The Accredited Investor Income Test and Net Worth Test According to the SEC

An accredited investor is an individual or entity who is considered capable of handling particular risks connected with certain types of investment offerings. These offerings can include private placement deals, venture capital funds, hedge funds, and real estate crowdfunding investment opportunities. With respect to these opportunities, there are some requirements to be considered qualified to participate – in essence, there is an accredited investor income test and net worth test based on criteria laid out by the SEC that must be met.

Investment Opportunities

Accredited investors have investing options that extend beyond securities listed on the stock exchange. The businesses and organizations that offer these opportunities also benefit from having these types of investors participating in their projects.

The company requiring capital, for example, may offer its private stock to accredited investors. By doing so, the company can be exempted from the high expenses of registering its securities under regulatory powers and having a public hearing.

The Securities and Exchange Commission (SEC) specifically determines the criteria for becoming an accredited investor, which here, we may refer to as the accredited investor income test and net worth test. However, there is no set in stone process that designates you as having accredited status – in other words, you will not receive a certificate in the mail indicating you are accredited.

Is the responsibility of each company to take due diligence and evaluate whether a particular individual or entity matches the accredited investor criteria set by the SEC.

The Requirements

To qualify as someone with accredited investor status, generally, you must fulfill one of two tests. Here are the basics:

1. The accredited investor income test, which requires you to have at least $200,000 ($300,000 joint income with a spouse) for the previous two years with the expectation of having the same or greater income during the current year: or

2. The accredited investor net worth test, which requires a net worth greater than $1 million total assets (not including the value of your primary residence, and after discounting all your other liabilities including liabilities exceeding the value of your primary residence and liabilities incurred on your primary residence within the last 60 days) either as an individual or jointly with a spouse.

In addition, an individual may be considered an accredited investor if they are a director, executive officer, or general partner of the issuer of the securities being offered or sold, or a director, executive officer, or general partner of a general partner of that issuer. Or a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a certified public accountant has already verified me as an accredited investor within the last three months.

For more information about the accredited investor verification, as well as other details and requirements about the verification tests, contact a company with extensive investor verification knowledge and experience.


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