Accredited investor

An accredited investor is a person or entity that meets one of the tests in Rule 501(a) of Regulation D, which the SEC uses to decide who may invest in private offerings without the disclosures a public offering requires. The tests rest on income, net worth, professional credentials, or, for entities, assets and investments.

Natural persons

A person is accredited if any of these applies:

• Income. Income over $200,000 in each of the two most recent years, or joint income with a spouse or spousal equivalent over $300,000, with a reasonable expectation of the same in the current year.
• Net worth. Net worth over $1 million, alone or with a spouse or spousal equivalent, excluding the value of the primary residence.
• Credentials. Holding a Series 7, Series 65, or Series 82 license in good standing.
• Insider status. Being a director, executive officer, or general partner of the issuer, or a "knowledgeable employee" of a private fund investing in that fund.

The dollar thresholds are not indexed to inflation and have not changed since the net worth test was amended in 2011 to exclude the primary residence. The credential and spousal equivalent tests were added in amendments effective December 8, 2020.

Entities

Entities qualify on several paths, including banks, broker-dealers, registered and certain exempt investment advisers, insurance companies, and investment companies; corporations, LLCs, partnerships, trusts, and similar entities with over $5 million in assets not formed to buy the securities; any entity owning over $5 million in investments; family offices with over $5 million in assets and their family clients; and any entity whose equity owners are all accredited investors. The full list is in Rule 501(a) and the SEC's investor bulletin.

Where it matters

• Rule 506(b) may sell to unlimited accredited investors and up to 35 non-accredited but sophisticated investors, without general solicitation.
• Rule 506(c) may advertise but sell only to accredited investors, and the issuer must take reasonable steps to verify status rather than accept a self-certification.
• Regulation Crowdfunding has no investment limit for accredited investors; others are limited per 12 months.
• Regulation A Tier 2 limits a non-accredited person to 10% of the greater of annual income or net worth unless the securities will be listed on a national exchange; accredited investors have no limit.

Why it matters to marketing

Accredited status decides the size of the addressable audience. A 506(c) campaign has to find and verify a small, expensive-to-reach group; a Reg CF or Reg A campaign can speak to anyone. Targeting by proxies for wealth is imprecise, so the verification step sits inside the funnel and has a cost. See investor-acquisition and securities-offering-exemptions-compared.

Further reading

• reg-cf-limits-explained
• crowdfunding-vs-traditional-fundraising
• reg-a-plus-and-reg-d-at-once
• agencies-guessing-at-investor-targeting

This page is general information about securities rules, not legal advice. Whether a particular investor qualifies, and how an issuer should verify it, are questions for securities counsel.