What Is the 2000 Investor Limit?
Let me explain the 2000 Investor Limit directly: it's a requirement from the Securities and Exchange Commission (SEC) that forces a company with more than 2000 individual investors and over $10 million in total assets to submit its financial reports to the commission. If your company hits these marks, you have exactly 120 days after the end of your fiscal year to file, per SEC rules.
Key Takeaways
You need to know that the 2000 investor limit serves as a critical boundary for private companies aiming to keep their financial details out of the public eye. If your business has over 2000 distinct shareholders and at least $10 million in capital, you're required to file with the SEC, regardless of being privately held. Remember, Congress bumped this limit up from 500 to 2000 investors back in 2016 through the JOBS and FAST Acts. This change has significantly expanded opportunities for equity crowdfunding.
Understanding the 2000 Investor Limit
As I see it, the 2000 investor limit is that essential cutoff for private businesses that prefer not to share their financials publicly. Congress adjusted it from 500 individual shareholders in 2016 under the Jumpstart Our Business Startups (JOBS) Act and Title LXXXV of the Fixing America’s Surface Transportation (FAST) Act. The updated rules also cap non-accredited investors at 500 before you must file publicly.
Previously, the threshold was just 500 holders of record, ignoring accredited status. This debate started after the 2008 recession, with online businesses arguing that rapid growth made early disclosure burdensome. The JOBS Act introduced a different threshold for banks and bank holding companies, letting them stop registration or reporting if shares are held by fewer than 1200 people.
Investor Thresholds and Equity Crowdfunding
The revisions in the JOBS Act to SEC rules have directly boosted the rise of crowdfunding platforms, allowing them to collect funds from individual investors online without needing to provide extensive financial data. These rules impose limits on how much you, as an individual, can invest in SEC-approved crowdfunding platforms, based on a percentage of the lower of your annual income or net worth.
Individual Limits for Crowdfunding (as of May 2017)
- If either your annual income or your net worth is under $107,000, during any 12-month period, you can invest up to the greater of either $2,200 or 5 percent of the lesser of your annual income or net worth.
- If both your annual income and net worth are $107,000 or more during any 12-month period, you can invest up to 10 percent of your annual income or net worth, whichever is less, not to exceed $107,000.
Additional Note on Calculations
These calculations exclude the value of your home.
Example
Consider this scenario: suppose your annual income is $150,000 and your net worth is $80,000. Under JOBS Act crowdfunding rules, you can invest the greater of $2,200 or 5% of $80,000, which is $4,000, over a 12-month period. So, in this case, your limit would be $4,000 for that year.
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