Suppose you're considering becoming an accredited investor to secure financing for a major project or even invest in the stock market. In that case, there are some things that you should consider first. Check out this page to know what it takes to become an accredited investor and its advantages!
The term "accredited investor" means someone with an annual income of $200,000.00 or a net worth of over $1 million. Becoming one can be attractive because they are eligible to invest in stocks and other securities without any limitations imposed by federal law.
Eligibility
You must be honest and have never been convicted of a felony or serious crime. A person who is disqualified in this way cannot purchase securities from the Securities and Exchange Commission (SEC).
Also, if you are in business, even if you're an incorporated company with other investors, you must not have had a net loss in the last two years. So, if a company had a net loss because it could not turn enough profit in its business, it would be disqualified from becoming an accredited investor.
How do you become an accredited investor?
Getting into the accredited investor race is a long process. To become an accredited investor, you must submit a form detailing information about yourself and your finances, including what types of real estate you own and how much debt you owe. Physical records such as bank statements and verifying tax forms are also necessary to confirm that you meet the outlined financial requirement.
So, what assets can an accredited investor buy?
Check out this page for examples of projects that accredited investors are currently financing to get an idea of how you can invest:
- Commercial real estate funds- Invest in commercial buildings and co-operatives listed on the NASDAQ. These buildings usually offer high returns for their investors.
- Crowdfunding (only assets)- Crowdfunding is a new type of investing where the investor buys a piece of the deal. For instance, you may invest in a movie about to hit theatres or a new consumer product company that has yet to release any products.
- Private equity- including equity in a publicly traded company (or stock) and more speculative investments through private transactions (including non-publicly traded stocks and bonds).
- Hedge funds and venture capital- are private investment firms that buy and sell securities to make money for their investors.
- Crowdfunded real estate- Crowdfunding has also been used to raise commercial real estate investments, including shopping centers, offices, apartments, and other types of buildings. Individual investors can own these projects through direct purchases or privately-funded schemes (called REITs) in which the properties are then sold to the general public.
Venture debt is when a company borrows money on its behalf to launch new ventures or expand those already underway.
In the United States, an accredited investor is an individual or entity that meets specific financial criteria and can participate in certain types of investments restricted to accredited investors. The U.S. Securities and Exchange Commission (SEC) sets the criteria. As of my last knowledge update in January 2022, here are some ways to become an accredited investor:
Individual Accredited Investor:
Income Qualification:
Have an annual income of at least $200,000 (or $300,000 for joint income) for the past two years with the expectation of earning the same or higher income in the current year.
Net Worth Qualification:
Have a net worth of at least $1 million, individually or jointly with a spouse. The net worth can exclude the value of your primary residence.
Professional Certification:
Hold certain professional certifications, designations, or credentials that demonstrate financial sophistication. This may include being a licensed securities professional investment advisor or having other relevant qualifications.
Entity Accredited Investor:
Business Entities:
Corporations, partnerships, and other entities can qualify as accredited investors if they have total assets exceeding $5 million and weren't formed to acquire the securities being offered.
Investment Companies:
Certain types of investment companies, including registered investment companies, business development companies, and small business investment companies, can be considered accredited investors.
Updates to Accredited Investor Definition:
It's essential to note that the SEC has updated the accredited investor definition to include additional criteria. As of my last update, these include:
Professional Certifications, Designations, or Credentials:
Individuals may qualify as accredited investors based on professional knowledge, experience, or certifications, even if they don't meet the income or net worth requirements.
Knowledgeable Employees of Private Funds:
Certain employees of private funds may qualify as accredited investors based on their knowledge and experience.
Verification Process:
You may need to provide documentation or other evidence to verify your accredited investor status.
Conclusion
Becoming an accredited investor can be an excellent way to make high returns on your investments, but you should consider all the details before taking the next step.
Important Note:
Regulations and criteria may change, so it's crucial to check the latest SEC guidelines or consult a financial professional for the most up-to-date information. Additionally, regulations may vary in other jurisdictions, so if you're outside the United States, you should look into the rules specific to your location.
