Accredited Investor
An investor meeting specific SEC criteria permitting purchase of unregistered securities under Regulation D. Individuals qualify by (i) net worth >$1M (excluding primary residence), (ii) income >$200K (or $300K with a spouse or spousal equivalent) in each of the last two years with reasonable expectation to continue, or (iii) holding specified professional certifications (Series 7, 65, 82). Entities qualify if they meet specific asset, ownership, or status thresholds. Defined in 17 C.F.R. § 230.501(a).
An accredited investor is an investor meeting specific SEC criteria permitting purchase of unregistered securities under Regulation D. The accredited investor concept is foundational to U.S. private capital raising, and many private offerings are sold only to accredited investors. Rule 506(c) requires that every purchaser be accredited. Individuals qualify by income, net worth, or specified professional certifications; entities qualify by asset thresholds, ownership composition, or specific regulated-entity status.
Individual qualification, financial criteria
Individual investors qualify under Rule 501(a) by meeting any of: (1) net worth test, net worth (alone or with a spouse or spousal equivalent) exceeds $1,000,000, excluding primary residence; (2) income test, individual income exceeds $200,000 in each of the two most recent years (or $300,000 jointly with a spouse or spousal equivalent), with reasonable expectation of reaching the same level in the current year. Net worth excludes primary residence value but includes all other assets minus liabilities; mortgage debt up to fair value of residence is excluded from liabilities, except that any increase in that debt during the 60 days before the sale, other than from buying the residence, counts as a liability.
Individual qualification, professional certification (2020 expansion)
The 2020 SEC expansion added accredited investor status for individuals holding specified professional certifications: (1) Series 7 (general securities representative); (2) Series 65 (uniform investment adviser); (3) Series 82 (private securities offerings representative). The certification must be in good standing. The expansion recognizes financial sophistication independent of net worth or income.
Entity qualification
Rule 501(a) also lists entity categories, along with several categories for individuals connected to the issuer: (1) specific regulated entities, banks, insurance companies, broker-dealers, registered investment companies, BDCs, SBICs; (2) employee benefit plans with $5M+ assets; (3) charitable organizations, corporations, partnerships, LLCs with $5M+ total assets that were not formed to acquire the securities offered; (4) directors, executive officers, general partners of the issuer; (5) entities owned entirely by accredited investors; (6) family offices (with $5M+ AUM, certain governance), added 2020; (7) knowledgeable employees of private funds, added 2020; (8) investment advisers registered with SEC or state, added 2020.
Verification requirements
Reasonable steps to verify accredited investor status are required for Rule 506(c) offerings (general solicitation permitted). Rule 506(c)(2)(ii) lists non-exclusive methods that are deemed reasonable: (1) income verification, reviewing IRS forms (W-2, 1099, K-1, 1040) for last two years; (2) net worth verification, recent third-party documentation of assets and liabilities; (3) third-party verification, written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a CPA that it verified the purchaser's status within the prior three months; (4) reverification, a written representation from an investor the issuer verified within the past five years. Rule 506(b) has no verification requirement, though a purchaser counts as accredited only if the purchaser is accredited or the issuer reasonably believes so.
Why accredited investor status matters
Accredited investor status enables: (1) Regulation D Rule 506 offerings, most common private placement framework; (2) fewer disclosure requirements in Rule 506(b) offerings; (3) access to private funds; (4) private startup investments; (5) secondary private market participation. Non-accredited investors face substantially more limited private-market access.
For Texas issuers raising private capital, accredited investor status is the gating concept. A Rule 506(b) offering may include up to 35 non-accredited purchasers in any 90-day period, but each must be sophisticated, alone or with a purchaser representative, and must receive the information Rule 502(b) requires. In a Rule 506(c) offering every purchaser must be accredited and the issuer must take reasonable steps to verify that status. A prior verification can support a later purchase for five years if the investor gives a new written representation. The subscription agreement usually carries the investor's accredited-status representations. Entity investors qualify under their own categories, and an individual below the income and net worth tests may qualify through a designated professional license.