What is an accredited investor?
An accredited investor is a sophisticated investor who has less need for the protection provided by regulation or statute. If all shareholders can be classified as accredited investors then it may not be necessary to register the corporate securities with the SEC. To qualify as an accredited investor an individual must have a sustained income over $200,000, or a net worth over $1 million, or hold a senior position such as director or officer for the company that is issuing securities. U.S.
An accredited investor is an investor who has been recognized by the Securities and Exchange Commission (SEC) as one who can engage in large-scale investments. Certain offerings such as hedge funds, limited partnerships, and angel investor networks are open only to accredited investors. Here are the specific accreditation requirements by the SEC: 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
An individual accredited investor is generally someone who has a net worth of $1,000,000 or more, OR makes $200,000 or more per year in the immediate preceding two years. Entities, such as institutions, partnerships, or pension plans, have different standards for accreditation. If you fit into this category you may be eligible for many investment opportunities such as hedge funds, commodity funds and special public funds that other investors are not allowed to participate in. (Some funds may have higher net worth or other requirements in order to meet their suitablity standards.) When considering alternative investments, including hedge funds, you should consider various risks including the fact that some products: often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distribu
Due to the risky nature of hedge funds, the Securities and Exchange Commission requires that investors meet certain minimum requirements. An “accredited investor” must meet one of the following prerequisites as defined by the SEC: • a bank, insurance company, registered investment company, business development company, or small business investment company • 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 • a charitable organization, corporation, or partnership with assets exceeding $5 million • a director, executive officer, or general partner of the company selling the securities • a business in which all the equity owners are accredited investors • 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 •
An accredited investor, as defined by the SEC in Rule 501 of Regulation D, meets at least one of the following criteria: a natural person alone or with their spouse with a net worth of at least $1 million; or 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
