When you begin investing outside the realm of the stock market, you will start to see a term appear quite often – “accredited investor”. Rules are in place involving accredited investor requirements to protect investors if companies want to raise a large sum of capital. Any person can decide to establish a company, accept investors, and suddenly disappear. Sadly, this happens too often in the cryptocurrency market. Registration with the Security and Exchange Commission (SEC) is required if you want to take your company public.
The rules that involve accredited investors have been established to give some flexibility to the registration requirements of private securities, allowing companies to solicit investors without the need to register with the SEC. However, these types of securities may only be purchased by investors who, based on their net worth or income, have the financial capability to absorb a certain amount of risk.
The Accredited Investor Requirements
The majority of real estate crowdfunding sites require an individual to be accredited investor in order to participate. To qualify as an accredited investor, you must meet the following requirements:
• Have an annual income of $200,000 minimum (or $300,000 minimum jointly with a spouse) for the previous two years, with an expectation of making the same income or greater in the current year, or
• Have a net worth exceeding $1 million (either individually or jointly), not including the investor’s primary residence.
A company may request more information to verify the accredited investor status of an investor. You may also be asked to sign a document that states you are an accredited investor.
Why the Requirement?
Accredited investor requirements are in place because the SEC wants to ensure individuals investing in unregistered securities are financially capable of doing so and can afford to sustain significant financial losses if the investment does not work out.
These investment deals are often referred to as private placements. They do not require registration of the SEC. Therefore, you do not receive as much information from them as you would expect from a company trading publicly on the stock exchange. The assumption is that accredited investors are able to conduct due diligence on their own.
