How Can I Sell My Private Company’s Shares to Non-Accredited Investors?

Question from johny, How Can I Sell My Private Company’s Shares to Non-Accredited Investors?

Answer from AI:

Selling shares of a private company to non-accredited investors in the United States can be complex due to stringent securities regulations. However, there are exemptions that allow for such transactions under specific conditions. Here’s a general overview of the process and the relevant exemptions.

Understanding Accredited vs. Non-Accredited Investors

An **accredited investor** is someone who meets certain financial criteria set by the Securities and Exchange Commission (SEC), such as having a net worth of over $1 million (excluding their primary residence) or an annual income of over $200,000 ($300,000 with a spouse) for the last two years.

A **non-accredited investor** does not meet these criteria and is considered to have less financial sophistication and ability to bear investment risks.

Exemptions for Selling Shares to Non-Accredited Investors

Several exemptions under the SEC regulations allow private companies to sell shares to non-accredited investors:

1. Regulation D, Rule 504

• Allows companies to raise up to $10 million within a 12-month period.
• Permits sales to an unlimited number of non-accredited investors.
• Requires compliance with state securities laws, also known as “Blue Sky” laws.

2. Regulation D, Rule 506(b)

• Allows companies to raise an unlimited amount of money.
• Permits sales to up to 35 non-accredited investors, provided they have sufficient knowledge and experience in financial and business matters to evaluate the investment.
• Requires detailed disclosure documents similar to those used in registered offerings.

3. Regulation A, Tier 2

• Allows companies to raise up to $75 million within a 12-month period.
• Permits sales to both accredited and non-accredited investors.
• Requires filing an offering statement with the SEC and providing semi-annual reports.

4. Crowdfunding (Regulation CF)

• Allows companies to raise up to $5 million within a 12-month period.
• Permits sales to an unlimited number of non-accredited investors.
• Requires the use of an SEC-registered intermediary (broker-dealer or funding portal).
• Imposes investment limits on non-accredited investors based on their income and net worth.

Steps to Take

1. Consult with a Securities Attorney: Given the complexity of securities laws, it’s crucial to seek legal advice to ensure compliance with all regulations.
2. Prepare Disclosure Documents: Depending on the exemption, you may need to prepare detailed disclosure documents for potential investors.
3. File Necessary Forms: Some exemptions require filing forms with the SEC, such as Form D for Regulation D offerings.
4. Comply with State Laws: Ensure compliance with state securities laws, which may have additional requirements.
5. Use Registered Intermediaries: For crowdfunding, use an SEC-registered intermediary to facilitate the offering.

Resources and Further Reading

For more detailed information, you can refer to the following resources:

• SEC’s Guide to Exempt Offerings
• SEC’s Investor Bulletin on Crowdfunding

When to Seek Legal Advice

Given the complexity and potential legal ramifications of selling shares to non-accredited investors, it is highly recommended to consult with a securities attorney. They can provide personalized advice and ensure that your offering complies with all applicable laws and regulations.

Remember, this information is intended to provide a general overview and should not be considered legal advice. Always consult with a legal professional for specific guidance tailored to your situation.