Accredited Investor: Defined
Many private placement securities offerings, such as a Reg D 506 (c) offering, are restricted to “Accredited Investors” as defined by the SEC. In this Investor Education Series Post we will provide our readers with an explanation as to what exactly the SEC means when they refer to an individual accredited investor.
An individual can qualify as an accredited investor if they meet certain wealth, income, or other measures of financial sophistication. In order to qualify, an individual must meet one of the following requirements:
Wealth & Income Criteria:
- Net worth of over $1 million, excluding personal residence. This criteria can be met individually or with a spouse or partner
- Annual income of over $200,000 individually or over $300,000 with a spouse or partner. This criteria must be met in each of the prior two years and there must be a reasonable expectation for that income to continue in the current year
Financial Sophistication Criteria:
- Investment & financial professionals holding General Securities Licenses (series 7), Investment Advisor Representative Licenses (series 65), or the Private Securities Offering Representative License (series 82)
- Directors, Executive Officers, of General Partners of the company selling securities
- Knowledgeable employees of a fund in a private offering
Businesses, or entities, can also qualify as Accredited Investors for the purpose of investing in a private offering. In order for an entity to qualify, it must fall into one of the following categories or meet one of the following criteria:
- Corporations, partnerships, LLC’s, trusts, 501(c)(3) organizations, employee benefit plans and “family offices” must have assets in excess of $5 million
- SEC Registered Broker-Dealer or Investment Advisor
- Banks, Savings & Loan Institutions, Insurance Companies, Registered Investment Companies, Business Development Companies, Small Business Investment Companies and Rural Business Investment Companies
Source: SEC.gov | Accredited Investors
