An accredited investor is basically an individual or entity that the SEC considers wealthy enough to absorb considerable financial loss from a failed investment opportunity that involves securities or platforms that are less regulated and require fewer disclosures than investments that commonly populate the stock market. Wealthy individuals who often meet the accredited investor requirements, such as many attorneys, often participate in these private investment opportunities.
The Reason for Accredited Investor Status
The thought behind the accredited investor definition is that an accredited investor doesn’t need the same level of regulation to protect him or her from the risks of certain investments as does a non-accredited investor. If you invest in an offering that requires you to meet the accredited investor requirements, you will need to do your own investigation about the investment and may want to use the knowledge and expertise of certain professionals such as accounts or attorneys before entering into the investment.
Accredited Investor Requirements
The following persons and entities are considered accredited investors:
- Any person having a yearly income greater than $200,000 in both of the two most recent years (or $300,000 jointly with a spouse in those years) with the reasonable expectation of earning more than the same amount in the current year.
- Any person having a net worth greater than $1 million, not including the value of the individual’s primary residence.
- An individual holding a Series 7, 65, or 82 license is in good standing.
- A general partner, executive, or director of a company selling the securities.
- An insurance company, bank, or registered investment firm.
- A corporation, charity, or partnership having assets greater than $5 million.
- An ERISA employee benefit plan that holds assets of more than $5 million.
- A trust that holds assets valued at greater than $5 million
- A business entity with individual equity owners who are all accredited investors themselves.
As would be obvious, many financially well-off individuals, such as lawyers, can meet the accredited investor requirements under the income criteria. However, many professionals, including attorneys, will not qualify until later on in their careers when they have accumulated a net worth of more than $1 million, not including the value of their primary residence.
