Accredited Investor Requirements

Some investments require you to be an accredited investor in order to get involved with them. In order to be an accredited investor, you have to meet certain requirements. Here are the basics of being an accredited investor and what the requirements are for becoming one.

Accredited Investors

Accredited investors are individuals that typically have a large amount of net worth. Most of the time, hedge funds require you to be an accredited investor if you want to invest in them. Hedge funds usually only want to work with the wealthy and have a large amount of money to invest.

SEC Regulation

The term "accredited investor" is defined by the SEC in specific legislation. The information comes from Rule 501 of Regulation D. These rules are used to determine who certain investment companies can sell their securities to. In order to become an accredited investor, you have to meet the qualifications that are set forth by the SEC in this legislation.

Businesses

Certain businesses can qualify as accredited investors. For example, banks and insurance companies can qualify as accredited investors. Other businesses that can qualify are registered investment companies, development companies, and small business investment companies. Any corporation or partnership that has assets of at least $5 million can also qualify as an accredited investor. A business could also qualify if all of the partners in the business are accredited investors individually.

Employee Benefit Plans

Another entity that can be considered an accredited investor is an employee benefit plan. In order to qualify in this case, the plan has to have at least $5 million in assets. In addition to that, they could qualify if a bank or an investment company is making the investment decisions on behalf of the plan. 

Charities

Charities could also be qualified as accredited investors. In order to qualify, a charity have to have at least $5 million in assets. 

Trust

Trusts can also become accredited investors. In order to qualify, the trust has to have assets in excess of $5 million.

Individuals

Individuals can also become accredited investors. In order to meet the qualifications as an individual, you have to be wealthy. As an individual, you have to have at least $1 million in net worth. If you are married, you can use the combined assets between you and your spouse to get to this $1 million plateau. 

If you do not have $1 million in net worth, you can still potentially qualify as an accredited investor. In this case, you have to have made at least $200,000 in two of the last three years as an individual. If you are married, you have to have made at least $300,000 in two out of three years with your spouse. After you accomplish this, you also have to have a reasonable chance to make that much money again in the coming year. For example, if you just recently lost your job after earning that much money, you would not still be able to qualify as an accredited investor.

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