500 Investor Rule
Categories: Board of Directors, Company Management, Entrepreneur, Incorporation, Investing, Tech
Facebook ran into this problem. It stayed private for so long, and raised money from so many investors, that it pierced the 500-investor maximum rule...or at least got very close to hitting it. As a result, it encouraged aggregation, i.e. existing investors were encouraged to buy out smaller investors. At over 500 investors, a company is required by the SEC to, more or less, behave—and file—like it's a publicly traded company subject to all of the regulatory pains that go with it. Endless filings. Armies of lawyers and compliance officer stuff. Blech. Having over $10 million in assets is another hurdle companies jump to, and then require the filing garroting, with all efforts having to be fully filed within 120 days of the end of that company's fiscal year. Ouch.
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Finance: What is Regulation A?7 Views
Finance allah shmoop what is regulation eh Don't worry about
a thing because every little thing going to be all
right Ok Not reggae greg a our apologies for singing
there too mr marley's ghost Alright Well regulation a is
like security sale Light diet jenny craig Well specifically a
regulation A offering is one that carries a total notional
value of less than five million bucks worth of securities
as sold within a one year time frame All right
what is this one year thing It means that the
total dollar amount of securities sold for that given issuer
of them within a year would fall under the easy
breezy regulatory world of rig a If it had a
five sales of a million dollars of dead or equity
or less within one year if it had a sixth
sale meaning it would push it over Five million told
raise that year Then it would not fall under the
wreg a system and it would have to do an
enormous number of somersaults as if it was doing a
multimillion or billion dollar offering to the massive public There
are other little gotsch is inside of the reggae world
Like the company does not have to provide fancy securities
and exchange act reports until it has mohr than five
hundred shareholders and more than ten million box and assets
Why is reggae even a thing paperwork and small companies
doing offerings all the time with such a small offering
size The sec doesn't make you spreadem or you know
turn your head and cough nor does it take blood
urine or other samples love things when inspecting the legitimacy
of your offering feeling the need to keep myriad lawyers
employed Of course reggae grew more complex over time One
complexity revolves around the two tears under which reggae types
of filings must live Tier one allows for a rig
a style a simple offering to flex or expand to
be twenty million dollars in cap in one year with
filings that have to conform to the standards and that
are subject to their complaint list The good news for
the company Well they only have to do this upon
the offering not every quarter Then we have a tear
to flavor of a reggae offering In this somewhat more
complex twist companies may sell upto fifty million dollars in
securities in a one year period this sales also quickly
vetted by the sec but it doesn't have to be
vetted by state regulators and an army of lawyers And
unlike tier one into issuers well it must report financial
status regularly as in quarterly almost as if the company
is already a public corporation That's about it Long story
short reggae is an exemption for the sale of securities
that an exemption from mountains and mountains of paperwork and
filing an expense in raising money Reggae was basically a
nod to small startup e kinds of companies so that
they didn't have to spend half the money they raised
on lawyers and filing things and stuff for government bureaucrats
Tio no Stare at all right Well in parting we'd
like to thank our kindly sponsors at nyquil z z
z for their help and cooperation in producing this fine 00:03:17.37 --> [endTime] regulation A video
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