Whether you're a purchaser or issuer looking to participate in private placement, it's important to make sure either you or a potential investor is accredited. Since Title II provisions of the JOBS Act went into effect in 2013, small businesses have been given the opportunity to publicly raise capital without having to register securities. The key requirement is that reasonable steps must be taken to prove that all investors in such a "private" offering are actually accredited investors prior to completing the sale.
Accreditation Under Rule 506
Under Rule 506(c) of Regulation D, startups and businesses can publicly solicit and advertise their private offerings only if they take reasonable steps to verify that their investors are all accredited investors. For this reason, it's important for issuers to abide by securities laws and take reasonable steps to collect information on potential investors' statuses before selling securities. The U.S. Securities and Exchange Commission (SEC) maintains a list of guidelines issuers can refer to for more information on how they can validate an investor. For instance, both issuers and purchasers can use reasonably reliable third-party reviewers to verify investors or themselves.
Who Can Qualify?
The term "accredited investor" isn't applicable to individual investors exclusively. Foundations, charitable organizations, pension funds, and companies are among the other types of investors out there. Investors can become accredited due to high income, high net worth, high asset levels, or even relationship to the issuer. Rule 501 of Regulation D provides the legal definition of "accredited investor." To be considered accredited, investors need to fall within one of the outlined categories set forth in the definitions.
How much is enough?
Generally, corporations, partnerships, and charities must have assets worth over $5 million, while individual/ joint investors must have a net worth of $1 million or more. Additionally, individuals or joint couples who earned incomes over $200,000 and $300,000, respectively, for the last two years and who have a reasonable expectation of achieving the same income in the current year, may also meet accredited investor requirements.
To request validation for an investor, or to learn more about how to obtain verification for yourself, visit https://VerifyInvestor.com.