The accredited investor exemption
Who qualifies as an accredited investor?
- An individual who, alone or together with a spouse, owns financial assets worth more than $1 million before taxes but net of related liabilities or
- An individual, who alone or together with a spouse, has net assets of at least $5,000,000.
- An individual whose net income before taxes exceeded $200,000 in both of the last two years and who expects to maintain at least the same level of income this year; or
- An individual whose net income before taxes, combined with that of a spouse, exceeded $300,000 in both of the last two years and who expects to maintain at least the same level of income this year
- An individual who currently is, or once was, a registered adviser or dealer, other than a limited market dealer
The law assumes that accredited investors do not need the protections offered by a prospectus because they can:
(a) get and analyze the information needed to assess an investment without a prospectus; and
(b) handle the loss of their entire investment, if things go wrong.
Note that an accredited investor must purchase the securities as "principal." This means the investor must be purchasing for him or herself, rather than for another person.