- April 28, 2022
- Posted by: John Fischer
- Category: Accredited Investors
What is an accredited investor? What are the accredited investor qualifications? How do I qualify as an accredited investor? This is a common question we receive in our work. Here is a guide to understanding what an accredited investor is and how you can qualify to be one.
The term “accredited investor” refers to individuals who meet certain criteria that allow them to invest in highly risky financial instruments that are otherwise available only to wealthy, sophisticated investors. As a result, only investors who fall into this category can invest in most startups, venture capital funds, and some other products. The term “qualified” means that you are an accredited investor.
What are accredited investor qualifications?
To be considered an accredited investor, you must have a net worth of US$1 million or greater (this does not mean your net worth has to be in US$1 million increments alone; it is the value of your total stock and investment assets multiplied by $1 million). That said, there are other accreditations that the SEC allows investors to use. They include the following:
Having an individual income of at least $200,000 in each of the two most recent years or a joint income of $300,000 for those years ($300,000 if married filing separately). If you do not meet these requirements but your spouse does, then you may count your spouse’s income.
An entity or trust can be considered accredited if it has assets greater than US$5 million. If you are married and file a joint tax return with your spouse, your joint income requirement is reduced to US$250,000 ($125,000 if filing separately), plus any income from property owned by the trust or entity.
In general, the SEC says that accreditation should be based on how much you can afford to lose. In other words, if you are not an accredited investor but still invest in startups with other investors (e.g. angel investors) that is not a problem. However, if you are an accredited investor and invest in startups with other accredited investors, you will likely not be able to participate in the highly-risky investments that are available to those who qualify as accredited investors.
Characteristics of an Accredited Investor
They must have a net worth of at least $1 million (not through $5 million or $10 million or any other number). They must meet income requirements. The SEC guidelines for accreditation are set forth in general terms in Rule 501 of Regulation D. If you do not meet the income requirements, then you can still participate in a company’s offering if you meet the other criteria.
If you have any questions regarding accredited investor qualifications please contact us!