When taking on investors, business owners need to abide by federal and state securities laws, which have been created to protect investors. According to business attorney Nina Kaufman, two of the most critical elements needed are:
1. Verification of wealth: Investors legally need to be "sophisticated," meaning they earn $200,000 or more per year or have $1 million or more in assets, Kaufman says.
2. Legal disclosure of risks: You'll need to have something called a private placement memo, which outlines the risks an investor accepts in case your business does not succeed and that person loses his or her investment.
Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.