Becoming an accredited investor does not involve participating in an application or submission process. You don’t qualify as an accredited investor in the same way you might qualify for a mortgage or bank loan after making an application. The process of how to be an accredited investor involves meeting certain eligibility requirements established by the U.S Securities and Exchange Commission (SEC).
What Qualifies Someone as an Accredited Investor?
To qualify as an accredited investor as an individual, there are several tests of which only one must be passed to obtain the status. These tests include but are not limited to:
• Net worth
• Income
• Knowledgeable employees of private funds
• Certain professional certifications or designations
The net worth and income criteria may be defined as financial tests. The knowledge employees and professional certifications or designations criteria may be defined as knowledge tests. These tests define how to be an accredited investor as an individual.
Financial Tests to Qualify as an Accredited Investor
Income Test
As an individual, you may qualify if you have a yearly gross income of $200,000 USD or greater in the past two most recent tax years with the reasonable expectation of earning the same or greater in the current calendar year and coming year. The amount becomes $300,000 USD as joint income with a spouse or spousal equivalent.
Individual Net Worth
Again, as an individual, if you have a net worth of more than $1 million USD minus the value of a primary residence, you qualify as an accredited investor.
Knowledge Tests to Qualify as an Accredited Investor
Professional Certifications or Designations Test
Having certain professional certifications, designations, or credentials issued by an educational institution will make you an accredited investor. For example, being in good standing with the Series 82, 65, or 7 licenses will qualify you for accredited investor status. The SEC has also reserved the right to reconsider previous or add new certifications, credentials, or designations in the future.
Knowledgeable Employees of Private Funds
Being a knowledgeable employee of a private fund will qualify you as an accredited investor. These employees are defined by the SEC with specificity.
• General partner, director, executive officer, advisory board member, or other person serving in a similar manner, of the private fund or affiliate management individual.
• A private fund’s employee or affiliated management individual who participates in the fund’s investment activities or other private funds, or investment businesses for a minimum of 12 months.
Other Types of Accredited Investors
The following may also be accredited investors:
• An LLC or corporation with total assets greater than $5 million USD and was not created for the specific purpose of obtaining the securities offered.
• Financial institutions
• Certain insurance companies
Regulations D contains terms and definitions that break down in more detail the types of accredited investors. How to be an accredited investor is straightforward with an understanding of the requirements established by the SEC.
