One of the most recent definitions of accredited investor according to the SEC is based on multiple criteria. For individuals seeking to qualify for accredited investor status, the criteria include various wealth thresholds and other indicators of financial sophistication. In essence, to qualify as an accredited investor, you must demonstrate that you have significant financial resources at your disposal or that you are financially sophisticated with enough knowledge about the risks involved.
Entities can also obtain the status of accredited investors through other qualifying factors that will be explained briefly below.
Requirements for Individuals
Individuals seeking accredited investor status can meet one of the following financial thresholds:
- Income of more than $200,000 USD as an individual or more than $300,000 USD with a spouse or spousal equivalent in each of the two previous years. In addition, the income expected in the current year must reach the same thresholds.
- A net worth of more than $1 million USD (of one person or between spouses or spousal equivalents), not including the monetary value of the individual’s primary residence.
The additional ways individuals may qualify as accredited investors involve their possession of various professional qualifications and certifications. These include:
- Knowledgeable employee as defined by the Investment Company Act of 1940, Rule 3c-5(a)(4). This includes certain executive officers and directors of the fund in addition to employees who are involved in the fund’s investment activities.
- Investment professionals in good standing
- A family client of a family office that meets the criteria for qualification
- General partners, executive officers, or directors of the firm selling the securities
Requirements for Entities
A business entity may obtain accredited investor status, depending on its structure and current assets. The criteria for entities to be called accredited investors include:
- Entities having total assets valued at more than $5 million USD, as long as the entity is a partnership, corporation, 501(c)(3), partnership, family office, or employee benefit plan
- Entities having investments valued at more than $5 million USD
- SEC-registered broker-dealers and investment advisors
- Entities having all the equity owners accredited investors themselves
- Certain financial entities, such as registered investment firms and insurance companies
As you can see, accredited investor status is available on an individual or entity basis. Regardless of who or what is seeking this status, it is important to meet the necessary criteria in order to enter this privileged class of investors.
