The JOBS Act of 2012 opened up the door to real estate, equity, and other types of investments in a new way by permitting firms to market private placements in a broad sense for the first time since theSecurities Act of 1933. However, participation was largely limited to accredited investors. In light of this, someone may ask the question, “Am I an accredited investor?”
Definition of Accredited Investor
According to the SEC’s definition, an accredited investor is someone who:
- Possesses a net worth greater than $1 million USD excluding the value of the primary residence (alone or with a spouse), OR
- Earned greater than $200,000 USD (or $300,000 USD with a spouse) in each of the previous two years, with a reasonable expectation to earn the same level of income or greater in the current year.
However, regarding the net worth calculation, the value of a primary residence may not be counted in the calculation. In addition, particular liabilities such as those connected with homeownership are tabulated against the calculation of net worth.
If an individual’s earned income is being used to qualify for accredited investor status, the income requirement will not be satisfied with only one year of an individual’s income (unmarried) and the other two years of the individual’s income with a spouse (married). Each of the three years must satisfy the required income level as a single or married individual.
In answering the question “Am I an accredited investor?”, it is important to know that verification of accredited investor status lasts for three months. This verification may be obtained through the disclosure of personal assets, or a letter from a licensed attorney, registered broker-dealer, SEC-registered investment advisor, or a Certified Public Accountant. This restriction does not affect existing investments, but it does require investors to re-verify before investing in another securities offering presented through general solicitation.
What About Trusts as An Accredited Investor?
Yes, a trust may be an accredited investor. By virtue of being a partnership, corporation, or charitable organization that has assets greater than $5 million. Other entities in certain cases may also be designated, accredited investors. In addition to any entity in which all of the equity owners are accredited investors. Also, including employee retirement plans in which a registered investment advisor makes the asset allocation decisions.
“Am I an accredited investor?” is an important question to consider if you are looking to invest in certain private placements or if you are seeking accredited investors as an issuer of securities. Either way, the information presented above may give you the answers you need.
