

Ask HN: Am I an accredited investor? - rms

It seems plausible that the valuation of my business (an LLC, not a C corp) is high enough to give me a net worth &#62;$1MM, but there has never been a public or private offering of our stock to establish valuation and we have little intention of doing such soon.<p>Does something need to be done formally to establish a business valuation without a stock offering, and are there any tax consequences of establishing such a valuation?
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JacobIrwin
You can use your net asset (tangible) value as a bottom line for your
company's current valuation. 'Future earnings potential' factors into the
valuation only to a degree that the market believes it to be true. Since you
are not public, you can seek incite from license holders with: Series 7, CPA,
Series 66. If you can get a consultation with an M&A firm in your area, they
can expose you to the metrics they use in forming different levels of
valuation (or even research these yourself online); M&A firms often formulate
different valuations for non-public companies based on unique acquisition
schemes (e.g., private buyer, bidding war, IPO, etc.).

These alternative valuations can provide you with justifiable options when
reporting on tax returns. As for how the value of your equity in the company
relates to tax reporting - I can't offer a definitive answer.

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bradleyjoyce
from [http://startuplawyer.com/startup-law-glossary/accredited-
inv...](http://startuplawyer.com/startup-law-glossary/accredited-investor) ...

The federal securities laws define an accredited investor in Rule 501 of
Regulation D as:

5\. 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, provided
that the value of a person’s primary residence may not be used for such net
worth calculation, but any indebtedness in excess of the value of the primary
residence shall be used in the calculation;

6\. 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

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rms
Yes, so the question then becomes, what is the definition of net worth?

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bradleyjoyce
Assets - Liabilities?

Your business surely can be considered an asset. The difficulty is in the
valuation as you've mentioned. Cash on hand. Multiples of revenues or profits.
These are all options.

Not sure what the SEC says on the matter.

The easiest thing to do, if you need to be 100% certain, would be to get a
bank loan based on the value of your business and have the cash on hand to
prove you meet the requirement.

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rms
Thanks! Bank loan is a good idea, also considering that we should really get
one and have been procrastinating about actually do so.

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dglassan
Your LLC may give you a net worth over $1MM, but that does not mean you have
liquid assets (cash) to invest in a company.

How would you invest in a startup using your LLC? You can't. You need cash to
invest in a startup.

I'm not sure as to how much of your net worth of at least $1MM needs to be
cash and how much can be other assets though.

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akharris
I am reasonably sure that you need your assets to be liquid. Your assets, if
they are tied up in a non publicly traded company, are by definition illiquid.

