What Is an Accredited Investor?

What Is an Accredited Investor?


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An accredited investor is any person or entity considered financially sophisticated enough by the Securities and Exchange Commission (SEC) to accept the financial risk of investing in unregistered securities.

Under SEC law, companies and private funds cannot sell securities unless they are registered with the SEC. Some securities are exempt from registration, and the SEC let’s companies sell these unregistered securities only to accredited investors.

How to Qualify as an Accredited Investor

According to the SEC, an Accredited Investor is anyone who:

  1. Earned more than $200,000 in income ($300,000 together with a spouse) in both of the last two years, and who expects to do the same in the current year; or who…
  2. Has a net worth over $1 million, either alone or with a spouse, excluding the value of their primary residence.

For an entity to be considered an accredited investor it must be:

  1. Any entity with total assets of $5 million or more, directed by a sophisticated person, and not formed for the sole purpose of purchasing specific securities; or is…
  2. Any entity in which all of the equity owners are accredited investors.

The SEC defines a “sophisticated person” as someone who has sufficient knowledge and experience to fully evaluate the risks and rewards of the investment opportunity.

Why Are Accredited Investors Important?

While everyone is free to make their own choices, the SEC created accredited investors to protect people and entities from too much financial risk. When people and entities buy unregistered securities, they bypass the checks and balances of the SEC, which makes these types of investments more risky than investing in registered securities.

Are You an Accredited Investor?

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