For companies raising capital, the "accredited investor" largely comprises their pool of potential investors. Many of the offering exemptions under the federal securities laws limit participation to accredited investors or contain restrictions on participation by non-accredited investors, including Regulation D (though there are exceptions!).
How can individuals qualify as accredited?
Individuals (i.e., natural persons) may qualify as accredited investors if they meet any of the following wealth, income, or financial sophistication criteria:
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Financial Criteria
- Net worth over $1 million, excluding primary residence (individually or with spouse or partner)
- Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior 2 years and reasonably expects the same for the current year
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Professional Criteria
- Investment professionals in good standing holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)
- Directors, executive officers, or general partners (GP) of the company selling the securities (or of a GP of that company)
- Any “family client” of a “family office” that qualifies as an accredited investor
- For investments in a private fund, “knowledgeable employees” of the fund
How can entities qualify as accredited?
Depending upon the structure of the entity or its assets, entities may qualify as an accredited investor.
- Investments: entities owning investments in excess of $5 million
- Assets: entities with assets in excess of $5 million that are corporations, partnerships, LLCs, trusts, 501(c)(3) organizations, employee benefit plans, “family office” and any “family client” of that office
- Owners as Accredited: entities where all equity owners are accredited investors
- Investment Advisers: investment advisers (SEC- or state-registered or exempt reporting advisers) and SEC-registered broker-dealers
- Financial Entities: A bank, savings and loan association, insurance company, registered investment company, business development company, or small business investment company or rural business investment company
Please note that the above represents the views of the staff of the Office of the Advocate for Small Business Capital Formation. It is not a rule, regulation, or statement of the Securities and Exchange Commission (“SEC”). The SEC has neither approved nor disapproved its content. This resource, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person. This article does not provide legal advice.
