Accredited Investors

Accredited Investors

Accredited investors include individuals or entities that can engage in the dealing of securities that are not registered with the SEC. To be an accredited investor, one has to meet certain requirements regarding income and net worth. The “experienced investor” is the equivalent of an accredited investor in the European securities market. When a company drafts an offering document, such as a prospectus or offering memorandum, it will include the definition and requirements of an accredited investor. That section will look similar to the following:

Investment in the securities [shares, bonds, or notes] involves a high degree of risk and is suitable for only those investors who have substantial financial resources in relation to their investment, and who understand certain risk factors of the investment. In addition, investment in the company’s shares is suitable only for an investor who accepts that his/her investment will not be liquid and is willing to accept restrictions on the transfer of the securities.

  1. The Investor is an “Accredited Investor” as such term is defined in rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the “1933 Act”), that is any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

(a) Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution  as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer  registered pursuant to section  15 of the Securities Exchange Act of  1934; any insurance company as defined in  section  2(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a  business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company  licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment  Act  of  1958;  any  plan  established  and maintained  by  a  state,  its  political  subdivisions,  or  any  agency or  instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $3,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security  Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is  either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee  benefit plan has total assets in excess of $3,000,000 or, if a self-directed plan, with investment decisions made solely

by persons that are accredited investors;

(b) Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;

(c)  Any  organization  described  in  Section      501(c)(3)  of  the  Internal  Revenue  Code,  corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $3,000,000;

(d) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

(e) A natural person who has an income above $200,000 individually or $300,000 jointly with a spouse in each of the two previous years, or who, either individually or jointly with his/or her spouse, has a minimum net worth of $1,000,000, (net worth shall be determined exclusive of home, home furnishings and automobiles);

(g) Any trust, with total assets in excess of $3,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii); and

(h) Any entity in which all of the equity owners are accredited investors.

It is imperative to include the requirements and rules of an accredited investor in the prospectus.

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Accredited Investors

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