When is an Entity an Accredited Investor?

Here are a few scenarios:

There are certain other entities that qualify as accredited investors, including certain financial institutions, trusts, and private business development companies. For purposes of this post, we’re discussing only entities that fall outside of those categories.

As we’ve discussed previously, when a startup company offers securities to investors it must register the offering unless it can fall under an exemption from registration. A few of these exemptions require that all of the investors are accredited investors — the rationale being that certain high net-worth and high income individuals and entities are better positioned to absorb the risk and take the plunge into investing in private companies. If you’re investing in a startup company raising capital under one of these exemptions, you will almost certainly be required to represent that you are an accredited investor. And if you’re investing as XYZ LLC instead of Investor Joe, then you must represent that the LLC is an accredited investor.

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