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What is an Accredited Investor?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 December 2016
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In the United States, an accredited investor is an individual or financial business entity that has been recognized by the Securities and Exchange Commission as meeting the criterion necessary to conduct investment transactions on a large scale. The SEC has established specific qualifications that must be met before the status of accredited investor is awarded. Here is more about what it takes to become an accredited investor in the United States.

Accredited investors may be individuals, groups of individuals working together in legally instituted limited partnerships, or a financial institution. In order for an individual to attain the status of an accredited investor, he or she must have a net worth of over one million United States dollars (USD) at the time of the investment purchase. An alternative is to be able to demonstrate that for at least the past two years, individual annual income has exceeded $200,000.00 USD per year.

In the event that a legally recognized couple sharing the same household wish to be recognized as an accredited investor, the joint net worth of the couple must also exceed the $1,000,000.00 USD minimum in net worth or have a joint annual income of over $300,000.00 USD. There are limits on the amount of the investment, with not more than twenty percent of the net worth of the individual or couple involved in the transaction.

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Banks, loan companies and other types of financial institutions may also be recognized as an accredited investor. As with individuals, there are restricted offerings that the business entities must follow when it comes to transactions. The SEC outlines these requirements for financial institutions as well. Just like individual accredited investor certification and recognition, financial institutions are required to meet certain levels of annual income, liquid assets, and must engage in investment opportunities that do not exceed a certain percentage of the net worth of the institution. The idea is to ensure overall financial stability of the investment market, while protecting the interests of investors at the same time.

One way to interest an accredited investor in a possible investment venture is to look for angel investor networks. Angel investors are accredited investors that often will invest resources in business ventures where there is potential for making a tidy profit within a reasonable period of time. A number of accredited investor networks focus on supporting business efforts within a given sector, so it is possible to find angel investors with a focus on telecommunications, manufacturing and just about every industry type. In some cases, the terms of investment are more liberal than could be obtained elsewhere and may be just what a new entrepreneur needs in order to make the vision become reality.

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