Consequences of options backdating

However in practice, for both good reasons and bad, backdating of documents does occur.

The risks of backdating (or misdating) documents accidentally is multiplied in modern commercial transactions by the practice of getting all the documents signed before “completion” and then rushing around dating them afterwards.

Note that this article is not intended to cover all of the issues under Section 409A.The sole focus of this article is the effect of Section 409A on the valuation of the common stock of privately held companies for purposes of setting nonqualified stock option (“NQO”) exercise prices, so that such options are exempt from the application of Section 409A, and — for reasons we explain below – also for purposes of setting the exercise prices of incentive stock options ("ISOs") although ISOs are not subject to Section 409A.There are a number of significant issues relating to the effect of Section 409A on option terms and on nonqualified deferred compensation more generally that are beyond the scope of this article.My father (who was also a lawyer) used to love telling a story about how he was able to triumphantly prove to the court that a yacht charter was backdated by showing the stamps which had been used to pay the nominal 15¢ stamp duty were in fact first issued by the post office some four months after the date stated on the face of the document.However, he rarely adds that he actually ended up losing that trial, which brings us to my second point – even though the law generally deprecates the backdating of documents, the legal consequences of backdating are highly variable.

Leave a Reply