To qualify as an accredited investor, it is necessary to meet specific net worth or income requirements established by the Securities and Exchange Commission (SEC). The reason for this is to ensure that investors have the means and qualificationss to invest in certain offerings. Below, we look at these qualifications and also address some common misconceptions about what is required tobe an accredited investor.
Qualifications to Become an Accredited Investor
To be considered an accredited investor, a natural person must generally meet one of the following qualifications:
- Have an income greater than $200,000 (or $300,000 with a spouse) in both of the previous two calendar years, along with a reasonable expectation of the same income level in the current year.
- A net worth of over $1 million as an individual or with a spouse, not including the value of a primary residence, and after discounting all liabilities.
Note that with regard to the income requirement, an investor must qualify using the same method for each of the three years, whether the income is single or joint with a spouse. However, an investor could use different statuses e if they were single and then became married, or were married and then became single during the course of the three-year period.
Although an average investor may have experience with investments on the stock market or with mutual funds and bonds, the SEC treats hedge fund investing differently. Investors in these offerings must be accredited, the idea being that they are better able than most to absorb the risks associated with these investments.
Is a Certificate Provided with Accredited Investor Status?
Finally, a mistaken belief regarding the obtaining of accredited investor status is that the investor must pass through special training and testing before becoming certified as an accredited investor. The status of accredited investor is not granted by any agency. There is no exam to be taken and passed and there is no professional investor certificate or document given.
On the contrary, companies that sell unregistered securities are required to carry out their own “reasonable steps” to verify the accredited investor status of an individual or entity that is purchasing securities.
A reliable investor verification service can help companies verify the status of prospective investors with speed and efficiency and ensure compliance with securities laws.