Accredited Investor Qualification as Defined by Rule 501 of Regulation D

by | Jun 25, 2018 | Money And Finance

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You may be familiar with the term “accredited investor” and how certain investments require accreditation. However, it’s important to have a thorough understanding of the definition, the purpose of such a qualification, and what accredited investor qualification means.

Defining an Accredited Investor
An individual or institution that matches specific requirements related to the purchase of securities not offered to the general public may be designated as an accredited investor. The Securities Exchange Commission (SEC) places a requirement upon issuers to offer the sale of securities only after registering them with the SEC or obtaining an exemption from the registration requirements. Selling securities to an accredited investor is one of the requirements of many of these exemptions.

What are the Qualifications?
Regulation D, Rule 501 outlines accredited investor qualification criteria. These include:

 * Any broker or bank or dealer registered in accordance with the Securities Exchange Act of 1934 (Section 15) or any insurance company as described in Section 2(a)(13) of the Act.
 * A Small Business Investment Company licensed under the Small Business Investment Act of 1958 or the Small Business Administration per Section 301(c)
 * An investment company registered pursuant to the 1940 Investment Company Act or a business development company as designated in Section 2(a)(48) of this Act.
 * In accordance with the 1974 Employee Retirement Income Security Act, an employee benefit plan, if a plan fiduciary, per Section 3(21) of the Act, makes the investment decision, whether it involves a bank, insurance company, savings and loan association, or registered investment advisor, or if it has assets exceeding $5 million. If it is a self-directed plan, accredited investors must be the sole persons making the investment decisions.
 * A plan with assets that exceed $5 million that is also established and maintained for employee benefit by state, the state’s political subdivisions, or any instrumentality or agency of the state or its political subdivisions

More concisely, at the entity level, an accredited investor may be a brokerage, bank, employer-sponsored retirement plan, registered investment advisor (RIA), or a trust.

On the individual level, accredited investor qualification requires a yearly income of $200,000 or on a joint basis with the spouse, $300,000, for the previous two years and reasonably believes that the same or greater level of income will continue. A person with a net worth greater than $1 million, either individually or with a spouse may also be considered an accredited investor.

Individuals may also be designated an accredited investor if they are a general partner, an executive director or an officer of the company offering the unregistered securities. .

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