Accredited Investor: Duties and Requirements

By Markets & Investing DeskUpdated Nov 10, 2026

Definition

An accredited investor is a person or entity that meets SEC Regulation D tests for income, net worth, credentials or assets, allowing them to buy unregistered private offerings.

Key takeaways

Individuals qualify with income above $200,000, or $300,000 jointly, in each of the last two years.
Net worth must exceed $1 million, and the primary residence and its mortgage are excluded from the calculation.
A Series 7, 65 or 82 license in good standing qualifies a person regardless of income or wealth.
In Rule 506(c) offerings, issuers must take reasonable steps to verify every buyer's status.

An accredited investor is a person or entity that meets the financial or professional tests in Rule 501(a) of the SEC’s Regulation D. That status allows them to buy securities sold in private offerings that are not registered with the Securities and Exchange Commission. The US definition assumes that people with enough income, wealth or expertise can assess these investments and absorb losses without the disclosure protections that come with a registered public offering.

What the accredited investor definition covers

US securities law starts from the rule that an offer or sale of securities must be registered unless an exemption applies. Regulation D provides some of the most widely used exemptions, and the accredited investor definition determines who may buy in them. Offerings made under these rules include private placements by startups and pre-IPO companies, venture capital and private equity funds, hedge funds, angel rounds, real estate syndications and some structured products.

Accredited investors include wealthy individuals and many institutions, each qualifying by a different test. A company raising money privately can approach these buyers directly instead of preparing the registration statement and ongoing reports a public company must file.

Requirements for individuals

A natural person is an accredited investor if they meet any one of the following:

Income test: individual income above $200,000 in each of the two most recent years, or joint income with a spouse or spousal equivalent above $300,000 in each of those years, plus a reasonable expectation of reaching the same level in the current year. The two years must be measured on the same basis. A person cannot combine one year of individual income with a later year of joint income.
Net worth test: individual net worth, or joint net worth with a spouse or spousal equivalent, above $1 million, excluding the value of the primary residence.
Professional credentials: holding a FINRA Series 7, Series 65 or Series 82 license in good standing. The SEC can designate further credentials by order.
Knowledgeable employee: for an investment in a private fund, being a “knowledgeable employee” of that fund, such as certain executives and investment staff.
Insider of the issuer: being a director, executive officer or general partner of the company selling the securities, or of its general partner.

The joint tests do not require the investment to be made jointly. A married investor can count combined net worth and still buy in their own name.

How net worth is calculated for an accredited investor

Net worth is total assets minus total liabilities, with special treatment for the home. The equity a person holds in their primary residence is removed from the calculation:

Leave out the value of the primary residence as an asset.
Leave out mortgage debt on that residence as a liability, up to the home’s estimated fair market value.
Count any mortgage debt above the home’s value (underwater debt) as a liability.
Count as a liability any increase in home-secured debt taken on in the 60 days before the investment, unless it came from buying the home. This prevents someone from borrowing against the house to inflate cash balances just before qualifying.

Other property counts normally. Cars, retirement accounts, brokerage accounts and cash are assets. Car loans, credit card balances and other debts are liabilities.

Requirements for entities

An entity can be accredited in several ways:

Regulated status: banks, savings and loan associations, registered broker-dealers, insurance companies, registered investment companies, business development companies, small business investment companies, rural business investment companies, and SEC-registered or state-registered investment advisers, as well as exempt reporting advisers.
Asset test: corporations, partnerships, LLCs, business trusts and 501(c)(3) organizations with total assets above $5 million, provided they were not formed for the specific purpose of acquiring the securities offered.
Investments test: any entity not covered elsewhere that owns “investments” above $5 million and was not formed to buy the securities offered. This category was added in 2020 and covers types such as Indian tribes and governmental bodies.
Trusts: a trust with assets above $5 million that was not formed for the purpose and whose purchase is directed by a sophisticated person.
Family offices: family offices with at least $5 million in assets under management, and their family clients.
Look-through: an entity in which every equity owner is an accredited investor.

The “not formed for the specific purpose” condition stops non-accredited people from pooling money into a new LLC just to clear the $5 million line for one deal.

The 2020 amendments

In August 2020 the SEC adopted amendments that added routes based on knowledge rather than money. Before that, an individual’s path was essentially income, net worth or insider status. The changes added the professional credentials, knowledgeable employees, the “spousal equivalent” concept, the investments test and family offices, and formally named LLCs, rural business investment companies, and state-registered and exempt reporting advisers.

The dollar thresholds themselves were not changed. The $1 million net worth and $200,000 income levels date to the original Regulation D in 1982, and the $300,000 joint income test was added in 1988. They are not indexed to inflation, so more households cross the lines over time without any rise in real wealth. The main later change to the net worth test came from the Dodd-Frank Act in 2010, which removed the primary residence from the calculation.

