Who Is an Accredited Investor?
An accredited investor is a person or entity the SEC treats as able to bear the risk of private investments. For individuals, the main tests are income above $200,000 ($300,000 with a spouse) in each of the last two years with a reasonable expectation of the same this year, or net worth over $1 million excluding the primary residence. Holders of certain securities licenses and some entities also qualify.
Individuals
- Income test. Individual income over $200,000, or joint income with a spouse or spousal equivalent over $300,000, in each of the two most recent years, with a reasonable expectation of reaching the same level in the current year.
- Net worth test. Net worth over $1 million, alone or with a spouse or spousal equivalent, excluding the value of the primary residence.
- Professional certifications. Holders in good standing of the Series 7, Series 65 or Series 82 licenses.
- Knowledgeable employees. Employees of a private fund who participate in its investment activity, when investing in that fund.
How net worth is counted
Net worth is assets minus liabilities. The primary residence is not counted as an asset. Debt secured by the primary residence is generally not counted as a liability up to the home's estimated fair market value, but additional mortgage debt incurred in the last 60 days, other than to acquire the home, does count. Rules for vehicles, retirement accounts and illiquid assets follow the same general approach: include what you own and subtract what you owe.
Entities
| Entity | General test |
|---|---|
| Corporations, LLCs, partnerships, trusts | Total assets over $5 million and not formed solely to invest in the offering |
| Entity owned entirely by accredited investors | Qualifies on that basis |
| Registered investment advisers and exempt reporting advisers | Qualify |
| Banks, broker-dealers, insurance companies, funds | Qualify as listed institutions |
| Family offices | Over $5 million in assets under management, with additional conditions |
Revocable trusts and retirement accounts
A revocable trust can generally qualify if the grantors qualify. A self-directed IRA investing in a deal can qualify based on the account owner, subject to the rules for the specific account. Because details matter, the sponsor should ask for the information it needs and keep it with the investor's file.
Why the definition matters
Whether investors are accredited decides which exemption you can use, what disclosure you must give and whether you can take them at all. Sponsors should not rely on a checkbox if they know facts that contradict it. See 506(b) vs 506(c) and verifying status. The SEC can change the definition, so confirm the current rule.
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Book Free ConsultationFrequently asked questions
Does my home count toward net worth?
No. Your primary residence is excluded from the $1 million net worth test.
Can I be accredited based on a professional license?
Yes, if you hold a Series 7, 65 or 82 license in good standing.
Can my spouse and I combine net worth?
Yes. The net worth test can be met jointly with a spouse or spousal equivalent.
Is an LLC accredited?
It can be, if it has more than $5 million in assets and was not formed to invest in the offering, or if every owner is accredited.