Confusing Stock Agreement Statement

[strikeroot]

From section 3.7 — "If other than an individual, Purchaser also represents it has not been organized for the purpose of acquiring the shares of Series Seed Preferred Stock."

It sounds like this precludes an accredited investor from forming an institution (ex. LLC) to invest in the company (by way of acquiring Preferred Stock). But surely that can't be the case. What does it really mean? And should it be reworded so as not to give that impression?

[jboehmig]

So the short answer here is that this provision has to do with making sure that all investors are accredited investors to comply with Rule 506 of Regulation D. See Rule 501 for instance, which helps define who is an accredited investor. It's true that the docs could be written more broadly and still comply with the rule, but they take the position that if you're going to allow SPVs to invest (like an LLC organized soley for the purpose) then those edits should be made by a lawyer making a change to these template docs, rather than as the default position. Hope that helps clarify!