Accredited investors
Do you need an ? This is a complex question. The answer really depends on the facts and circumstances. For example, the information below assumes that the company is privately held and does not otherwise wish to engage in a public offering like an IPO. So you need to get good legal advice to determine the best answer for you.
Technically it is not always required that all of your investors be “accredited investors.” However, whether legally required or not, it is almost always the case that it makes good business sense for private companies to only raise money from “accredited investor.”
The term “accredited investor” is defined by rules of the SEC. An individual can be an “accredited investor” if it meets certain income or net worth thresholds. Companies, partnerships and other entities can also qualify as “accredited investors” if they satisfy the SEC’s rules.
While the SEC’s rules relating to fundraising are somewhat complicated, raising money only from “accredited investors” has a number of significant advantages that will save you time, money and a lot of potential headaches now and in the future. For example, raising money from unaccredited investors would generally require you to prepare a lengthy, technical and detailed disclosure document. Complying with those disclosure rules can be very expensive and time-consuming at a time when your business wants to raise money quickly and inexpensively. Further, allowing unaccredited investors to purchase securities from your company can create complex issues down the road when raising additional money or when your company is acquired. For these and many other reasons, you should typically avoid raising money from unaccredited investors.
