An accredited investor is considered someone who has a high net worth or high income, is sophisticated, has a large trust or investment companies or is a person involved in the business.

Rule 506 sets no limits on the amount of money that can be raised, but you still can’t advertise and you’re limited to non-accredited investors of 35 total.

Why are there federal exemptions?  Because many states cover their own securities laws.  These are called blue sky laws.  You can offer your stock for sale in all 50 states, but then you have to register everywhere if you can’t find an exemption to cover your sales.

Private placement exemption is available if you have 35 or fewer investors and have not paid commissions to anyone or paid for advertising to promote the stock.  You also have to give the investor access to company material and financial information and allow them to have a 3 day right of recision.

Every state has its own blue sky regulations, so you’ll have to investigate your state to find out what those are.  If you need to register to sell stocks, then you’ll contact the state agency found later in this chapter.

You might think about selling stock over the Internet.  Just be careful because all laws that apply to offline securities also apply to the online sale of stock. 

The value of your shares of stock must be paid for at a rate not less than its full value.  And you can’t tell your friends they can pay you later and issue certificates of stock – money has to change hands before you can do that.

It is possible to trade property for shares of stock.  In cases like these, the directors have to agree on the fair value of the property and the transaction should be equal.

If you issue shares of stock in exchange for property, then the property owner needs to draw up a bill of sale that lists everything being exchanged for the stock so that it’s clear and legal.

If property is exchanged for shares of stock, then the owner might have to pay income tax on it.  Federal tax code does allow tax-free exchanges of property for stock is the person receiving the stock then owns at least 80% of the voting and other stock rights in the corporation.

Less than 80% means the property owner will face regular income tax just as if the property had been sold for cash. 

Some investors may want to trade services in exchange for shares of stock.  You can issue stock for services that have already been performed, but in some states, you can’t issue shares for the sole promise that a service will be performed.