Accredited Investors

Accredited Investor is a term defined by various securities laws.

The term generally includes wealthy individuals along with investment firms, corporations, endowments, and retirement plans.

Accredited Investors are permitted to invest in certain types of higher risk investments, limited partnerships, hedge funds, and angel investor networks.

In the United States: An individual to be considered an accredited investor, they must have a net worth of at least one million US dollars, or have made at least $200,000 each year for the last two years ($300,000 with his or her spouse if married) and have the expectation to make the same amount this year

In Canada: The same prerequisites apply, however one's net worth must be a minimum of one million dollars not including the value of their principal residence.

As defined by the U.S. Securities and Exchange Commission:

Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as "accredited investors."

The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:

1. a bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
4. a director, executive officer, or general partner of the company selling the securities;
5. a business in which all the equity owners are accredited investors;
6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

 
For more information about the SEC’s registration requirements and common exemptions, read the brochure, Q&A: Small Business & the SEC.  http://www.sec.gov/answers/accred.htm

 

We have provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.