Accredited Investor

What Is an Accredited Investor?

An accredited investor is an individual or a business entity that is allowed to buy unregistered securities, which are deemed higher risk because they are not registered with the Securities and Exchange Commission (SEC). In Regulation D, the SEC deems investors to be financially sophisticated and thus have a reduced need for the protection provided by regulatory disclosure filings, if they can  satisfy at least one of several alternative requirements regarding their income, net worth, amount of assets under management or professional experience. Typically, accredited investors include high net worth individuals, investment professionals and their firms, banks, trusts and certain other businesses such as insurance companies.

Income Requirements

To be an accredited investor, a person must have an annual income exceeding $200,000 for the last two years with the expectation of earning the same or a higher income in the current year. An individual must have earned income above this threshold or, if jointly declaring income with a spouse, the threshhold is $300,000 over the last two years.

Asset Requirement

A person is also considered an accredited investor if they have a net worth exceeding $1 million, either individually or jointly with their spouse, but excluding the value of their primary residence.

The SEC also considers a person to be an accredited investor if they are a general partner, executive officer, or director for the company that is issuing the unregistered securities.

Professional Requirement

An entity is considered an accredited investor if it is a private business development company or an organization with assets exceeding $5 million. Also, if an entity consists of equity owners who are accredited investors, the entity itself is an accredited investor. However, an organization cannot be formed with a sole purpose of purchasing specific securities.

If a person can demonstrate sufficient education or job experience showing their professional knowledge of unregistered securities, they too can qualify to be considered an accredited investor. (This addition to the rule was approved in August 2020 and went into effect on December 8, 2020.)

The SEC also considers a person to be an accredited investor if they are a general partner, executive officer, or director for the company that is issuing the unregistered securities.

Scroll Up