Accredited Investor Requirements for Individuals and Institutions

The term “accredited investor” has become a highly significant term in the arena of investing and finance. Accredited investors may be persons or entities that fulfill certain criteria in the financial sense and are thus recognized as having the ability to take on certain risks associated with particular investment opportunities. The accredited investor requirements are in place to shield investors in the greater financial markets from these risks.

Only one of the accredited investor requirements mentioned below must be met in order for a candidate to achieve accredited investor status.

The Requirements for Individuals:

  1. Income: The income requirement to achieve accredited investor status is $200,000 USD yearly (earned in the previous two years), or $300,000 USD with a spouse or spousal equivalent.
  2. Net Worth: On the other hand, an individual may achieve accredited investor status if he or she has at least $1 million USD of net worth, owned alone or with a spouse or spousal equivalent, and which does not include the value of the person’s primary residence.
  3. Professional Qualifications: Individuals who have certain professional credentials, designations, and certifications, or function in certain professions, can also qualify as an accredited investor. This includes individuals who work for private funds or other knowledgeable fund employees, in addition to state or SEC-registered investment advisors, and persons possessing other pertinent professional qualifications.
  4. Professional Licenses: An individual may earn accredited investor status by obtaining certain financial licenses, i.e. Series 7, 65, or 82, which demonstrate the individual possesses a particular level of financial knowledge and savviness.

The Requirements for Entities:

Accredited investor status does not only belong to individuals, it can also belong to certain institutions or entities. The accredited investor requirements for these institutions are as follows:

  1. A Trust: Trusts must possess a minimum total asset value of $5 million USD. They also must not have been created for the purpose specifically of buying securities. A sophisticated person must also be making the investments.
  2. Certain Entities: Particular entities with a minimum of $5 million USD in investments may operate as accredited investors as long as their creation was not for the specific purpose of buying up securities.
  3. Entities with Accredited Owners: If the equity owners of an entity happened to be accredited investors, the entity itself may be identified as an accredited investor.

Accredited investor requirements are crucial for ensuring both institutions and individuals possess the financial strength and savviness to participate in highly profitable, and yet high-risk investment opportunities. Therefore, if you are interested in pursuing accredited investor status, it is important to have a complete understanding of these requirements.

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