Accredited investor. ... Generally, accredited investors include high-net-worth individuals, banks, financial institutions and other large corporations, who have access to complex and higher-risk investments such as venture capital, hedge funds and angel investments.......An accredited or sophisticated investor is an investor with a special status under financial regulation laws. The definition of an accredited investor (if any), and the consequences of being classified as such, vary between countries. Generally, accredited investors include high-net-worth individuals, banks, financial institutions and other large corporations, who have access to complex and higher-risk investments such as venture capital, hedge funds and angel investments.
Laws may require that some types of financial offerings may only be made to accredited investors.[1].......Accredited Investor
REVIEWED BY JAMES CHEN Updated Feb 23, 2019
What is an Accredited Investor
An accredited investor is a person or a business entity who is allowed to deal in securities that may not be registered with financial authorities. They are entitled to such privileged access if they satisfy one (or more) requirements regarding income, net worth, asset size, governance status or professional experience. In the U.S., the term is used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings. Accredited investors include natural high net worth individuals (HNWI), banks, insurance companies, brokers and trusts.......BREAKING DOWN Accredited Investor
The term originates from the English word ‘accredited’ which literally means someone who has been given special authority or sanction if they meet certain recognized standards. Accredited investors are most popular for purchasing securities which are not registered with the regulatory authorities like the SEC. Since the capital raising exercise involves a complex and costly process including regulatory filings, many companies offer securities to the accredited investors directly. The companies are exempted from registering securities with the SEC which saves a lot of cost for them, and are allowed to sell the shares to qualified accredited investors. Participants in such types of private placements are at the risk of losing their entire investment, and therefore authorities need to ensure that they are financially stable, experienced and knowledgeable about their risky ventures.
The role of the regulatory authorities in such transactions is limited to verifying or offering the necessary guidelines for setting benchmarks for an individual or entity to qualify as an accredited investor – that is, the applicant must possess the necessary financial means and knowledge to take the risks involved in investment in such unregistered securities. Other arenas to which the accredited investors have privileged access include venture capital, hedge funds, angel investments, and deals involving complex and higher-risk investments and instruments.......equirements for Accredited Investors
The regulations for accredited investors vary from one jurisdiction to the other and are often defined by the local market regulator or a competent authority. In the United States, the definition of accredited investor is put forth by SEC in Rule 501 of Regulation D.
To be an accredited investor, a person must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income in the current year. An individual must have earned income above the thresholds either alone or with a spouse over the last two years. The income test cannot be satisfied by showing one year of an individual's income and the next two years of joint income with a spouse. The exception to this rule is when a person is married within the period of conducting a test.
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