What’s in a Name? Accredited Investor Explained

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Whether you’re looking to raise capital for your business or are an investment adviser selling securities, you’ve probably come across the term accredited investor. The concept of an accredited investor was defined by the Securities Act of 1933 (“Securities Act”), and is a critical component of the law that was designed to protect investors from fraudulent investments. Understanding what is considered an accredited investor is essential for ensuring your business remains in compliance with securities regulation.

What’s in a Name?

 

An accredited investor must meet certain essential requirements as outlined by Congress in the Securities Act. Those requirements are as follows:

 

• A person with earned income of $200,000 or greater in each of the last two years, with reasonable expectations to earn a similar level of income in the current year; the threshold is $300,000 for couples.

 

• A person or couple with net worth of $1,000,000 or greater, not including primary residence.

 

• An entity where all the owners are accredited investors.

 

• Senior level members of a company issuing securities (directors, executive officers, general partners).

 

Most companies raising money will take advantage of Rule 506 under Regulation D of the Securities Act, which allows for companies to raise money from an unlimited number of accredited investors and up to 35 Sophisticated Investors. A sophisticated investor is a person that, while not accredited, has sufficient experience and knowledge of financial and business matters, so as to understand the risks and rewards involved with a particular investment.

 

Things become more complicated for investment advisers, as there are additional investor qualifications advisers must consider when conducting their business.

 

Understanding the nuances of accredited investors is important for any business seeking to sell (or purchase) securities. At Blue Sky Filings, we can assist with helping you understand these nuances and ensure that your business remains in compliance with securities regulation. If you need more information about Blue Sky Laws or to get assistance with your blue sky filings, please contact us at Blue Sky Filings by calling (844) 723-4537 or by filling out our online form.


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