Rules 506 and 505 of Regulation D under the Securities Act of 1933 are two commonly-used registration exemptions for private securities offerings.  For an offering to qualify for one of those exemptions, there can be no more than 35 purchasers in the offering, excluding “accredited investors.”  In other words, there can be an unlimited number of accredited investors.

An individual qualifies as an accredited investor if that person (1) has a net worth in excess of $1 million or (2) has individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year.  Notably, a person’s primary residence is not included as an asset for purposes of calculating net worth.

I am a lawyer and an entrepreneur in Denver.  This is the seventh in a series of posts about legal issues affecting startups.