Of course I have to qualify that I’m not a CPA or an attorney. Laws change all the time, so please do your own due diligence and ensure what I’m saying is accurate and correct, or better yet hire an attorney to do so. This is just a fellow filmmaker trying to help.
I’ve seen a lot of misinformation going out about investors. In fact many people are down right breaking some federal laws. I’m sure its innocent, but breaking them never the less.
Investments are generally dealt at the individual level, but once you cross over to soliciting for investors, the SEC comes in. I’m assuming this is just an LLC, and thus it is considered a “private” investment.
Here at some highlighted points to note (if not filed with the SEC):
1. An investor must be a “substantial and a pre-existing relationship”.
To be "pre-existing," a relationship should be “known” before the terms are developed and the investment begins. You have to know them before you start asking for the money.
The internet is new and still being defined as it relates to investors, but what I am sure of is you cannot blast a simple email out to others asking for money – as you are not allowed to advertise for investors and this has been deemed advertising. Just like you are not allowed to take an ad out in your local paper.
Is this how you think you are going to find your money anyways – through an email blast? Finding investors is hard work, you’re not going to find a legit investor with a sympathy email blast.
2. You are only allowed 35 non-accredited investors.
If they do not meet the qualifiers below – they are non-accredited. So, if your budget is $200k – and all you have access to are family and friends (most are probably non-accredited); a general rule of thumb: divide that by 35 and that’s the minimum amount you can accept for an investment.
An accredited investor is defined by Rule 501 of Regulation D of the Securities Act of 1933, and must abide by the registration requirements of the U.S. Securities and Exchange Commission (SEC). These investors must meet certain criteria.
The federal securities laws define the term accredited investor in Rule 501 of Regulation D as: (refer to http://www.sec.gov/answers/accred.htm for more information)
1. a bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
4. a director, executive officer, or general partner of the company selling the securities;
5. a business in which all the equity owners are accredited investors;
6. 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;
7. 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; or
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
Money is out there. Is it easy – no? But doing it the right, and legal way, is always the best way.
Some other great articles are:
http://startuplawyer.com/preferred-stock/life-is-too-short-to-deal-with-non-accredited-investors
http://allaboutindiefilmmaking.blogspot.com/2009/05/how-not-to-use-internet-to-find.html
How to use the internet with investors:
http://firemark.com/2009/05/13/how-not-to-use-the-internet-to-find-investors-for-your-film-or-theatre-project
I’ve seen a lot of misinformation going out about investors. In fact many people are down right breaking some federal laws. I’m sure its innocent, but breaking them never the less.
Investments are generally dealt at the individual level, but once you cross over to soliciting for investors, the SEC comes in. I’m assuming this is just an LLC, and thus it is considered a “private” investment.
Here at some highlighted points to note (if not filed with the SEC):
1. An investor must be a “substantial and a pre-existing relationship”.
To be "pre-existing," a relationship should be “known” before the terms are developed and the investment begins. You have to know them before you start asking for the money.
The internet is new and still being defined as it relates to investors, but what I am sure of is you cannot blast a simple email out to others asking for money – as you are not allowed to advertise for investors and this has been deemed advertising. Just like you are not allowed to take an ad out in your local paper.
Is this how you think you are going to find your money anyways – through an email blast? Finding investors is hard work, you’re not going to find a legit investor with a sympathy email blast.
2. You are only allowed 35 non-accredited investors.
If they do not meet the qualifiers below – they are non-accredited. So, if your budget is $200k – and all you have access to are family and friends (most are probably non-accredited); a general rule of thumb: divide that by 35 and that’s the minimum amount you can accept for an investment.
An accredited investor is defined by Rule 501 of Regulation D of the Securities Act of 1933, and must abide by the registration requirements of the U.S. Securities and Exchange Commission (SEC). These investors must meet certain criteria.
The federal securities laws define the term accredited investor in Rule 501 of Regulation D as: (refer to http://www.sec.gov/answers/accred.htm for more information)
1. a bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
4. a director, executive officer, or general partner of the company selling the securities;
5. a business in which all the equity owners are accredited investors;
6. 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;
7. 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; or
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
Money is out there. Is it easy – no? But doing it the right, and legal way, is always the best way.
Some other great articles are:
http://startuplawyer.com/preferred-stock/life-is-too-short-to-deal-with-non-accredited-investors
http://allaboutindiefilmmaking.blogspot.com/2009/05/how-not-to-use-internet-to-find.html
How to use the internet with investors:
http://firemark.com/2009/05/13/how-not-to-use-the-internet-to-find-investors-for-your-film-or-theatre-project
