When we say “backdating” what we usually mean is executing a document and then dating it with an earlier date than the actual date of execution, with the intention that it should be treated as giving rise to legal rights before the actual date.
However, at common law this was a criminal offence (going by the contradictory sounding name of uttering a false document) and in most English law based legal systems it is still an offence today, although in many cases statutory provisions have superseded the common law (for example, in the British Virgin Islands see section 242 of the Criminal Code 1997).
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.
One of the thornier issues which comes up in legal practice from time to time is the backdating of documents.
Legally speaking, this is something that you should not do – or more accurately, there will only ever rarely be occasions when this is appropriate to do.
This article first briefly describes pre-Section 409A common stock valuation practices — the time-honored appropriate discount method.It was the longstanding practice of privately held companies and their legal and accounting advisors to determine the fair market value of their common stock for purposes of setting option exercise prices by loosely estimating an appropriate discount from the price of recently issued preferred stock on the basis of the company's stage of development.This practice, previously accepted by the Internal Revenue Service (the “IRS” or the “Service”) and the Securities and Exchange Commission (the "SEC"), was abruptly ended by the initial Internal Revenue Code Section 409A guidance issued by the IRS in 2005.Larger, publicly traded companies such as Starbucks, Southwest Airlines, and Cisco now give stock options to most or all of their employees.Many non-high tech, closely held companies are joining the ranks as well.