Thread: Investors and SEC

The more I learn about bringing on investors for my company, I keep hearing about an "SEC threshold". What is it and when does the SEC become involved?

qualified investors - we've discussed it often in the past - search for it. i believe it assumes you're raising money for an S- or C-corp; not an LLC.

an investor doesn't *need* to be qualified; but it opens you up to a mountain of paperwork.


from the nanny state perspective: they are protecting people from unscrupulous hucksters.

from the libertarian perspective: govt is getting in the way of people making their own decisions about their own money.

from a paranoid perspective: let the rich get richer through access to truly transformative deals.

- chuck

Chuck what kind of useless information is that? What mountains of paperwork are you even talking about? an LLC specifically allows you to raise capital from investors. And you don't mean qualified you mean "Accredited Investors" as defined by the SEC being an investor with either $200k ($300k if you're married) in revenue for the past 2 years and assume it will continue for the next year or have at least $1mm in net capital at the time of the deal. But you can have investors who aren't Accredited be apart of your company.

Tubby, don't listen to Chuck. You don't need to worry about the SEC if you're a private company raising capital with less than 500 investors. 500 means you need to become public. You actually don't ever need a broker if the person who is buying stock in the future is doing it directly. Since you're raising a first round of Capital you can gather your investors together and amend your operating agreement to include everyone, what their %, shares or units are and how much they're investing. The OA will cover rights. Or you can create your OA, distribute yourself say a million units or shares or 100% equity, then when an investor is ready to come on board, you create a new stock certificate which will give whatever amount of your own shares you want to distribute. Or you can create new stock. There are many things you can do. However, an LLC has a maximum of 99 investors, after 99 you need to become either an S-Corp,C-Corp or Inc.

Are you an LLC, C-Corp or S-Corp? Are you distributing stock, equity or units?

Private placement - Wikipedia, the free encyclopedia

Originally Posted by Porsche996GT2

You don't need to worry about the SEC if you're a private company raising capital with less than 500 investors.

Private company and have no desire to have that many investors when only a handful will suffice. If I can't remember all their names, I have too many.

Since you're raising a first round of Capital you can gather your investors together and amend your operating agreement to include everyone, what their %, shares or units are and how much they're investing. The OA will cover rights. Or you can create your OA, distribute yourself say a million units or shares or 100% equity, then when an investor is ready to come on board, you create a new stock certificate which will give whatever amount of your own shares you want to distribute. Or you can create new stock. There are many things you can do.

Equity seems to be the simplest and easiest way. Does return equate to the %age of equity or is it different?

Are you an LLC, C-Corp or S-Corp? Are you distributing stock, equity or units?

The company is an LLC and I'm the only member (owner). The OA states the LLC is a member managed LLC. I'm not sure the unit of distribution. Equity is a simple percent with dividends paid at intervals. Not sure about stock; I know very little about it other than it's a piece of paper whose value fluctuates according to how well the company is doing. Units are a blank stare.

This investor stuff is way over my head and I'm trying to learn. I may have an oversimplified view of this which could be complicating things.

Okay so the best thing for you to do is probably just amend the OA when you get your investors together. Then give them the % of the company they're paying for. The first round of capital all the investors have to be on the same terms. One investor can't get 5% for $500k and another get 5% for 10k. Each round has the exact same value.

When you get the investors together, amend the OA and add the new members, dilute your %.

You don't need to worry about units or stock, just focus on equity. It's very simple. When you add the new investors, you may want to change your OA voting rights. Such as majority vote, or unanimous vote, those things so that the investors signing on don't get control of your company.

You distribute the earnings however you'd like, usually every quarter. So if your company makes $1mm and you decide to distribute 300k to your investors, you have to distribute to the members whatever percent of the company they own. If I own 10% of the company and you decide to give investors $300k, the investor with 10% gets 10% of $300k but still owns 10% of the company. Don't forget to include your share as well. If you own 80% of the company, when you distribute $300k to the investors, you need to take 80% of $300k.

OK, thanks. That's how I had it in my head how it played out.

I just have to be careful when drafting the voting stuff so that I maintain control of the company. That's my biggest fear. Seen it happen before with Cooper Firearms. The board voted the CEO and founder out, paid him his equity and slammed the door behind him as he walked out.

Well, he likely lost control shares wise of his company. If he would have maintained at least 51% they wouldn't be able to kick him out.

Perhaps. I've also heard of the board running the company and the President only votes in a tie-breaker situation.

Originally Posted by tubby

Perhaps. I've also heard of the board running the company and the President only votes in a tie-breaker situation.

Thats probably just company policy. When it comes down to it whoever has at least 51% (or can mass the majority of shares) controles the outcome (legally).