[erichurkman]

Doubtful. There's a lot of tools available now to avoid limits. The JOBS Act (2012) increased the limit and gave additional carve outs to 2,000 shareholders or 500 un-accredited investors. All of AirBNB's new shareholders are accredited investors – it's not like they are taking angel or friends-and-family funding at this stage. Also, employees that exercise their option grants are not generally counted anymore toward these limits – it's considered part of their compensation benefit.

[arkem]

Would the average AirBNB host be an accredited investor?

Also, I hadn't heard that employee grants are not considered towards the investor limit, is it just that holding options doesn't make you an investor or is it more than that? Can you point me towards some reading material?

Edit: It looks like "Shareholder's of record" as defined in the JOBS Act might exclude employee incentive share programs (as long as those plans were exempt from registration under the Securities Act... not that I know what that means)

Edit2: See erichurkman's links.

[erichurkman]

Doubtful that the average host would qualify, especially since the average host is using their home to host AirBNB guests, and your primary residence does not count toward the monetary requirements to be qualified as an accredited investor – net worth over $1mm, annual income over $200k [0].

As far as the shareholder limit, Cooley LLP has a decent overview of the JOBS Act's changes [1]. Holding an option grant never counted toward the 499 limit, but previously if you exercised your option grant (through equity compensation), you may have counted toward the 499 limit. Now, most option holders that exercise their grants are exempt from this shareholder count.

[0] https://en.wikipedia.org/wiki/Accredited_investor

[1] http://www.cooley.com/jobs-act-what-does-it-mean

[arkem]

Thanks!

[erichurkman]

Your edit: You can avoid registration through a variety of exemptions of the 1933 Act. One of those is the Rule 701 exemption at the federal level; it carves out exemptions specifically for employee compensation plans. It makes sense. The 1933 act is to primarily protect against fraudulent companies selling 'stock' and came about from the massive crash of 1929. It wasn't to protect against an employer voluntarily giving up a percentage of their equity ownership to employees in exchange for service.

There are limitations on this exemption to make sure companies are not using it to actually solicit stock.

So long as the grant was under the exemption, if they exercise their grant, it should not count toward the shareholder limit.

[chowwesley]

Employee option grants don't count. However, if they exercise and tern them into actual stock units, I believe they do count.

[arkem]

Turns out the JOBS Act specifically exempts employee stock plan recipients from the 500 (or 2000) shareholder count.