Do friends and family have to be accredited investors?

Under Rule 506, a startup may include up to 35 non-accredited investors in its friends and family round. Under Rule 504, investors do not need to be accredited and there is no information provision requirement.

Do LLC members need to be accredited investors?

Limited Liability Companies (LLCs) As such, the management and owners of an LLC can consist or be composed entirely of non-accredited investors, and the LLC can still be considered an accredited investor if it’s registered as the holder of the shares in the investment it is making.

Can you raise money from investors who are not accredited investors?

Rule 504 permits fundraising from non-accredited investors without imposing substantial information disclosure requirements, however, a 504 offering does not necessarily satisfy state securities laws. The investor enjoys a net worth of at least $1,000,000 not including the value of the primary residence.

Can a family trust be an accredited investor?

The securities laws allow irrevocable trusts to be treated as accredited investors if they meet certain requirements. That can help you or even your entire family gain exposure to investment-quality real estate.

How can an LLC be accredited investor?

LLC may qualify as an accredited investor, if capitalized by $5 million in assets and not formed solely to function as an accredited investor. An LLC which functions as a director, executive officer, or general partner for a defined accredited investor may qualify as an accredited investor.

How much money can you raise from non-accredited investors?

You can raise up to $5,000,000 from non-accredited investors, but only over the course of your first 12 months of fundraising. You can’t advertise for non-accredited funding, so while it might be a nice idea to throw a pitch event, you can only invite people in your network. To be safe, you should hire a lawyer.

What is a Rule 504 offering?

Rule 504 of Regulation D exempts from registration the offer and sale of up to $10 million of securities in a 12-month period. In addition, a company must comply with state securities laws and regulations in the states in which securities are offered or sold.

How many non-accredited investors can a company receive?

While the company can receive investments from an unlimited number of accredited investors, according to Regulation D, it is limited to no more than 35 non-accredited investors providing funding. Due to Regulation D, more than 80 percent of non-accredited American investors are shut out from investment opportunities.

Which states allow non-accredited investors to invest in startups?

Few states have made it possible for non-accredited investors to attain equity in startups. These states are: Alabama. Colorado. Georgia. Idaho. Indiana. Kansas. Maine. Maryland. Michigan. Tennessee.

Do you have to disclose non-accredited investors to the SEC?

The disclosure requirements ease considerably if your financing is for less than $1,000,000. In that case, there is a separate SEC rule that says you can include non-accredited investors without requiring full, registered offering-style disclosure.

Do I need to register my LLC interests with the SEC?

That is pretty much it: if you have a security, and please refer back to our article on whether a LLC interest may be considered a security, then you either have to register with the SEC or you must meet an exemption. If you fall within an exemption to the securities laws, you do not need to register the securities.