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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:
1. A
bank, insurance company, registered investment
company, business development company, or small
business investment company;
2. 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;
3. A
charitable organization, corporation, or
partnership with assets exceeding $5
million;
4. A
director, executive officer, or general partner
of the company selling the
securities;
5. A
business in which all the equity owners are
accredited investors;
6. 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;
7. 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
8. A
trust with assets in excess of $5 million, not
formed to acquire the securities offered, whose
purchases a sophisticated person
makes.
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