Accredited investors are those individuals or entities that do not need the protections afforded by registration with the SEC. Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. One of the exemptions from having to register securities is to sell them to accredited investors according to rules 505 and 506 of Regulation D.
The federal securities laws define the term "accredited investors" as:
- A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase.
- Accredited investors are natural persons with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
- A broker/dealer registered with the Commission under the Exchange Act purchasing for its own account as an investment is included. [Rule 501(a)(1)].
- A trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
- A charitable organization, corporation, or partnership with assets exceeding $5 million.
- A director, executive officer, or general partner of the company selling the securities.