SEC Rule 501 of Regulation D, as amended on August 26, 2020, provides a broad definition of who may be deemed an ‘accredited investor” in order to qualify for the purchase of any unregistered securities in the United States. The following general guide may be considered to determine whether an individual or entity qualifies as an accredited investor. The preparation and submission of this summary is qualified with your acknowledgement that I am not a securities attorney nor do I maintain a specialization in securities law as this is a highly specialized and complex area of law.
Individuals
An individual will qualify as an accredited investor if that person:
Has an annual income of $200,000 ($300,000 if joint income), and
Has maintained that income level for the past two (2) years, and
Has the expectation of earning the same or higher income in the current year
An individual will qualify as an accredited investor if that person:
Has a net worth of over $1 Million, either individually or jointly with a spouse
An individual will qualify as an accredited investor if that person:
Is a general partner, or
Is an executive officer or director of the company that is issuing unregistered securities
An individual will qualify as an accredited investor if that person:
Can demonstrate sufficient education or job experience showing their professional knowledge of “unregistered securities”, or
Based upon defined measures of professional knowledge, experience, designations or certifications in addition to existing tests for income and net worth, or
Who are “knowledgeable employees” of a private fund, or
Who are SEC and state registered investment advisors
Entities
An entity will qualify as an accredited investor if that entity:
Is a private business development or company or organization and maintains assets which exceed $5 Million, or
Consists of equity owners who are accredited investors, or
The entity itself is an accredited investor (Note: An organization cannot be formed with the sole purpose of purchasing specific securities)
Who may issue qualifying letters to verify that an individual or entity meets the definition of an Accredited Investor for purposes of purchasing unregistered securities?
A third party letter can be issued verifying an investor qualifying an as accredited investor so long as:
The letter is no older than ninety (90) days, and
The letter was written by a licensed attorney, a CPA, a registered investment advisor or a broker dealer
