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Ask HN: Am I an accredited investor?
It seems plausible that the valuation of my business (an LLC, not a C corp) is high enough to give me a net worth >$1MM, but there has never been a public or private offering of our stock to establish valuation and we have little intention of doing such soon.
Does something need to be done formally to establish a business valuation without a stock offering, and are there any tax consequences of establishing such a valuation?
- akharris 16y agoI am reasonably sure that you need your assets to be liquid. Your assets, if they are tied up in a non publicly traded company, are by definition illiquid.
- dglassan 16y agoYour LLC may give you a net worth over $1MM, but that does not mean you have liquid assets (cash) to invest in a company. How would you invest in a startup using your LLC? You can't. You need cash to invest in a startup. I'm not sure as to how much of your net worth of at least $1MM needs to be cash and how much can be other assets though.
- bradleyjoyce 16y agofrom http://startuplawyer.com/startup-law-glossary/accredited-investor http://startuplawyer.com/startup-law-glossary/accredited-inv... ... The federal securities laws define an accredited investor in Rule 501 of Regulation D as: 5. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, provided that the value of a person’s primary residence may not be used for such net worth calculation, but any indebtedness in excess of the value of the primary residence shall be used in the calculation; 6. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year
- rms 16y agoYes, so the question then becomes, what is the definition of net worth?
- bradleyjoyce 16y agoAssets - Liabilities? Your business surely can be considered an asset. The difficulty is in the valuation as you've mentioned. Cash on hand. Multiples of revenues or profits. These are all options. Not sure what the SEC says on the matter. The easiest thing to do, if you need to be 100% certain, would be to get a bank loan based on the value of your business and have the cash on hand to prove you meet the requirement.
- rms 16y agoThanks! Bank loan is a good idea, also considering that we should really get one and have been procrastinating about actually do so.
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- JacobIrwin 16y agoYou can use your net asset (tangible) value as a bottom line for your company's current valuation. 'Future earnings potential' factors into the valuation only to a degree that the market believes it to be true. Since you are not public, you can seek incite from license holders with: Series 7, CPA, Series 66. If you can get a consultation with an M&A firm in your area, they can expose you to the metrics they use in forming different levels of valuation (or even research these yourself online); M&A firms often formulate different valuations for non-public companies based on unique acquisition schemes (e.g., private buyer, bidding war, IPO, etc.). These alternative valuations can provide you with justifiable options when reporting on tax returns. As for how the value of your equity in the company relates to tax reporting - I can't offer a definitive answer.