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Accredited investors is a designation used to identify a select group of individuals, corporations and endowment or retirement plans that are granted the privilege of participating in investment opportunities that require compliance with regulations put in place during the Depression era in the United States. Achieving the status of an accredited investor indicates that the individual or entity has enough reserves to deal in investments with higher risks, without creating long term issues for the economy.
Accredited investing, according to the current regulations approved by the United States’ Securities and Exchange Commission, requires that an individual who wishes to be recognized as an accredited investor have a net worth that is no less than $1,000,000.00 United States Dollars (USD). Alternatively, the single investor may realize a gross annual income of $200,000.00 USD for the two most recent consecutive calendar years, and be considered an accredited investor. Legally married couples may also achieve the status if their annual joint income exceeds $300,000.00 USD for the last two years.
For corporations and other entities, additional regulations apply. Endowment and employee benefit plans qualify for accredited investor status if the plan has a minimum of $5,000,000.00 USD in assets. Charitable organizations qualify with total assets that are at least $3,000,000.00 USD. In businesses where all the equity owners associated with the company are accredited investors in their own right, the corporation may also be afforded that same status. Trust funds that were not formed with the specific purpose of achieving the status, and who are under the direction of person considered to be financially responsible may also be granted the status of accredited investor.
Investing is often an activity that involves some degree of risk. The regulations that were implemented in the United States were designed to prevent a recurrence of the stock market crash of 1929, by limiting the involvement of individuals and various types of organizations to those who meet basic levels of financial resources. Becoming an accredited investor means having assets that are considered to be reasonable for the degree of risk involved in certain high-risk investments.
Thanks for giving clear definitions here. It's a lot easier to deal with those business terms if we are more familiar with it. This could help me to go further and attain my goals on becoming a great investor.
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