Crowdfunding is not yet legal, but the crowd is getting anxious. I was recently pressed by someone, “Can’t I let a non-accredited investor in my 506 round? The rule says that I can have 35 non-accrediteds in my round.”
While it is true that Rule 506 says you can have up to 35 non-accredited investor in your round, it goes on to say that if you allow even 1 non-accredited investor in your round you have to comply with very detailed and comprehensive disclosure obligations. In contrast, if you are raising money from only accredited investors, there are no specific disclosure obligations required.
Rule 502(b) states, “The issuer is not required to furnish the specified information to purchasers when it sells . . .to any accredited investor.” Whereas non-accredited investors require “disclosure documents that are generally the same as those used in registered offerings.” (See the rules and regulations here: http://taft.law.uc.edu/CCL/33ActRls/rule502.html; and a reference to the second quote here: http://www.sec.gov/answers/rule506.htm.)
[C]ompanies must give non-accredited investors disclosure documents that are generally the same as those used in registered offerings.
See here: http://www.sec.gov/answers/rule506.htm
This is one of the reasons why startups limit their fundraising to all accredited investor offerings.
See here: http://sec.gov/rules/proposed/2011/33-9211.pdf