What is an accredited investor?

When you sell private shares, it is important that the seller is an accredited investor. What does that mean and how can you ascertain yourself that the buyer of your shares qualify as such?

The SEC provides the public with the definition of an accredited investor here. There are many entities that can qualify as such, and for natural persons the most relevant definitions are those two:

  1. 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, excluding the value of the primary residence of such person;
  2. 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;

As as seller of private shares, you need to be able to ‘reasonably believe’ that the buyer is an accredited investor. If the buyer is willing to sign a statement to that effect it is in general enough reason for you to reasonable believe he is an accredited investor.

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