Accredited investors have access to a wider range of investment opportunities under federal securities laws. While there may be more opportunities available to accredited investors, these opportunities can also carry greater financial and legal risks. The law assumes that accredited investors have enough knowledge to protect themselves from these risks. But how does a person or company qualify as an accredited investor? In the United States, the Securities and Exchange Commission operates under the rules of Regulation D, which provides exemptions from securities registration requirements. Businesses and individuals who qualify as “accredited investors” can qualify for a registration exemption under Regulation D. There are two main tests used to prove this accreditation:
Rule 501 of Regulation D sets forth specific income requirements for accredited investors. To qualify, an investor must earn at least $200,000 for the two years prior to the investment, with the expectation of earning the same or more income in the following year. (Couples must earn at least $300,000 annually to qualify.) An individual can not qualify by showing a single year of individual income and two years of joint income as a spouse. These qualifications can become complicated – particularly when a person’s marital status changes over the three-year period – so it is important to consult with a securities lawyer prior to making an investment requiring accreditation.