An accredited investor is a person or entity that meets certain financial sophistication thresholds, allowing participation in private securities offerings that are exempt from SEC registration (e.g., Reg D).
Individual accredited investor — must meet ONE of: - Net worth exceeding $1,000,000 (excluding primary residence), individually or jointly with spouse/spousal equivalent. - Annual income exceeding $200,000 (individually) or $300,000 (jointly with spouse) for the last two years, with expectation of continuing. - Licensed financial professionals: holders of Series 7, Series 65, or Series 82 licenses in good standing. - "Knowledgeable employees" of a fund (for investments in that fund).
Entity accredited investors — must meet ONE of: - Assets exceeding $5 million (if not formed specifically to acquire the offered securities). - All equity owners are accredited investors ("any entity"). - Banks, insurance companies, registered investment companies, certain employee benefit plans.
Verification (Rule 506(c)): When an offering uses general solicitation, issuers must take reasonable steps to verify accredited status (reviewing tax returns, bank statements, credit reports, or obtaining written confirmation from a licensed professional).
Why it matters: Issuers can sell an unlimited number of securities to accredited investors under Rule 506(b) and (c) without SEC registration. Non-accredited investors in 506(b) are limited to 35 per offering.
> Exam tip: The $1M net worth threshold excludes the primary residence — this is a common trick question. Series 7/65/82 holders became automatically accredited in 2020.