500 Investor Rule

Facebook ran into this problem. It stayed private for so long, and raised money from so many investors, that it pierced the 500-investor maximum rule...or at least got very close to hitting it. As a result, it encouraged aggregation, i.e. existing investors were encouraged to buy out smaller investors. At over 500 investors, a company is required by the SEC to, more or less, behave—and file—like it's a publicly traded company subject to all of the regulatory pains that go with it. Endless filings. Armies of lawyers and compliance officer stuff. Blech. Having over $10 million in assets is another hurdle companies jump to, and then require the filing garroting, with all efforts having to be fully filed within 120 days of the end of that company's fiscal year. Ouch.