Who Qualifies as an Accredited Investor?

Jump to Section

Need help with an Investment Contract?

CREATE A FREE PROJECT POSTING
Post Project Now

Accredited investors consist of many people and entities, from banking giants to Fortune 100 companies down to hobby investors and families saving for college and retirement. It is also a rapidly expanding group of investors.

Whether you’re considering dabbling in the rarified group of investors or just curious about how it works, the article below outlines what to know about accredited investors.

What is an Accredited Investor?

An accredited investor is an individual or business entity with strong financial knowledge and high net worth. They are allowed to invest in securities, such as convertible notes and hedge funds. An accredited investor is not registered with the SEC and must satisfy specific criteria.

Finance laws created accredited investors to help companies bypass SEC public reporting requirements in response to the Great Depression to improve market capital access. Accredited investors remain privately-owned but trade under an exemption in the law, and accredited investor sales fall under these exemptions. As long as these individuals have a sufficient net worth to cushion against losses, they are not subject to SEC reporting rules and regulations.

Here is an article that also defines accredited investors.

Benefits of Being an Accredited Investor

There are several benefits of being an accredited investor. These individuals are highly qualified but unaware of how powerful their position is. Some of these benefits include the ability to invest in small businesses, the diversity of an investment portfolio, and access to more favorable returns.

Below, we’ve taken a closer look at three of the benefits of being an accredited investor:

Benefit 1. Favorable Investment Opportunities

A private placement is when a business raises capital outside of the public capital markets. These private placements offer higher yields than the public markets since the underlying issuer has available capital. Gaining access to higher-yield capital markets is far easier when you are an accredited investor.

Learn more about private placement memorandums .

Benefit 2. Small Businesses Investment Opportunities

Accredited investors can support small businesses with missions that align with their values, and Seed-funding platforms connect them with startups at any stage of their development. Typical small business investment opportunities include food manufacturers, “Main Street” businesses, online retailers, product manufacturing, social causes, and other small businesses startups.

Benefit 3. Investment Portfolio Diversity

As interest rates rise, investing exclusively in the public markets stagnates investment portfolios with limited diversification options. Finding non-correlated alternative assets and debt securities in which to invest will reduce systematic risk and exposure. As an accredited investor, you have access to capital that non-accredited investors do not.

Here is an article that also discusses accredited investors.

Who Qualifies as an Accredited Investor?

The SEC requires accredited investors to possess a specific level of wealth, knowledge, income, and due diligence to invest in opaque financial securities. It is not easy to qualify as an accredited investor, which is another reason why it is highly prized.

You may qualify as an accredited investor if you meet the following requirements:

  • Requirement 1 . Possess professional certifications or credentials or work as a knowledgeable employee at a private fund.
  • Requirement 2 . Have a net worth that exceeds $1 million, excluding the value of your primary residents, as an individual or with a spouse.
  • Requirement 3 . Earn above $200,000 per year individually or $300,000 with a spouse with a two-year lookback period and demonstrate the ability to maintain these thresholds for the remaining year.

As you can see, there are very stringent financial and professional requirements. Ensure that you discuss your situation with securities lawyers if you are wondering about your qualifications. You can learn more about qualifying as an accredited investor here .

Learn about investor rights agreements .

Meet some lawyers on our platform

Agnes M.

2 projects on CC
View Profile

Richard N.

39 projects on CC
View Profile

Bryan B.

37 projects on CC
View Profile

Michael K.

14 projects on CC
View Profile

How to Become an Accredited Investor

There are specific criteria and standards that you must meet to become an accredited investor. The SEC recently passed new rules that make the qualification process more accessible. You must pass two specific tests to become an accredited investor and receive approval.

Here is a step-by-step process that shows you how to become an accredited investor:

Step 1. Meet Specific Financial Requirements

The most direct way to become an accredited investor is to have a net worth that exceeds $1 million or earns at least $200,000 per year . Firms will consider individuals with spouses who collectively have a pre-tax income of $300,000. Couples also need to pass the $1 million net worth threshold, not including their primary place of residence.

Learn about statements of net worth .

Step 2. Pass the Knowledge Test

There are two types of knowledge tests used to qualify as an accredited investor. These types include specific credentials or knowledgeable employee status. The qualifications necessary for your situation will vary according to your employment or credentialing.

