What is an accredited investor?
More specifically, an accredited investor is a person or a business entity who can invest in securities not registered with financial authorities. They are entitled to purchase these securities if they satisfy one (or more) requirements regarding income, net worth, asset size, governance status or professional experience. These requirements are governed by Regulation D of the Securities Act of 1933, and the U.S. Securities and Exchange Commission (SEC), who regulate the securities industry in the United States.
Accredited Investor Declaration
When an individual confirms that they are an accredited investor, they are declaring that at least one of the below is true:
- My individual net worth, or joint net worth with my spouse, is greater than $1,000,000, excluding equity from my primary residence but including any indebtedness on my primary residence in excess of its fair market value.
- My individual income in the last two years was greater than $200,000, or my joint income with my spouse in the last two years was greater than $300,000, and I have a reasonable expectation of reaching the same income level this year.
- I am a director or officer of the issuer.
When an entity confirms that they are an accredited investor, they are declaring that at least one of the below is true:
- The entity is a corporation, LLC, partnership, business trust, or tax-exempt 501(c)(3) organization that has greater than $5,000,000 in total assets and was not formed for the specific purpose of investing in the Issuer.
- The entity is any trust that has greater than $5,000,000 in total assets, is directed by a person with such knowledge and experience in financial and business matters that such person is capable of evaluating the risks and merits of an investment in the issuer, and that was not formed for the specific purpose of investing in the issuer.
- The entity is a private business development company as defined in Section 202(a)(22) of the Investment Advisors Act.
- The entity's equity owners are all accredited investors. This category may apply even if the entity was formed for the specific purpose of investing in the issuer.
- The entity is a bank, savings and loan association, registered broker or dealer, insurance company, or registered investment company.
- The entity is an employee benefit plan within the meaning of ERISA and (i) the investment decision is made by a plan fiduciary which is a bank, savings and loan association, insurance company, or registered investment advisor, (ii) the employee benefit plan has greater than $5,000,000 in total assets, or (iii) the plan is self-directed and investment decisions are made solely by persons that are accredited investors.
- The entity is a plan established and maintained by a state or its political subdivisions for the benefit of employees and the plan has greater than $5,000,000 in total assets.