It seems plausible that the valuation of my business (an LLC, not a C corp) is high enough to give me a net worth >$1MM, but there has never been a public or private offering of our stock to establish valuation and we have little intention of doing such soon.<p>Does something need to be done formally to establish a business valuation without a stock offering, and are there any tax consequences of establishing such a valuation?
You can use your net asset (tangible) value as a bottom line for your company's current valuation. 'Future earnings potential' factors into the valuation only to a degree that the market believes it to be true. Since you are not public, you can seek incite from license holders with: Series 7, CPA, Series 66. If you can get a consultation with an M&A firm in your area, they can expose you to the metrics they use in forming different levels of valuation (or even research these yourself online); M&A firms often formulate different valuations for non-public companies based on unique acquisition schemes (e.g., private buyer, bidding war, IPO, etc.).<p>These alternative valuations can provide you with justifiable options when reporting on tax returns. As for how the value of your equity in the company relates to tax reporting - I can't offer a definitive answer.
from <a href="http://startuplawyer.com/startup-law-glossary/accredited-investor" rel="nofollow">http://startuplawyer.com/startup-law-glossary/accredited-inv...</a> ...<p>The federal securities laws define an accredited investor in Rule 501 of Regulation D as:<p>5. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, provided that the value of a person’s primary residence may not be used for such net worth calculation, but any indebtedness in excess of the value of the primary residence shall be used in the calculation;<p>6. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year
Your LLC may give you a net worth over $1MM, but that does not mean you have liquid assets (cash) to invest in a company.<p>How would you invest in a startup using your LLC? You can't. You need cash to invest in a startup.<p>I'm not sure as to how much of your net worth of at least $1MM needs to be cash and how much can be other assets though.
I am reasonably sure that you need your assets to be liquid. Your assets, if they are tied up in a non publicly traded company, are by definition illiquid.