Accredited Investors

What is an accredited investor and what is the definition?

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. While we often speak of accredited investors as individuals who have an income in excess of $200,000 or a net worth in excess of one million dollars, the full definition is as follows:

  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.
Securities Exchange Act 1933 Forms
Don't let the name mislead you. While these are "forms" they are not something you are going to fill out and file. The registration process is complex, and requires significant work and oversight. A mistake can be costly.
Securities Act of 1934
Governs the registration of financial professionals, their firms, the exchanges and their activities, including trading of securities
Securities Act of 1933 - Rules and Regulations
Rules and Regulations Under the Securities Act of 1933
Securities Act of 1933
Governs the sale and distribution of securities
Sarbanes-Oxley Act of 2002
Financial reforms after the Tech Wreck