Here is a closer look at the two types of knowledge tests below:

Credentials and Certifications

You must pass the knowledge test to become an accredited investor. Possessing specific professional credentials, certificates, and more from a high-education or accredited institution, such as Financial Industry Regulatory Authority (FINRA) , will help you earn accredited investor status. With the proper certification and knowledge, accredited investors can carry out investments for other individuals and entities.

Knowledgeable Employee Test (Private Funds Only)

Private fund employees can qualify under the knowledgeable employee designation. Knowledgeable employees serve in a high capacity over a private fund or affiliate, such as a director, executive officer, partner, or trustee. These individuals can be employees who participate in investment activities of their employer for at least 12 months.

Step 3. Obtain Accredited Investor Documentation

Proving your accredited investor qualifications starts with careful documentation. Here are some documents that you may need to obtain to verify your status:

  • Financial statements
  • Bank account statements
  • Credit reports
  • Tax returns and documents
  • FINRA certifications

Your primary residence’s value is not something you can include in your net worth report. However, you may add investment properties and vacation homes as long as you can verify ownership and valuation. The financial firm reviewing your submitted documents will accept or deny your accredited investor status.

Step 4. Apply to Become an Accredited Investor

The SEC requires accredited investor issuers to verify that an accredited investor meets the requirements above concretely. This process does not skim over self-affidavits and forms to check off items on a list. Instead, issuers use verification methods to confirm their status.

Two types of verification may occur, including individual and entity verification, as described below:

Type 1. Individual Verification

An individual can prove their qualifications by providing their tax documents for income over the last two years. Bank statements and accounts can help issuers understand more information about the subject’s finances. The issuer can request any type of documentation necessary to determine their eligibility and status.

Type 2. Entity Verification

Entity verification involves locating assets and investments by a bank or brokerage firm that maintains the accounts. These documents must fall within a 90-day time frame when going through the verification process. Verification methods can also confirm accredited investor status by identifying individuals of an entity and then pursuing the verification process for individuals.

Final Thoughts For Accredited Investors

Upon approval, you have valid accreditation for at least one year or until the following tax day. At this point, you are ready to invest in capital markets that matter to you. Financial services lawyers can help you manage your investments and protect your legal rights with convertible promissory notes , private placement memorandums, and other investment contracts .

Get Help from a Qualified Lawyer

Do you need help from a lawyer who specializes in investments?

Post a project in ContractsCounsel’s marketplace to receive flat fee bids from lawyers in our network. All lawyers are vetted by our team and peer-reviewed by customers for you to explore before hiring.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

ContractsCounsel verified
Attorney
11 years practicing
Free Consultation

Jaclyn is an experienced intellectual property and transactional attorney residing and working in NYC, and serving clients throughout the United States and internationally. She brings a targeted breadth of knowledge in intellectual property law, having years of experience working within the media, theater, PR and communications industries, and having represented clients in the music, entertainment, fashion, event production, digital media, tech, food/beverage, consumer goods, and beauty industries. She is an expert in trademark, copyright, and complex media and entertainment law matters. Jaclyn also taught as an Adjunct Professor at Cardozo School of Law, having developed and instructed the school’s first Trademark Practicum course for international students. In her spare time, Jaclyn’s passion for theater and love for NYC keeps her exploring the boundless creativity in the world’s greatest city!

ContractsCounsel verified
Principal
2 years practicing
Free Consultation

A bilingual attorney graduated from J.D. with a C.P.A. license, an M.B.A. degree, and nearly ten years of experience in the cross-border tax field.

ContractsCounsel verified
Lawyer
13 years practicing
Free Consultation

Experienced and business-oriented attorney with a great depth of contract experience including vendor contracts, service contracts, employment, licenses, operating agreements and other corporate compliance documents.

ContractsCounsel verified
Attorney
23 years practicing
Free Consultation

With over 21 years of practice, Chet uses his vast experiences to assist his clients in the most efficient manner possible. Chet is a magna cum laude graduate of University of Miami School of Law with an extensive background in Business Law, Commercial Real Estate, Corporate Law, Leasing Law and Telecommunications Law. Chet's prior experience includes 5 years at two of the top law firms in Georgia and 16 years of operating his own private practice.

