Sophisticated Investors and Accredited Investors:
In the U.S., the Securities and Exchange Commission (SEC) defines rules under which a company may
make private offerings available in Regulation D. These rules include classifications for sophisticated and
accredited investors.
In Rule 506(b) of Regulation D, for example, private offerings are restricted to an unlimited number
accredited investors and a limited number of non-accredited sophisticated investors, defined as those
investors with sufficient knowledge and experience in financial and business matters to make them
capable of evaluating the merits and risks of the prospective investment.
Rule 501 of Regulation D indicates that for an individual to be an accredited investor, they must have a net
worth of more than $1 million, excluding the value of their primary residence, or they must meet certain
annual income benchmarks. Individuals who have made more than $200,000 per year for two years, and
with an expectation of continuing to do so qualify as accredited investors. Married persons can be
considered accredited if their combined income is at least $300,000 per year.
Under this rule, other entities may be considered accredited investors as well, including banks and
insurance companies, as well as companies, charities, trusts, and employee benefit plans with assets in
excess of $5 million.