BizTech Law Blog
Part 1 and 2 of this series discussed the basic requirements that must be met to utilize Michigan’s new intrastate crowdfunding exemption.
This post will discuss the definition of an “accredited investor.” The distinction between accredited and non-accredited investors is important. Non-accredited investors cannot invest more than $10,000 under Michigan’s new intrastate crowdfunding exemption. Accredited investors, on the other hand, are not subject to the $10,000 investment cap.
Individuals and entities (e.g., corporations and LLCs) are the most common type of investors. So, let’s look at the rules for determining whether an individual or entity is an accredited investor.
- Individuals. In general, an individual will be an accredited investor if: (A) he or she has income in excess of $200,000 or joint income with his or her spouse in excess of $300,000, and the individual reasonably expects to reach the same level of income during the current year, or (B) he or she has a net worth (or joint net worth with his or her spouse) in excess of $1 million. Special rules apply when calculating an individual’s net worth. For example, the value of a primary residence is not an asset, and, in most cases, indebtedness secured by a primary residence is not a liability.
- Entities. A corporation, LLC, or partnership will be an accredited investor if: (A) the entity has total assets in excess of $5 million, was not formed for the purpose of consummating the applicable investment, and the person directing the entity’s investment has such knowledge and experience in financial matters that he or she is capable of evaluating the merits of the applicable investment, or (B) all of the equity owners are accredited investors on an individual basis.
There are additional rules for determining whether trusts, employee benefit plans, and regulated entities are accredited investors.
Please contact me if you have questions regarding Michigan’s new crowdfunding exemption or raising capital in the State of Michigan.
Shareholder and Firm TreasurerNicholas focuses his practice in the areas of Michigan non-property tax disputes, business entity selection, corporate transactions, and information technology.
