What is an "Accredited Investor"?
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 Rule 505 and 506 of Regulation D, a company may sell its securities to what are known as "accredited investors."
In order to be considered an "Accredited Investor," the entity or individual must be at least one of the following:
- A natural person whose individual net worth or joint net worth with their spouse, at the time of purchase exceeds $1,000,000 ( NOTE: In calculating net worth, you include all of your assets (other than your primary residence), whether liquid or illiquid, such as cash, stock, securities, personal property, and real estate based on the fair market value of such property MINUS all debts and liabilities (other than a mortgage or other debt secured by your primary residence unless such borrowing occurred in the 60 days preceding the date of purchase of the Securities and was not in connection with the acquisition of the primary residence). In the event any incremental mortgage or other indebtedness secured by your primary residence occurs in the 60 days preceding the date of the purchase of the Securities, the additional mortgage or other indebtedness secured by your primary residence must be treated as a liability and deducted from your net worth even though the value of your primary residence will not be included as an asset. Further, the amount of any mortgage or other indebtedness secured by your primary residence that exceeds the fair market value of the residence should also be deducted from your net worth.
- A natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with their spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.
- A natural person who is a director, executive officer, or general partner of the company selling the securities.
- A trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person with such knowledge and experience in financial and business matters that he or she is capable of evaluating the risks and merits of the intended investment.
- An entity in which all the equity owners are accredited investors.
You can find more information about accredited investors at http://www.sec.gov/answers/accred.htm