What is an Accredited Investor?

The actual definition of an “Accredited Investor” is put forth by the SEC in Rule 501 of Regulation D.

  • In 2016, the U.S. Congress modified the definition of an accredited investor to include registered brokers and investment advisors. Also, if a person can demonstrate sufficient education or job experience showing his professional knowledge of unregistered securities, they too can qualify to be considered an accredited investor.
  • To be an accredited investor, a person must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income in the current year.
  • A person can also considered an accredited investor if he has a net worth exceeding $1 million, regardless of income, either individually or jointly with his spouse, not including their primary residence. The SEC also considers a person to be an accredited investor if he is a general partner, executive officer, director or a related combination thereof for the issuer of unregistered securities.
  • An entity can also be considered an accredited investor if it is a private business development company or an organization with assets exceeding $5 million.
  • Also, if an entity consists of equity owners who are accredited investors, the entity itself is an accredited investor. However, an organization cannot be formed with a sole purpose of purchasing specific securities.