Accredited Investors are individuals, corporations, and endowment or retirement plans who can participate in high-risk investments. To achieve this status, an individual must have a net worth of at least $1 million or earn $200,000 gross annual income for two consecutive years. Companies and entities have additional regulations. The regulations were implemented to prevent a recurrence of the 1929 stock market crash.
Accredited Investor is a designation used to identify a select group of individuals, corporations, and endowment or retirement plans who are granted the privilege to participate in investment opportunities that require compliance with regulations established during the Depression era in the United States. Achieving accredited investor status indicates that the individual or entity has sufficient reserves to trade higher risk investments without creating long-term problems for the economy.
Accredited investment under current regulations approved by the United States Securities and Exchange Commission requires that an individual wishing to be recognized as an accredited investor have a net worth of not less than $1,000,000.00. Alternatively, the sole investor may earn $200,000.00 gross annual income for the most recent two consecutive calendar years and be considered an accredited investor. Legally married couples can also obtain the status if their joint annual income exceeds $300,000.00 in the past two years.
For companies and other entities, additional regulations apply. Employee benefit and endowment plans qualify for accredited investor status if the plan has a minimum of $5,000,000.00 in assets. Charitable organizations qualify with total assets that are at least $3,000,000.00. In corporations where all shareholders associated with the corporation are accredited investors in their own right, the corporation may also be accorded this same status. Trust funds that were not formed with the specific purpose of achieving status and that are under the direction of a person deemed to be financially responsible may also be granted accredited investor status.
Investing is generally an activity that involves some degree of risk. The regulations implemented in the United States were designed to prevent a recurrence of the 1929 stock market crash by limiting the involvement of individuals and various types of organizations to those that meet basic levels of financial resources. Becoming an accredited investor means owning assets that are considered reasonable for the degree of risk involved in certain high-risk investments.
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