An accredited or sophisticated investor is an investor with a special status under financial regulation laws. The definition of an accredited investor (if any), and the consequences of being classified as such, vary between countries. Generally, accredited investors include high-net-worth individuals, banks, and other large corporations, who have access to complex and higher-risk investments such as venture capital, hedge funds and angel investments.

The ostensible purpose of the status designation is to protect potential investors from risk. The assumption underlying accreditation is that individuals or organizations who qualify will have sufficient financial sophistication to understand and take on the risks associated with certain investment offerings. Laws may require that some types of financial offerings may only be made to accredited investors

In the United States, to be considered an accredited investor, one must have a net worth of at least one million US dollars, excluding the value of one's primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year.

The term "accredited investor" is defined in Rule 501 of Regulation D of the U.S. Securities and Exchange Commission (SEC) as:

•    a bank, insurance company, registered investment company, business development company, or small business investment company;
•    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;
•    a charitable organization, corporation, or partnership with assets exceeding $5 million;
•    a director, executive officer, or general partner of the company selling the securities;
•    a business in which all the equity owners are accredited investors;
•    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, or has assets under management of $1 million or above, excluding the value of the individual's primary residence;
•    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
•    a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

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 term accredited investor is defined in Rule 501 of Regulation D.

For more information about the SEC’s registration requirements and common exemptions, read our brochure, Small Business & the SEC.

For more information about how individuals can be accredited investors, see our Investor Bulletin on accredited investors.

The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning a law or rule, please consult with an attorney specializing in securities law.

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