Accredited investors have access to deals that most people do not have access to. Accredited investors who take the effort to get verified have even greater access to deal flow. For companies, setting up a proper investor accreditation program is something that is extremely difficult for them to do internally, yet it is something extremely important for them to be able to target the right investors.
The biggest advantage implementing an investor accreditation program is that it allows the company to raise capital by generally soliciting and advertising. The key requirement for the ability to generally solicit is that companies must take reasonable steps to verify that their investors are accredited investors. Therefore, the investor accreditation program is the key.
As a person, what the SEC calls a “natural person,” you are accredited if you are able to demonstrate that you have earned an income of $200,000 per year for the past two years and will have at least that same income in the current year. If you don’t have this individual income, but have $300,000 with your spouse, that also qualifies to accredit both of you.
The other option for a “natural person” to become an accredited investor is if he or she has a net worth of at least one million dollars (either individually, or together with a spouse). This cannot include the value of the primary residence. Note that if the assets of a spouse are used, then the liabilities of that spouse must be considered as well.
It is also possible for investors that are not “natural persons” to be accredited investors. This typically will either be an entity in which all equity owners are accredited investors or a company that has more than five million dollars not formed to purchase securities of that offering.
For investors, completing the exercise to determine if you would qualify for the investor accreditation program is an important first step. There are different ways to obtain verification of your accredited investor status, but you’ll want to select one that’s safe and reliable.
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