This will be the very first kind of money that we getting from investors besides what the founders put in. What are the legal rules as far as accredited and unaccredited investors, minimum and maximum investment? Any advice about pitfalls and steps to take so that if everything goes wrong, the relationships will survive?

I would definitely only sell stock to accredited investors. I would also get a written document from the attesting to the fact that they are accredited (these forms should be available on the internet). Not aware of any minimum or maximum investment amount, but you need to file a Form D with the SEC, stating that you are doing a private offering that is exempt from normal SEC Reporting. You really should discuss this with a business attorney who does this type of work before you do anything.

As for pitfalls, be upfront with them and let them know that their investment will be at risk. Never EVER promise a sure thing. I would tell them that if they don't have "extra" money to invest that they should not do it. Make sure you have everything in writing and do the transaction with them just like you would do with someone you don't know.

If you treat is as a business transaction and are upfront about the risks you should avoid any problems.

Answered 7 years ago

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