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An accredited or sophisticated investor is an
investor An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...
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,
bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...
s,
financial institutions Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...
, and other large
corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
s, who have access to complex and higher-
risk In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environm ...
investments such as
venture capital Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to start-up company, startups, early-stage, and emerging companies that have been deemed to have high growth poten ...
,
hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as s ...
s, and angel investments. Laws may require that some types of financial offerings may only be made to
accredited Accreditation is the independent, third-party evaluation of a conformity assessment body (such as certification body, inspection body or laboratory) against recognised standards, conveying formal demonstration of its impartiality and competence to ...
investors.


Criteria for accreditation


Australia

s 708(8) of the
Corporations Act 2001 The ''Corporations Act 2001'' (Cth) is an Act of the Parliament of Australia, which sets out the laws dealing with business entities in the Commonwealth of Australia. The company is the Act's primary focus, but other entities, such as partner ...
is found in Chapter 6D ( Fundraising). It defines "sophisticated investor" so as to exclude them from certain disclosure requirements. That section provides for an accountant to issue a certificate stating that an individual meets the criteria prescribed in the ''Corporations Regulations 2001'', namely net assets of at least $2.5 million, or a gross income for each of the last two financial years of at least $250,000. There is a second definition of "sophisticated investor" in s 761GA of the
Corporations Act 2001 The ''Corporations Act 2001'' (Cth) is an Act of the Parliament of Australia, which sets out the laws dealing with business entities in the Commonwealth of Australia. The company is the Act's primary focus, but other entities, such as partner ...
in Chapter 7 (Financial services and markets). It defines sophisticated investors so that they can be treated as wholesale (rather than retail) clients. According to ASIC, a person with a sophisticated investor certificate is a sophisticated investor for the purpose of Chapter 6D, and a wholesale client for the purpose of Chapter 7.


Brazil

On December 17, 2014, CVM issued the Instructions No. 554 and No. 555, which became effective from July 1, 2015 according to
Mondaq Mondaq Ltd. is a content aggregator service in the legal industry with headquarters in New York, launched in 1994, that operates worldwide, providing free expert financial, and regulatory, and legal information on topics such as employment, tax ...
. The definition of accredited investors under the United States SEC’s Regulation D are analogous in Brazil to the combination of two categories of investors, classified by the ''Comissão de Valores Mobiliários'' (CVM) as "''investidor profissional''" (professional investor) and "''investidor qualificado''" (qualified investor) under Instruction 539, articles 9-A and 9-B.


Canada

An "Accredited Investor" (as defined in NI 45 106) is: # a person registered under the securities legislation of a jurisdiction of
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
, as an adviser or dealer, other than a person registered solely as a limited market dealer under one or both of the Securities Act (Ontario) or the Securities Act (Newfoundland and Labrador); or # an individual registered or formerly registered under the securities legislation of a
jurisdiction Jurisdiction (from Latin 'law' + 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels. J ...
of Canada as a representative of a person referred to in paragraph (a); or # an individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000; or # an individual whose net income before taxes exceeded $200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year; or # an individual who, either alone or with a spouse, has net assets of at least $5,000,000; or # a person, other than an individual or investment fund, that has net assets of at least $5,000,000 as shown on its most recently prepared
financial statements Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
; or # a
trust company A trust company is a corporation that acts as a fiduciary, trustee or agent of trusts and agencies. A professional trust company may be independently owned or owned by, for example, a bank or a law firm, and which specializes in being a trust ...
or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable
legislation Legislation is the process or result of enrolling, enacting, or promulgating laws by a legislature, parliament, or analogous governing body. Before an item of legislation becomes law it may be known as a bill, and may be broadly referred to ...
in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be; or # an investment fund that distributes or has distributed its securities only to (i) a person that is or was an accredited investor at the time of the distribution, (ii) a person that acquires or acquired securities in the circumstances referred to in sections 2.10 of NI 45 106 inimum amount investmentor 2.19 of NI 45 106 dditional investment in investment funds or (iii) a person described in paragraph (i) or (ii) that acquires or acquired securities under section 2.18 of NI 45 106 nvestment fund reinvestment # a person acting on behalf of a fully managed account managed by that person, if that person is registered or authorized to carry on business as an adviser or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction; or # a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors (as defined in NI 45 106); or # an investment fund that is advised by a person registered as an adviser or a person that is exempt from registration as an adviser. Note that as of 2016, many provinces in Canada now allow non-accredited investors to invest in private markets – under specified limits.


European Union

Retail clients requesting treatment as 'elective' professional clients (as defined by Markets in Financial Instruments Directive (MiFID)) must satisfy at least two of the following ''quantitative'' criteria in assessing the client's expertise, experience and knowledge: * the client has carried out trade transactions, in significant size (at least €50,000), on the relevant market at an average frequency of 10 per quarter over the previous four quarters; * the size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments, exceeds €500,000; * the client works or has worked in the
financial sector Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, ...
for at least one year in a professional position which requires knowledge of the transactions or services envisaged.


