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Thursday, January 19, 2023 6:02:00 PM
How do I become an accredited investor
Becoming an accredited investor opens the door for certain people to invest and potentially multiply their money. If your goal is to grow your money through investing, there are a few things you should know about to make it happen.
To be an accredited investor you must meet the criteria set out in Rule 501 under the Securities Act 1933 (Reg. D) which defines an accredited investor in these two ways:
- "An individual with an income of more than 200,000 in each of the last two years or with a combined income of more than 300,000 for those years and a reasonable expectation of the same income in the current year.
- "An individual who has net worth individually or with the person's spouse that exceeds $1 million, excluding the value of that person's primary residence."
The last part of the second bullet point is a change introduced during the 2010 passage of the Dodd-Frank Act. Prior to the passage of the law, priority residence was not an exclusion from an individual's net worth. Those who had already made investments before the law was passed were drafted into large estates.
The process
Contrary to popular belief, there is no actual "process" a person goes through to become an accredited investor. There is no one to apply to and no official designation that makes someone an accredited investor. Claiming that someone is “accredited” is very misleading as there is no one who officially “accredits” you other than you and the company you wish to invest in.
How do accredited investors prove it?
In reality, a company wishing to issue securities or its representatives will provide a questionnaire asking potential investors to provide information to demonstrate that they meet the necessary criteria. No formal agency confirms an investor's accreditation. Since September 2013, the SEC has required anyone selling to accredited investors to complete several steps to verify that status. One person ticking a box or claiming to meet the qualification is not sufficient.
Individuals who base their qualifications on meeting the minimum income requirement will likely need to submit W-2 forms, tax returns, and other documents proving wages. In some cases, individuals may also provide letters from investment brokers, tax attorneys, and CPA reports.
The issuing company bears the brunt of any violations that may arise at the SEC. In some situations it will be obvious that the investor is accredited and others where it makes sense to circle the questionnaire to have them walk you through the requirements step by step to ensure they thoroughly understand the representations made in the agreement .
It is important to realize that accredited investor status is based on financial metrics. That means investors have more money, but larger funds are also at risk. It is very important for individuals to understand what an accredited investor actually is.
Source
https://www.manhattanstreetcapital.com/de/blog/administrator/how-become-accredited-investor
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