preview, etc.)

You can filter by label on the right hand side of the screen by selecting the label you’d like to see notes on.




Subscribe for recurring product updates

Curious to know about all the great things we’re releasing on a regular basis? Subscribe to our Release Notes. You will get an email to your inbox whenever we post a new update. You can find the subscribe button at the top of the Release Notes page.



PWERM Valuations, In-app

We’ve released a new feature that helps our staff value late stage private companies. The feature allows staff to conduct a “PWERM” valuation in-app, eliminating the need for them to rely on excel spreadsheets and saving them time on your 409A or ASC 820 valuation.

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PWERM stands for Probability Weighted Expected Return Method. This methodology is often relied upon in the valuation community when there is a possibility of several future outcomes for the Company being valued. For example, Airbnb has said its resuming plans to IPO. However, real world events could come up, such as a global pandemic, that could stall these plans. Due to this uncertainty, a PWERM valuation methodology could better simulate real world outcomes where companies could either continue business as usual or could reach an exit event.