The Securities and Exchange Commission (SEC) defines an “accredited investor” as an individual or a business entity that is allowed to deal in securities that are not registered with financial authorities. These are typically high-net-worth individuals or institutional investors.

Accredited investors have special privileges in terms of access to private investment opportunities not available to the general public. This categorization is in place because accredited investors are deemed to be more financially sophisticated and better able to sustain the potential loss of an investment.

Here are the qualifications as they stood January 2022:

For Individuals:

  1. Income Test:
    • An individual with an income of more than $200,000 per year, or $300,000 for those married, for the last two years with the expectation that they will earn at least the same in the current year.
  2. Net Worth Test:
    • An individual or couple with a net worth exceeding $1 million, excluding the value of their primary residence.
  3. Certain Professional Certifications, Designations, and Credentials:
    • Holders of the Series 7, Series 65, and Series 82 licenses.
  4. Knowledgeable Employees of a Private Fund:
    • This applies to individuals who participate in the fund’s investment activities.
  5. Entity Composed of Accredited Investors:
    • An entity in which all equity owners are accredited investors.

For Entities:

  1. Assets Test:
    • An accredited investor is an organization with over $5 million in assets, such as a business, nonprofit, or trust.
  2. Registered Investment Companies:
    • This includes mutual funds, exchange-traded funds (ETFs), and others.
  3. Business Development Companies:
    • Defined by the Investment Company Act of 1940.
  4. Small Business Investment Companies:
    • Licensed by the U.S. Small Business Administration.
  5. Employee Benefit Plans:
    • If the investment decisions are made by a bank, insurance company, or a registered investment adviser, or if the plan has total assets in excess of $5 million.
  6. Family Offices:
    • With at least $5 million in assets under management, and their prospective family clients.
  7. Exempt Reporting Advisers:
    • Advisers who would be required to register under Section 203(l) or 203(m) of the Investment Advisers Act.

Other Entities:

Entities, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered, can also be considered accredited investors.

It’s crucial to be aware that the qualifications can change, and the SEC may periodically update the definitions and requirements. Always refer to the latest documentation from the SEC or consult with a financial or legal professional when determining your accredited investor status.

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