I get asked frequently what’s the deal with friends and family, as in funding your startup with people who aren’t sophisticated investors as defined by securities and exchange laws. What that means, in a nutshell, is that it can be illegal to take money in exchange for stock from someone who doesn’t have the income or net worth as defined by the government as the minimum that makes that person a “sophisticated investor.”

I was browsing for an explanation of why not, yesterday, when I came across this one: Life is Too Short to Deal with Non-Accredited Investors on the Startup Lawyer site. That looks to me like a very good summary.

Tim BerryTim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.