Can My Employees Invest in My Company?

Yes, but an employee putting in cash is a securities sale, not an employee benefit, so it needs an exemption like any other investor. Rule 701, which covers stock options and equity grants, does not cover employees buying shares to fund the business. Directors and executive officers of the company count as accredited investors; other employees usually don't. Under Rule 506(b), up to 35 non-accredited but sophisticated investors may participate if they receive full disclosure, including financial statements; Regulation Crowdfunding lets any employee invest within annual limits. Make it truly voluntary, on the same terms as other investors, and be careful about employees concentrating both their paycheck and their savings in one company.

By Joel Arberman, founder of Prepared to Raise · 17 companies taken public, 30+ private placements prepared · Reviewed October 21, 2026

Two different things

  • Equity as compensation: stock options, restricted stock or units granted for work. Usually covered by Rule 701 and the company's equity plan.
  • Employees investing cash: buying shares or notes in a raise. This is a securities offering and needs an exemption such as Rule 506(b), 506(c) or Regulation Crowdfunding.

Founders often blur the two. The paperwork and the rules are different.

Who qualifies

  • Directors and executive officers of the company are accredited investors by definition, whatever their income.
  • Other employees are accredited only if they meet the income, net worth or license tests. The tests.
  • Non-accredited employees can join a Rule 506(b) raise, up to 35 non-accredited investors in total, if each is financially sophisticated, alone or with a representative, and receives specified disclosure including financial statements. In practice, that means a PPM. When you need a PPM.
  • Regulation Crowdfunding lets any employee invest within annual limits based on income and net worth.

The risks to manage

  • Pressure. An employee may feel they can't say no to the boss. Make participation clearly voluntary, in writing, with no effect on their job.
  • Concentration. If the company fails, they lose their job and their investment together. Say so plainly.
  • Information. Employees may know things other investors don't, and vice versa. Everyone must receive the same disclosure.
  • Workplace dynamics. Investor-employees may expect a different voice in decisions. Set expectations about what an investor's rights are and aren't.

Alternatives that may suit better

  • Stock options or equity grants under an equity plan, which give employees upside without asking them to risk savings.
  • Profit sharing or bonus pools tied to results.
  • An employee stock ownership plan (ESOP) for owners planning succession, a separate and more complex structure.

If employees do invest

  1. Offer it to employees on the same terms as everyone else in the round.
  2. Have each complete the investor questionnaire.
  3. If any are non-accredited in a 506(b) raise, prepare the required disclosure before anyone buys.
  4. Keep their investment documents separate from their employment documents.
  5. Include them in investor updates like any other investor.

Related questions

Can I let an employee pay for shares through payroll deductions?

That is a more complex arrangement with tax and wage-law issues. Talk to counsel and your payroll provider first.

Does an employee's investment affect their options?

Not unless the documents say so. Keep the two separate.

Can a former employee invest?

Yes, on the same basis as any other investor.

Where to start

Employees, family and friends usually belong in the same round. Our Network Raise package ($15,000, raises up to $1 million) sets the terms and documents for all of them. The documents a round needs.

Prepared to Raise is a service of Meraki Partners, LLC. This article is general information, not legal, tax or investment advice, and not an offer to sell or a solicitation to buy any security. Meraki Partners is not a broker-dealer, funding portal, investment adviser or law firm.