What is an accredited investor?

An accredited investor is an individual or entity that meets certain wealth, income, or asset thresholds or holds specific professional certifications, as defined under Regulation D of the Securities Act of 1933. These qualifications are meant to ensure that investors have sufficient knowledge or wealth to evaluate and bear the risks associated with unregistered securities offerings. The Securities and Exchange Commission (SEC) periodically updates these requirements to reflect changing market conditions.

Under Rule 501 of Regulation D, individuals generally qualify as accredited investors if they meet any of the following:

1. Net Worth: a person whose net worth, alone or with a spouse or spousal equivalent, exceeds $1 million at the time of the purchase, excluding the value of their primary residence.
2. Income: a person whose income exceeds $200,000 individually or $300,000 with a spouse or spousal equivalent in each of the two most recent years, with a reasonable expectation of the same income level in the current year.
3. Executive Role: a director, executive officer, or general partner of the company offering the securities.
4. Professional Certifications: a person who holds certain professional certifications, designations, or credentials recognized by the SEC. To qualify, the certifications must be in good standing and issued by an accredited institution recognized by the SEC.
5. Family Office: certain persons who are a “family client” of certain family offices with over $5 million in assets under management.
6. Knowledgeable Employees: certain employees of private investment funds that are involved in the fund’s investment activities.

In certain circumstances, entities such as businesses or charitable organizations can also qualify as accredited investors. Generally, to qualify, the entity must either have $5 million or more in assets or be made up entirely of accredited investors.

For more detailed and up-to-date information on accredited investor requirements, consult Rule 501 of Regulation D on the SEC’s website.