Fair Market Value
Definition
The price at which a company's shares would change hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts and neither being under compulsion to complete the transaction. Fair market value is the standard used for equity compensation grant pricing, tax purposes, and certain regulatory requirements. It is distinct from transaction value, which reflects the actual terms agreed between specific parties, and from investment value, which reflects a specific investor's strategic assessment.
Common Misapplication
The most common misapplication is using the transaction valuation from a funding round as the fair market value for option grant pricing without a separate fair market value determination. A funding round valuation may reflect investment value specific to that investor rather than fair market value applicable to all participants.
FFI Standard Reference
This term is defined and applied in Book 4, Section 4.1: The Valuation Methodology Standard.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Fair Market Value. https://ffistandard.org/glossary/fair-market-value/. 2026.