What Constitutes an “Accredited” Investor?

by | Jun 26, 2014 | Financial Services

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Simply put, accredited investors are generally wealthy or financially astute companies or individuals. Accredited investors are a category of investors viewed as having a reduced need for the protection provided by certain securities laws. They generally purchase securities as an investment, not with the intention of reselling them. They also generally purchase securities as principals for their own account and not for another person or party.


Who Qualifies?


The definition of an “accredited investor” is clearly defined under the securities laws, specifically in Rule 501 of Regulation D. Examples of investors who meet the SEC’s definition of accredited investor include:


* An individual or couple with a net worth of $1 million (excluding the value of the primary residence)


* An individual with income of over $200,000 for each of the past two years (or a combined income with a spouse of over $300,000) and a reasonable expectation of earning the same in the current year


* A trust with assets exceeding $5 million


* A charitable organization with assets over $5 million


* A corporation or partnership with assets in excess of $5 million


* A bank, insurance company, or business investment company


* Any director, general partner, or executive director of the company selling the securities


* A business with equity owners who are also all accredited investors.


What Can They Do for Businesses?


Accredited investors are important drivers of the United States economy. They provide the startup and growth capital that US businesses need to operate, grow, and succeed. Successful investments grow the economy and give a return to accredited investors who often turn around and re-invest the profits into other businesses. All this activity helps spur economic growth.


Some Deal Can Only Be Done With Accredited Investors


Perhaps the most important development in the capital funding industry in decades was the enactment of legislation that allowed companies to raise capital by general solicitation. Notwithstanding the fact that it could be generally solicit, the capital raise would still be considered to be a “private” offering. Having an offering categorized as a private offering allows companies to benefit from relaxed securities regulation. However, these deals, commonly known as Rule 506(c) deals, must only be done with accredited investors. The importance of accredited investors in the US economy has never been greater, and it comes at a good time as the US economy still needs help to recover from the recession it just emerged from.


Rule 506(c) requires you to take special precautions to verify that your investors are accredited. Visit VerifyInvestor.com to learn more about Rule 506(c) and how verification works.