What if I have a Rule 506(c) offering, but want to admit a self-directed IRA Investor who is not accredited?

What if I have a Rule 506(c) offering, but want to admit a self-directed IRA Investor who is not accredited?

You can’t allow this investor to purchase Interests in your company under a Rule 506(c) offering. The only way you can admit a financially non-accredited investor is if the investor becomes a member of your management team and is actively involved in generating their own profit. The accredited investor definition includes officers and directors who are active members of your management team, as well as key employees who are knowledgeable about the offering.

However, because this investor is investing with a self directed IRA, they are prohibited by IRS “self-dealing” rules from being actively involved in management of an asset in which their IRA has passively invested.

 You could consider converting your offering to a Rule 506(b) Offering if you have not admitted any investors that you found through advertising (i.e., all current investors have been friends, family and acquaintances). Doing this would prohibit you from doing any further advertising. But, with a Rule 506(b) Offering, you can admit up to 35 non-accredited, but sophisticated investors with whom you have already established a pre-existing, substantive relationship. Please see the article referenced below to see what this entails:  What’s a Substantive Relationship for Rule 506(b) Investors? https://syndicationattorneys.com/articles-stick-to-top/pre-existing-substantive-relationship/

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About Syndication Attorneys

We are NOT your stereotypical law firm. We don’t believe in simply taking your money, handing you a stack of technical, often-incomprehensible legal documents and then bidding you good luck and good-bye. At Syndication Attorneys PLLC, we are committed to your success – not just with the project at hand, but your continuing success in business and investing. We are your long-term legal team.

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