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Accredited Investors
Under the Securities Act of 1933, a company that offers or
sells its securities must register the securities with the SEC
or find an exemption from the registration requirements. The Act
provides companies with a number of exemptions. For some of the
exemptions, such as rules
505 and
506 of
Regulation D, a company may sell its securities to what are
known as "accredited investors."
The federal securities laws define the term accredited
investor in
Rule 501 of Regulation D as:
- a bank, insurance company, registered investment
company, business development company, or small business
investment company;
an employee benefit plan, within the meaning of the
Employee Retirement Income Security Act, if a bank,
insurance company, or registered investment adviser makes
the investment decisions, or if the plan has total assets in
excess of $5 million;
a charitable organization, corporation, or partnership
with assets exceeding $5 million;
a director, executive officer, or general partner of the
company selling the securities;
a business in which all the equity owners are accredited
investors;
a natural person who has individual net worth, or joint
net worth with the person’s spouse, that exceeds $1 million
at the time of the purchase;
a natural person with income exceeding $200,000 in each
of the two most recent years or joint income with a spouse
exceeding $300,000 for those years and a reasonable
expectation of the same income level in the current year; or
a trust with assets in excess of $5 million, not formed
to acquire the securities offered, whose purchases a
sophisticated person makes.
For more information about the SEC’s registration
requirements and common exemptions, read our brochure,
Q&A:
Small Business & the SEC.
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Investments
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