The Securities and Exchange Commission (SEC) restricts certain investment opportunities to only certain financially capable individuals. These restricted investments are less regulated but often provide better-than-average returns. There is a cost associated with regulation and protection, and one of those costs is limiting these investments to fsophisticated investors. Below we take a look at the question, “Am I an accredited investor?”
The SEC believes accredited investors are able to handle the higher economic risk associated with participating in unregistered securities. According to the SEC, those without this status may be taking on excessive financial risk if they participate in these offerings. Thus, they are excluded. For anyone who wants to qualify as an accredited investor, there are a number of requirements that need to be met..
Accredited Investor Qualifications
Now you want to find the answer to the question, “Am I an accredited investor?” The basic requirements per the Securities Act of 1933 Regulation D to qualify as an accredited investor are either of the following:
- Having an annual income of $200,000 in the last two years (or $300,000 with a spouse), and a reasonable expectation of the same income in the current year.
- Having a net worth above $1,000,000 (not including the value of your primary residence, and discounting all other liabilities).
Rule 506(c) gives issuers the ability to publicly market and solicit investments, provided they sell securities exclusively to accredited investors. As one of these investors, you have permission to participate in marketed passive investments not available to non-accredited investors.
What About Non-Accredited Investors?
Rule 506(b) of Regulation D gives limited numbers of non-accredited investors the ability to invest in a syndicated deal. Investors are defined as sophisticated under the law if they have adequate knowledge and experience in business and financial matters to consider the risks and benefits of a particular investment opportunity.
Per the SEC, every 506(b) securities offering is restricted to 35 non-accredited (sophisticated) investors. Due to the fact the issuers are not permitted to market their investment offerings to non-accredited investors, sophisticated investors who want to participate should actively network with these issuers to obtain information and access to these deals. Under the law, a pre-existing relationship must exist between issuers and investors in order for all investors to have access to these passive investments.
Now that you understand the question, “Am I an accredited investor?” consider taking the next step of learning about the investment opportunities available.
