Accredited Investor Defined

What is an Accredited Investor? A Clear Definition Under SEC Regulation D

When raising private capital or participating in private investment opportunities, the term “accredited investor” frequently comes into play. But what exactly does it mean? And why does it matter?

Whether you’re an entrepreneur launching a Regulation D private placement, or an investor evaluating an offering, understanding who qualifies as an accredited investor is essential for legal compliance and investor eligibility.

Accredited Investor Defined – Regulation D, Rule 501 (17 CFR §230.501)

Under the U.S. Securities and Exchange Commission’s Regulation D, an accredited investor is a person or entity that meets certain financial or professional criteria, enabling them to invest in private securities offerings that are exempt from registration with the SEC.

The concept exists to ensure that individuals and entities participating in higher-risk, non-registered offerings possess the financial sophistication and resources to absorb potential losses.

Who Qualifies as an Accredited Investor?

According to Rule 501(a) of Regulation D, the following categories qualify as accredited investors at the time of sale:

1. Institutional and Regulated Entities

  • Banks, savings and loan associations, insurance companies

  • SEC-registered broker-dealers

  • Investment companies and business development companies

  • Small Business Investment Companies (SBICs)

  • Employee benefit plans with assets exceeding $5 million

  • Plans where investment decisions are made by qualified fiduciaries (banks, RIAs, etc.)

2. Certain Organizations

  • 501(c)(3) nonprofits, corporations, partnerships, or trusts with over $5 million in assets, not formed for the specific purpose of investing

  • Private business development companies

  • Entities where all equity owners are accredited investors

3. Company Insiders

  • Directors, executive officers, or general partners of the issuer of the securities being offered

  • The same applies to individuals in similar positions in any general partner of the issuer

4. High-Net-Worth Individuals

  • Individuals with a net worth exceeding $1 million, excluding the value of their primary residence

  • Joint net worth with a spouse can also be considered

Important considerations in calculating net worth:

  • The value of the primary residence is excluded as an asset

  • Mortgage debt up to the home’s fair market value is not counted as a liability (unless it increased in the last 60 days for non-purchase reasons)

5. High-Income Individuals

  • Individuals with income exceeding $200,000 in each of the two most recent years

  • Joint income with a spouse exceeding $300,000 for those same years

  • Must have a reasonable expectation of reaching the same income level in the current year

6. Trusts and Sophisticated Entities

  • Trusts with more than $5 million in assets that were not formed for the specific purpose of acquiring the offered securities

  • Must be directed by a sophisticated person—someone with sufficient knowledge and experience to evaluate the investment risks

Why Accreditation Matters

For issuers of securities under Regulation D, verifying accredited investor status is critical. It allows companies to:

  • Avoid SEC registration

  • Raise capital more flexibly and quickly

  • Limit exposure to regulatory scrutiny and legal risk

For investors, accredited status opens the door to:

  • Private equity and venture capital deals

  • Hedge funds and private placements

  • High-return, early-stage investment opportunities

How Accreditation is Verified

Issuers must take reasonable steps to verify an investor’s accredited status, especially under Rule 506(c) offerings that allow general solicitation. This may include:

  • Reviewing W-2s, tax returns, or brokerage statements

  • Obtaining written confirmation from a licensed attorney, CPA, investment adviser, or broker-dealer

Important Notes on Eligibility

  • Being an accredited investor does not guarantee profit or safety—these investments carry risk.

  • Verification rules vary slightly depending on whether the offering is under Rule 506(b) (no solicitation) or Rule 506(c) (general solicitation allowed).

  • Non-natural persons (trusts, entities) must also meet structural and asset criteria to qualify.

Need Guidance on Accredited Investor Qualification or Private Offerings?

At SCG Corporate Services Ltd., we support companies and investors across the globe in structuring compliant private offerings under Regulation D. Whether you’re preparing a Private Placement Memorandum (PPM) or seeking to verify investor accreditation, our team works closely with legal and financial professionals to streamline the process.