| >> On top of that, if you get so many non-accredited investors, you have to go public. No, you have to release financial information like publicly-traded firms. You can keep the shares from trading publicly, you just have to share data on your financials. SAS analytics and UPS are examples of large firms that were private with lots of shareholders (UPS has since gone public). This rule isn't just to be restrictive, it's to ensure that a company with more shareholders than can sit down at a dinner table informs all of them about the company's financials. I'd guess it was designed because prior to its existence, managements could mislead investors in private firms to help raise money, to liquidate their own shares, etc. If it's not illegal to not disclose material information to retail shareholders, you can be sure that managements will use that loophole to screw their retail investors. "But the market will route around shady firms." Yes, the global financial crash was how the market routed around shady behavior in some markets. Suboptimal. >> A very, very expensive process so most entrepreneurs avoid small investors like the plague. Citation needed. Since we're talking about companies bumping against the 500 shareholder limit, let's say they've received $1m in capital and are about to get one more investor. NASDAQ listing fees (https://listingcenter.nasdaqomx.com/assets/nasdaq_listing_re...) start at $35k. Other exchanges are cheaper: https://en.wikipedia.org/wiki/List_of_stock_exchanges#United... Going public on one of the two flagship US exchanges, with a top-tier investment bank leading, is expensive. But if you're raising money in $1k blocks, you probably aren't on that path anyway and so an appropriate public listing would cost a fraction of what Facebook will pay. |