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Sorry for delay. From what I understand (I am not a lawyer), you can bypass 501 if the investors LLC-ify themselves and are active members in their own LLC bef
by Brushfire 18y ago
Sorry for delay.
From what I understand (I am not a lawyer), you can bypass 501 if the investors LLC-ify themselves and are active members in their own LLC before investing.
Startups cant do this, becuase its not on their end, its on the investors end. And most investors dont want to deal with all of this hassle.
But the main point is, I dont believe you have to Qualify 501 for organizations who invest in yours, only individuals. Hence the bypass.
All that said, Ive never actually done this, so who knows.
- tptacek 18y agoNo, that's not correct. An LLC is qualified to invest only if it has $5MM in assets, or if all the principals of the LLC are themselves accredited.
- Brushfire 18y agoInteresting. I still think you can get around this with active vs passive. I personally have had investors use LLC's who have less than $5mm in assets, but we set them as an active investor. This was done by an attorney with expertise in the area.
- tptacek 18y agoThe risk here is that if you screw anything up, you taint the company that issued the stock in ways that make it hard to get investment in the future, and that expose it to legal threats. I'd love to hear more about how you pulled this off, but my real point is, there's no "cut-and-dry" way to invest safely in a small private company through an LLC.