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Starting a Business

What You Need to Know Before Taking on Investors

Opinions expressed by Entrepreneur contributors are their own.

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.
 

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