How Does Verification of Accredited Investor Status Work?

Access to accredited investors is available through general solicitation in exchange for engaging in a process of accredited investor verification. There are various ways to achieve this necessary verification of accredited investor status.

Verification Through Income

If investors need verification through the income method, they can use official tax return documents such as W-2, 1099, K-1, and others if needed. Those documents are not available for some reason, they may be able to provide evidence through pay stubs, earning statements, or an employer letter certifying their income, or possibly bank statements proving they receive the income.

Verification Through Net Worth

If investors choose the net worth method to obtain accredited investor status, they must prove assets and liabilities without the inclusion of their primary residence for the calculation of net worth.

The math involved in this calculation includes:

  • Adding the assets, not including the value of the primary residence
  • Subtracting the debt on the primary residence accumulated in the previous 60 days
  • Subtracting the debt on the primary residence surpassing the monetary value of the primary residence (with no duplication of item 2 above)
  • Subtracting the debt indicated on the credit report (with no duplication of items two and three above
  • Subtracting additional liabilities (with no duplication of items 2, 3, and 4 above)

The verifier should review U.S. credit reports from investors to verify liabilities. The Verifier should also ask investors for written disclosure of other liabilities.

For assets, investors need to provide evidence showing assets that indicate a net worth of $1 million USD minimum not including the value of their primary residence and subtracting all other liabilities based on the above-listed criteria. The assets could consist of property not their primary residence, brokerage accounts, bank accounts, automobiles, boats, art, or other things of value.

In this process of verifying accredited investor status, all documentation obtained from the investor should not be more than 90 days old (certain exceptions apply). Investors must distinguish between their own assets and assets they have some ownership interest in, such as real estate property through an entity. In that case, the investor would need to prove a valuation of their ownership interests in the entity – for example an LLC.

Contact an experienced accredited investor verification firm today to get the process of verification started.

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