Accredited Investor
An investor meeting specific SEC criteria permitting purchase of unregistered securities under Regulation D. Individuals qualify by (i) net worth >$1M (excluding primary residence), (ii) income >$200K (or $300K with spouse) for last two years with reasonable expectation to continue, or (iii) holding specified professional certifications (Series 7, 65, 82). Entities qualify if they meet specific asset, ownership, or status thresholds. Defined in 17 C.F.R. § 230.501(a).
An accredited investor is an investor meeting specific SEC criteria permitting purchase of unregistered securities under Regulation D. The accredited investor concept is foundational to U.S. private capital raising, most private offerings are limited to accredited investors to qualify for Regulation D exemptions from registration. Individuals qualify by income, net worth, or specified professional certifications; entities qualify by asset thresholds, ownership composition, or specific regulated-entity status.
Individual qualification, financial criteria
Individual investors qualify under Rule 501(a) by meeting any of: (1) net worth test, net worth (alone or with spouse) exceeds $1,000,000, excluding primary residence; (2) income test, individual income exceeds $200,000 in each of the two most recent years (or $300,000 joint with spouse), with reasonable expectation of reaching the same level in the current year. Net worth excludes primary residence value but includes all other assets minus liabilities; mortgage debt up to fair value of residence is excluded from liabilities.
Individual qualification, professional certification (2020 expansion)
The 2020 SEC expansion added accredited investor status for individuals holding specified professional certifications: (1) Series 7 (general securities representative); (2) Series 65 (uniform investment adviser); (3) Series 82 (private securities offerings representative). The certification must be in good standing. The expansion recognizes financial sophistication independent of net worth or income.
Entity qualification
Entities qualify under Rule 501(a) by meeting various criteria: (1) specific regulated entities, banks, insurance companies, broker-dealers, registered investment companies, BDCs, SBICs; (2) employee benefit plans with $5M+ assets; (3) charitable organizations, corporations, partnerships, LLCs with $5M+ total assets; (4) directors, executive officers, general partners of the issuer; (5) entities owned entirely by accredited investors; (6) family offices (with $5M+ AUM, certain governance), added 2020; (7) knowledgeable employees of private funds, added 2020; (8) investment advisers registered with SEC or state, added 2020.
Verification requirements
Reasonable steps to verify accredited investor status are required for Rule 506(c) offerings (general solicitation permitted). Standard verification methods: (1) income verification, reviewing IRS forms (W-2, 1099, K-1, 1040) for last two years; (2) net worth verification, recent third-party documentation of assets and liabilities; (3) third-party verification, written confirmation from registered broker-dealer, investment adviser, attorney, or CPA; (4) self-certification, sufficient for Rule 506(b) but not 506(c). Many issuers use third-party verification services.
Why accredited investor status matters
Accredited investor status enables: (1) Regulation D Rule 506 offerings, most common private placement framework; (2) fewer disclosure requirements in Rule 506(b) offerings; (3) access to private funds; (4) private startup investments; (5) secondary private market participation. Non-accredited investors face substantially more limited private-market access.
For Texas issuers raising private capital, accredited investor status is the gating concept. Best practice: (1) for Rule 506(b), can include up to 35 non-accredited investors but disclosure burdens increase substantially, most issuers limit to accredited only; (2) for Rule 506(c) general solicitation, all purchasers must be verified accredited; (3) maintain documentation of verification; (4) coordinate with subscription agreement representations; (5) update verification at re-investment or new offering. For investors: (1) understand qualification criteria and documentation requirements; (2) recognize that self-certification alone does not satisfy 506(c); (3) for entity investors, evaluate qualification under entity-specific rules; (4) consider professional certification path for individuals with sophistication but below financial thresholds.