Accredited investors: Do you need them?
A look at how federal law defines the most desirable financial contributors.
Ellison Long, Atlanta, Ga.
Does an individual employee who wants to invest in our soon-to-be-established LLC need to be an “accredited investor"?
By Shara Rutberg, Fortune Small Business contributor
Dear Ellison: The short answer is no: An employee does not have to be an accredited investor to be part of an LLC.
"Accredited investor" is a federal securities-law term.
“Without getting technical, accredited investors are company insiders and rich people,” says David Sokolow a senior lecturer at the University of Texas at Austin School of Law whose areas of expertise include corporations and contracts.
“Accredited investors are considered to be better able to bear or assess the risk associated with investments, because they are generally either wealthier investors or individuals with access to more information about the company," says Esther Barron, assistant director of the Small Business Opportunity Center and clinical professor at the Northwestern University School of Law. "Sometimes the restrictions for raising money may be less burdensome when you’re dealing with them."
The exact regulations vary; when determining whether an employee must be an accredited investor to invest in your company without violating any laws, Barron says the things to consider include your state’s securities laws, federal securities laws, how much money you’re raising, how much money you’ve already raised, how many investors you are targeting, the documents you’re providing to your investors, and what type of filings you’ve completed.
Disclaimer: This column provides general information only and is not intended to replace the services or legal advice of an attorney or CPA. Always consult a lawyer or accountant regarding specific legal or financial issues.
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From Brian, Pittsburgh, PA I was pulled in to an investment and taken in NC. I need to find legal help. Any thoughts?
Thanks much in advance.
Bryan
From Julia eCompetitors, Kiev, Ukraine, www.ecompetitors.com My advice to you is to fined accredited investors. This type of investors has a net worth of $1,000,000 or more. So, accredited investors are reach people that willing invest in company great sum of money.
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The best place to find this answer is to consult with an Attorney. It will be the best money you ever spent. The reason why is because there are so many variables involved and you do not need to be sued because of lack of disclosures.