Legal Question in Business Law in Delaware

Re: Sophistication requirements

Under Reg D Rule 506, an unlimited number of accredited investors may participate in addition to 35 "sophisticated" unaccredited investors.

The issuer must reasonably believe that the prospective investor is accredited and has enough knowledge and sophistication to evaluate the investment. To confirm this determination, the issuer should use an extensive certification questionnaire and further review the answers to the questionnaire to certify their accredited status.

These completed questionnaires do not have to filed with the SEC or Colorado security regulators, but should be maintained with the records along with the prospectus and related materials.

Private placements, in particular 506 offerings, are not something that should be done without extensive knowledge and counsel because there are considerable disclosure and anti-fraud obligations that must be considered. Good luck.