An investor who does not come within one of the accredited investor categories is a nonaccredited investor
. Under the Rule 504 and Rule 505 exemptions, you can sell to a limited number of nonaccredited investors
, and you must "reasonably believe" that each of these investors has enough knowledge and experience in financial and business matters to evaluate the merits and risks of the investment, unless the investment is less than ten percent of the nonaccredited investor
's net worth.
Offerings TITLE V--PRIVATE COMPANY FLEXIBILITY AND GROWTH Section 501: Threshold for * Increases the number of shareholders of Registration record a company can have before it must register with the SEC from 500 to 2,000, as long as there are less than 500 nonaccredited investors
. Section 502: Employees * Excluded from shareholders of record are employees who obtained securities as part of an exempt transaction in an employee compensation plan.
D offering is exempt from registration under the 1933 Act (and for the reasons discussed below will also be preempted from state regulation) if it meets the requirements set forth in this regulation, including, but not limited to, situations in which 1) the seller does not use general solicitation or advertising to market the securities; 2) the securities are sold to an unlimited number of accredited investors and up to 35 nonaccredited, but still sophisticated, investors; 3) purchasers receive "restricted" securities that cannot be traded freely in the secondary market after the offering; and 4) nonaccredited investors
receive disclosure documents specified in the rule.
Under Rule 506(b), if an issuer sells to more than 35 nonaccredited investors
, fails to comply with a disclosure requirement, or perhaps publishes an ad in error that no investor relied upon, while the exemption might not be viable, an argument can still be made that, notwithstanding the gaffe, the offering nevertheless qualifies as exempt under the more general section 4(a)(2) of the Securities Act of 1933, in that it still does not constitute part of a "public offering." That fallback argument is eliminated when an issuer undertakes a Rule 506(c) or crowdfimded offering and fails to meet the requirements under Rule 506(c) or the crowdfunding exemption under section 4(6).
The forthcoming Title III rule is often referred to as "retail crowdfunding" because it will allow nonaccredited investors
to invest in offerings of up to $1 million.
While not all '40 Act liquid alternative funds can be classified this way, many are set up to offer a hedging strategy while maintaining certain liquidity, diversification and redemption standards, as required by federal regulations for financial products sold to nonaccredited investors
The Act allows small businesses and other enterprises to solicit financing from nonaccredited investors
via the Internet.
While the SEC noted the importance of monitoring the progress of the new rules that allow nonaccredited investors
to invest in startups and other private businesses, financial services firms applauded the SEC's adoption of the crowdfunding rules.
Rule 506(b) allows up to 35 nonaccredited investors
and an unlimited number of accredited investors.
(43) In 2014, only eight percent of Regulation D offerings included nonaccredited investors
. (44) The mean number of investors per offering between 2009 and 2014 was fourteen; however, the median number of investors per offering was only four, indicating that a small number of offerings involved a large number of investors.
Moreover, he notes that many of the companies that will seek investments from nonaccredited investors
will not be the type that typically go public or get acquired.
Janice Schakowsky); Siegel, supra note 14, at 794 (arguing nonaccredited investors