There are certain types of investments that require accredited investors and will not accept non-accredited investors. An accredited investor can be a person or an entity. But in order to qualify as an accredited investor, the individual or the entity must fulfill certain accredited investor requirements, which we will cover below.
Individuals who qualify as accredited investors usually have a sizable net worth or a large salary. We cover the specific monetary thresholds below, qualifying based on personal finances is one of the main ways to meet the accredited investor requirements as an individual. It helps you gain access to opportunities such as hedge funds which will usually only work with wealthy investors.
SEC Regulation D, Rule 501
The SEC defines what an accredited investor is in its rules, specifically Rule 501, Regulation D. These rules outline to whom investment firms may sell their securities.
In order to meet the accredited investor requirements as an individual based on finances, you must do so through your net worth or yearly income. You will qualify if you have more than $1 million USD of net worth, not counting the value of your primary residence. This can include the combined assets of spouses or spousal equivalents.
A yearly income of more than $200,000 USD in the last two years as an individual or $300,000 USD as spouses or spousal equivalents with the reasonable expectation of making the same or more income in the current year will also qualify you as an accredited investor.
Beyond the financial tests, you can also qualify for accredited investor status if you possess certain certifications, such as having a Series 7, 65, or 82 license, or if you possess sufficient knowledge due to working for a family office, investment fund, or investment firm.
Certain entities may qualify as accredited investors, including insurance companies, banks, development companies, and investment companies. A partnership or corporation with assets of at least $5 million USD or a business with all its equity owners as accredited investors may also qualify.
Trusts may qualify as accredited investors if they have assets valued at over $5 million USD.
Employee Benefit Plans
An employee benefit plan may also qualify as meeting the accredited investor requirements if it has a minimum of $5 million USD in assets. It may also qualify if an investment firm or bank is making investment decisions for the plan.
If a charity has a minimum of $5 million USD in assets, it may also qualify as an accredited investor.
As you can see, there are various paths to meeting the accredited investor requirements for both individuals and entities.