Although there are exceptions, most startups sell stock only to accredited investors. Talk to your attorney about this!
An accredited investor is presumed, by the SEC (Securities Exchange Commission) to be sophisticated enough of an investor to purchase high-risk stock in startup companies. The SEC’s test for an accredited investor is that it is someone with either:
- A net worth of $1 million or,
- Income of at least $300K for each of the past 2 years
There are some exceptions. For example, an officer of your company is assumed to be an accredited investor for the purposes of purchasing stock in your company. So if you want to sell Aunt Maude stock, and she doesn’t otherwise qualify as an accredited investor, you could make her an officer of the corporation (but it’s not really a recommend tactic.) Also, it is actually possible to sell startup stock to a non-accredited investors, but your lawyer will have to cover additional steps to make it happen.
And there are exceptions that states can utilize. Oregon, for example, has a Community Public Offering law, which allows non-accredited investors to invest up to $2,500 in a startup, but there are important limitations and rules.