Accredited investors are individuals or entities that can invest in securities that are not registered with financial authorities such as the Securities and Exchange Commission (SEC). To meet accredited investor requirements, an investor must satisfy one or more particular tests, such as the income test and net worth test, or other criteria such as professional experience, governance status, and asset size.
Income Requirement
Under the income criteria, an individual must earn a yearly income of $200,000 USD ($300,000 USD joint income with a spouse) for each of the previous two years with the anticipation of reaching the same or higher income in the current year. The individual must have made this income either individually or with a spouse during the previous two years.
Net Worth Requirement
With a net worth in excess of $1 million USD excluding the value of the primary residence, a person may be categorized as an accredited investor. The net worth may be calculated individually or jointly with a spouse.
Other Way to Meet Accredited Investor Requirements
A person may be considered an accredited investor if he or she is an executive officer, general partner, director, or a combination of these for the issuer.
How is Net Worth Calculated?
Net worth consists of the sum of all assets minus liabilities. The assets can include stocks and bonds, investment properties, cash or equivalents to cash, among others. Net worth does not usually include loans; however, if a loan is secured by personal assets (for instance, a home equity line of credit), it may be counted. Also, a primary residence may not be counted in the net worth calculation to fulfill the accredited investor requirements.
If you need to verify potential investors’ accredited investor status in your securities offerings, or if you are looking to verify yourself as an accredited investor, contact an experienced verification service today.