ContractsCounsel verified
Managing Partner
40 years practicing
Free Consultation

Steve Clark has been practicing law in DFW since 1980. He is licensed in both Texas and Louisiana state and federal courts. He concentrates his practice on business clients and their needs. He has been a SuperLawyer in Texas since 2011, and is Lead Counsel rated in Business Law. He is also a Bet the Company litigator in Texas.

ContractsCounsel verified
attorney
12 years practicing
Free Consultation

I am a top-performing bi-lingual legal services professional with a proven record of success. Reputation of assessing and evaluating client’s needs and providing individualized solutions in line with those needs while efficiently handling multiple tasks simultaneously. Able to create a collaborative work environment ensuring business objectives are consistently met. Seeking an attorney role within a legal setting to apply skills in critical thinking, executive communications, and client advocacy.

ContractsCounsel verified
Managing Partner
11 years practicing
Free Consultation

I run a small law firm in Pasadena, CA. I have been practicing for almost 10 years and the other attorneys at my firm each have 12+ years of experience. We focus on business and employment law, protecting and defending business owners. While my clients are all sizes, I particularly enjoy helping smaller companies and individuals manage their legal needs without the high price tag.

ContractsCounsel verified
Principal
40 years practicing
Free Consultation

I have over 25 years' experience representing individual and company clients, large and small, in transactions such as mergers and acquisitions, private offerings of securities, commercial loans and commercial endeavors (supply contracts, manufacturing agreements, joint ventures, intellectual property licenses, etc.). My particular specialty is in complex and novel drafting.

ContractsCounsel verified
Litigation Attorney
5 years practicing
Free Consultation

I assist individuals and businesses across the state of Florida with contract drafting, contract interpretation, and issues that may arise because of contract terms, including demands (cease-and-desist letters) and litigation. I have experience with general service contracts, non-compete agreements, settlement agreements, and many other contracts. Please reach out if I can help you with a contract-related project!

ContractsCounsel verified
Attorney
5 years practicing
Free Consultation

Brianna is a well-respected attorney with a Juris Doctorate degree in law from Touro College Jacob D. Fuchsberg Law School and bachelor’s degree in Business Administration and Management from Dowling College. Since becoming an attorney, she has practiced in various areas including business law, corporate law, real estate, criminal law, traffic law, employment law, landlord tenant law, estate planning, and has represented intermediaries in procurement and the personal protective equipment industry. Brianna has broad and extensive business experience; She is an entrepreneur and co-owner of a manufacturing company that was built by her and her partner, where she also served as the Chief Legal Officer/General Counsel and Human Resource Manager for the company. She also created a brokerage firm for business transactions and is a co-owner in several other businesses. Brianna’s involvement in various businesses over the past 15 years provides a unique skillset to her clients; Not only does she understand contractual principals and obligations from a legal perspective while drafting and negotiating agreements, but she also has the foresight and ability to ensure the agreement reflects the practical aspects of the business. Based on the client’s needs and desired outcome, she has the forethought to cover different angles that would be overlooked from a legal standpoint but have consequence in business. She conducts risk assessments and minimizes client’s risk and exposure to potential liability. Additionally, she specializes in drafting and negotiating agreements. Negotiating is a passion of hers; in law school, she was a member of the Alternative Dispute Resolution Society and won the intraschool negotiation competition. Brianna believes in quality over quantity. She treats every client as a top priority; thus, she will not take on many cases at a time because she wants to give each client the focus and attention they deserve. She has sharp attention to detail and is a forceful advocate for every client.

ContractsCounsel verified
Outside General Counsel / Business Attorney
34 years practicing
Free Consultation

Experienced and broad based corporate/business attorney and Outside General Counsel (OGC), for start-ups, small businesses and growing companies of all sizes, advising and assisting clients with corporate and LLC formation, contracts and agreements, internet and terms of use/service agreements, trademarks and intellectual property protection, the purchase and sale of businesses (M&A), labor and employment matters, compliance and risk management, corporate governance, and commercial leasing matters. See other reviews on my website at www.ogcservices.net/reviews

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call