Accredited Investor by James Chen

  • Author

An accredited investor is an entity (person or business) allowed by the SEC to deal in securities unregistered with the SEC if they meet one or more requirements concerning “income, net worth, asset size, governance status, or professional experience”.

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  • Topic Tags

Accredited investors, SEC Regulation D, private placements

  • Relevant questions addressed

Who can invest in private placements?

What are accredited investors?

What are the requirements to be considered accredited investors?

Why does the accredited investor status exist?

  • Summary bullet points
  • An accredited investor is someone authorized to deal in unregistered securities because they meet one or more conditions.
  • Companies need not register with the SEC securities that they sell to accredited investors. Avoiding the registration process presents significant cost savings.
  • The regulating authorities (the SEC in the USA) only provide guidance on how to determine whether an entity qualifies or not.
  • SEC Rule 501 of Regulation D puts forth the requirements for accredited investor status.
    • A person with annual income over $200k (or $300k joint income) for the past two years and for the next year, or whose net worth exceeds $1 million ((individually or jointly with a spouse).
    • A general partner, executive officer or director of the issuing company
    • A registered broker, or someone with sufficient academic or professional expertise regarding unregistered securities
    • Businesses with assets exceeding $5 million, or if the equity owners are accredited investors
  • Regulators need to promote innovation through investments which are often high risk, while also protecting unsophisticated investors
  • There is no formal certification for accredited investors. The burden is on the issuers to make sure that buyers qualify as accredited investors
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