How accreditation is verified

There is no SEC application, certificate or registry for individuals. The issuer is responsible for making sure buyers qualify, and the standard depends on which exemption the deal uses.

Rule 506(b) offerings may not use general solicitation, such as public advertising. Issuers can accept an unlimited number of accredited investors and up to 35 non-accredited investors who are financially sophisticated, though selling to non-accredited buyers triggers extra disclosure duties. The issuer needs a reasonable belief that a buyer is accredited. In practice, buyers often fill out a questionnaire and self-certify.

Rule 506(c) offerings may advertise publicly, but every buyer must be accredited and the issuer must take reasonable steps to verify it. The rule lists non-exclusive methods:

For income: IRS forms for the two most recent years, such as W-2s, 1099s, K-1s or Form 1040, plus a written statement about the current year.
For net worth: bank, brokerage and appraisal statements for assets, plus a consumer credit report for liabilities, all dated within the prior three months.
Written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney or CPA who has taken reasonable steps to verify status within the prior three months.

Insiders of the issuer and professionals qualifying through their credentials can generally establish status without this financial documentation.

Duties and responsibilities of accredited investors

The rules place the verification duty on the issuer, not on the investor. The investor’s obligations come from the transaction itself:

Truthful representations. Subscription documents ask buyers to state their category. A false statement can expose the buyer to rescission or legal claims and can put the issuer’s exemption at risk.
Own due diligence. Private issuers do not file the periodic reports public companies provide. The buyer has to obtain and judge financial statements, terms and risks, often from a private placement memorandum that no regulator has reviewed for merit.
Accepting restricted resale. Securities bought in Regulation D offerings are generally “restricted securities.” They cannot be freely resold, and Rule 144 imposes holding periods (six months or one year depending on whether the issuer reports to the SEC) before public resale.
Funding commitments. Many private funds use capital calls, so a commitment can require cash on short notice over several years.

Example of an accredited investor

Hypothetical example. An individual earned $150,000 in each of the last three years, so they fail the income test. Their balance sheet:

Item	Value	Debt
Primary residence	$1,000,000	$200,000 mortgage
Car	$100,000	$50,000 loan
401(k)	$500,000	none
Savings	$450,000	none

The home and its mortgage are excluded (the mortgage is below the home’s value and was not increased in the last 60 days). Counted assets are $100,000 + $500,000 + $450,000 = $1,050,000. Subtracting the $50,000 car loan leaves net worth of exactly $1,000,000.

The test requires net worth above $1 million, so this person does not qualify. Another $1 of net assets would change the result. If they had held a Series 65 license, they would qualify regardless of either figure.

Limitations of the accredited investor standard

Wealth is a proxy for sophistication, not proof of it. Someone who inherited money or earns a high salary in an unrelated field can qualify with no investing experience, while a knowledgeable investor with modest savings cannot.
Unequal access. The rule limits early-stage and private fund opportunities to people who already have substantial assets.
Status says nothing about the deal. Qualification means the law allows the purchase. It does not mean the investment is suitable, liquid or sound.
US-specific. Other jurisdictions use their own frameworks. India’s SEBI, for example, recognizes accredited investors through certification by approved accreditation agencies.

Qualified purchaser: a higher bar under the Investment Company Act. Individuals generally need at least $5 million in investments. Funds relying on Section 3(c)(7) can accept only qualified purchasers.
Qualified client: a standard under the Investment Advisers Act that lets an adviser charge performance-based fees. Its dollar thresholds are separate and adjusted periodically.
Qualified institutional buyer (QIB): an institutional category under Rule 144A, generally requiring at least $100 million in securities owned and invested.
Sophisticated investor: a non-accredited buyer with enough knowledge and experience to evaluate the risks, eligible for Rule 506(b) offerings within the 35-person limit.
Qualified investor: a term used in other jurisdictions, such as the EU and Switzerland, with its own definitions. It is not a US Regulation D category.

FAQs

Can non-accredited investors buy into private companies?

Yes, through some channels. Regulation Crowdfunding and Regulation A offerings are open to the general public, subject to investment limits for non-accredited buyers in certain cases. Rule 506(b) deals can also admit sophisticated non-accredited investors, but Rule 506(c) deals cannot.

The Bottom Line

Anyone considering private placements, venture funds or real estate syndications needs to know whether they meet one of the Regulation D tests, since the issuer will ask them to state their category. Qualifying only means the law permits the purchase. Buyers still carry their own due diligence, face restricted resale under Rule 144, and may owe capital calls over several years.