In this episode of Coffee with Carl, attorney Carl Zoellner breaks down what it means to be an accredited investor and how to become one.

 

 

I field questions about how to become an accredited investor relatively frequently with our clients. Although there are some specific nuances and considerations that are too detailed for this forum, let’s go over the basics of what it means to be an accredited investor and how to qualify.

Becoming an “accredited investor” is related to SEC compliance and is defined in Rule 501 of Regulation D in the Securities Act of 1933. In most cases, if you see the language “accredited investor,” you’re likely looking at private placement memorandums or potentially providing an equity investment in someone’s company.

The real question is: how do you qualify to be an accredited investor? Or, if you set up a syndication deal or raise funds, a similar question is: how do you register your accredited investors?

Oftentimes, if you’re looking to verify accreditation for your investors, there are actually websites out there you can use for this purpose. You could also seek out the assistance of an SEC attorney to help in this regard. I would hazard a guess that the more reasonably-priced route would be to use one of the accreditation or verification sites online.

Income Level

According to the SEC, a simplified definition of an accredited investor for an individual is a natural person with income exceeding $200,000 in two of the three most recent years. If you’re married, the simplified definition is a joint income exceeding $300,000 in two of the last three years.

Additionally, whether an individual or married couple, you’ll also need to have a reasonable expectation that your income will remain at that level in the coming year. In this way, you can’t just have a couple of good years and be accredited without an expectation that your income will continue to be that high. Being accredited doesn’t mean providing a guarantee that you’ll make that much in the next year, but there should be a reasonable expectation that your income will remain stable.

Net Worth

There is one additional way to be an accredited investor. According to the SEC, the second definition of an accredited investor is a natural person who has an individual net worth or joint net worth with their spouse that exceeds $1 million at the time of purchase into the investment. This $1 million net worth cannot include your primary residence.

Accredited Investors & Entities

There are some more specific and nuanced guidelines that I won’t get into here. This is especially true when you’re trying to accredit an entity. In that case, I highly recommend that you dig into this further, or hire an attorney to dig into it for you to ensure you qualify.

The Takeaway

Staying compliant with the SEC is crucial when working with these types of investments. If you’re ready to discuss your investing strategies with a professional, reach out to one of our experienced Advisors to schedule a complimentary Strategy Session. There’s no cost and no obligation, just professional investing insight. You can schedule online or by calling 888.871.8535

 

Watch as Carl covers the SEC’s definition of accredited investors and how to qualify.

 

Resources mentioned in this video:

 

Got an idea for a future Coffee with Carl? Send it to Carl at cwc@andersonadvisors.com.

 

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