Israel

# An investment trust or fund manager. # A management company or Provident fund as defined in the Israeli Provident fund law. # An insurance company. # A banking corporation and auxiliary corporation as defined in the Israeli Banking law (Licensing), other than a joint services company. # A registered (licensed) investment adviser. # An exchange member. # An underwriter qualified to under section 56(c) of the Israel Securities Act. # Corporation (except a corporation incorporated for the purpose of receiving investment advisory services, investment marketing or portfolio management) with equity of more than ₪50 million. See foreign accounting rules, international accounting standards and generally accepted accounting principles in the United States as defined under Sections 17(b)(1) and 36 of the Israel Securities Act for the definition of " Equity". # A natural person that gave consent in writing to be considered eligible for the purposes of this Law and that meets at least one of the three criterion below: #* Owns a total value of cash, deposits, financial assets and securities, as defined in Section 52 of the Israel Securities Act, which exceeds ₪8 million. #* Has an annual income of at least ₪1.2 million for each of the last two years (or, together with a spouse, have had an annual income totaling ₪1.8 million for each of the past two years). #* Owns a total value of cash, deposits, financial assets and securities as defined in Section 52 of the Israel Securities Act worth, in total, more than ₪5 million and have had an annual income of at least ₪600,000 for each of the past two years (or, with a spouse, having a combined annual income totaling ₪900,000 for each of the past two years). # A corporation which is wholly owned by accredited investors based on the criteria above. # A corporation incorporated abroad whose activities are similar to those of the corporations set out above.


New Zealand

s 5 of the Securities Act (1978) defines a sophisticated investor in New Zealand for the purposes of subsection (2CC)(a), a person is wealthy if an independent chartered accountant certifies, no more than 12 months before the offer is made, that the chartered accountant is satisfied on reasonable grounds that the person (a) has net assets of at least $2,000,000; or (b) had an annual gross income of at least $200,000 for each of the last two financial years. There is a further section that follows stating that an eligible investor (experienced or sophisticated) is one who has satisfied a financial investor that they meet certain criteria.


Singapore

In Singapore, Accredited Investor is defined in Section 4A(1)(a) of the Securities and Futures Act (SFA), Chapter 289. # NET Personal assets exceeding $2 million (or equivalent in foreign currency). Or # Income in preceding 12 months of not less than $300,000 (or equivalent in foreign currency). Or # A corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by — (A)the most recent audited balance-sheet of the corporation; or (B)where the corporation is not required to prepare audited accounts regularly, a balance-sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance-sheet, which date shall be within the preceding 12 months; # The trustee of such trust as the Authority may prescribe, when acting in that capacity; or # Such other person as the Authority may prescribe.


United States

In the United States, to be considered an accredited investor, a
natural person In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the br ...
must have a net worth of at least $1,000,000, excluding the value of one's
primary residence A person's primary residence, or main residence is the dwelling where they usually live, typically a house or an apartment. A person can only have one ''primary'' residence at any given time, though they may share the residence with other people. A ...
, 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, or must otherwise be a holder of a specific license in good standing. More broadly, 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 The Employee Retirement Income Security Act of 1974 (ERISA) (, codified in part at ) is a U.S. federal tax and labor law that establishes minimum standards for pension plans in private industry. It contains rules on the federal income tax e ...
, 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 A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being (e.g. educational, religious or other activities serving the public interest or common good). The legal definition of a ...
,
corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
, or
partnership A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments ...
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 # a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes. # a
natural person In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the br ...
who has certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time. Presently holders in good standing of the Series 7, Series 65, and Series 82 licenses. #
natural person In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the br ...
s who are "knowledgeable employees" of a fund with respect to private investments. # limited liability companies with $5 million in assets may be accredited investors. # SEC and state-registered investment advisers, exempt reporting advisers, and rural business investment companies (RBICs) may qualify. # Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own "investments", as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered. # Family offices with at least $5 million in assets under management and their "family clients", as each term is defined under the Investment Advisers Act. # "Spousal equivalent" to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.


Opportunities

Accredited investors have the legal right to buy securities that are not registered with regulatory bodies such as the SEC. Accredited investors also have privileged access to venture capital, hedge funds and transactions involving complex and riskier investments and instruments.{{Cite web, title=Accredited Investor Defined: Understand the Requirements, url=https://www.investopedia.com/terms/a/accreditedinvestor.asp , accessdate=2022-11-03, work=investopedia.com


See also

* Institutional investor * Big boy letter


References

Investment Financial regulation