Do investors in an LLC startup have to be accredited?

I believe the SEC mandates that all investors in certain risky startups must be accredited. Does this include LLCs? Is there any way to offer equity in a startup to the "average joe?"(either through an LLC or other business structure?) More info on accredited investors can be viewed at: http://en.wikipedia.org/wiki/Accredited_... and http://www.sec.gov/answers/accred.htm.

It's not so much the structure, as it is the whole concept of selling equity in a private company to an unsophisticated person. There's a very good reason that the SEC was set up in the first place, and that was to ensure that the "average Joe" would at least have all appropriate information *available* to him before he bought into a business (even if he didn't read it all.) That's what public companies are all about, and why there are such extensive regulations regarding all the filings and disclosures that a company needs to make prior to selling stock to Joe.

For that reason, if a company wants to sell equity of any kind to Joe, it's got two choices: either file as a public company (which is ridiculously expensive, painful and something you don't want to do), or else make sure that the equity sale falls under one of the exemptions that the SEC has established.

There are more than half a dozen of these, but they all try to achieve the same end: making sure that buyers have enough information about the startup to make an informed decision; making sure that buyers are either sophisticated enough, or know you well enough, to know what they're getting into, and ensuring that they can afford to lose their investment; and making sure that the initial buyers can't sell their stock to anyone else before you 'go public'.

Check out the link below for the official discussion of all this from the SEC...and good luck!