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Pass the “Accredited Investor Test” and Enter a Whole New World of Investing

Pass the “Accredited Investor Test” and Enter a Whole New World of Investing
In the U.S., an accredited investor definition is provided by the Securities and Exchange Commission (SEC) in Regulation D Rule 501. As well, local jurisdictions regulate accredited investors in different ways that are sometimes defined by the local market regulator or other capable of authority. The “accredited investor test,” although not a literal written test per se, when passed by a potential investor opens that investor up to new opportunities not available to the average investor. So, what are the qualifications to be met that provide such a status to the investor? Qualifying as an Accredited Investor One way to enter the category of an accredited investor, an individual must have earned more than $200,000 over the last two years (more than $300,000 with a spouse) with an anticipated equivalent or greater income in the current year. Another way to pass the “accredited investor test” is to have a net worth (excluding your primary residence) greater than $1 million, either individually or with a spouse. You may also qualify as an accredited investor if you are a general partner, executive officer, director, or an associated combination of these for the issuer of unregistered securities. With regards to an entity, they qualify as an accredited investor if it is a private business development company or an organization with assets greater than $5 million. Any entity having equity owners as accredited investors may itself be an accredited investor. Forming or purchasing an organization for the exclusive purpose of purchasing certain securities is not permitted. The accredited investor definition was modified by Congress in 2016 -to include investment advisors and registered brokers. An individual who is able to demonstrate a particular amount of job experience or level of education that points to his or her professional knowledge of unregistered securities may be considered an accredited investor. Applying for Accredited Investor Status With regards to passing the “accredited investor test,” persons or entities intending to qualify for accredited investor status may ask an issuer of unregistered securities for the opportunity to invest. Issuer may then ask the applicant to answer a questionnaire and also attach a number of different documents, including balance sheet, financial statements, and account information. The attachments may also clued W-2 forms, tax returns, salary slips, review letters from investment advisers or brokers, tax attorneys, or CPAs. The issuer of securities may also check the applicant’s credit report as part of the evaluation. The Opportunities Hold Great Profit Potential, But Understand the Risks The financial investment opportunities available to an accredited investor include nonregistered investments offered by hedge funds, equity funds, and venture capital firms. Capital funding is routinely sought from leaders of various business ventures. Although you may have obtained accredited investor status, it is important to also understand and assess the purpose of, and significant risks involved with, any particular venture before deciding to invest. 1 person likes this...
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A Look at Regulation D and Its Regulation Exemptions

A Look at Regulation D and Its Regulation Exemptions
Regulation D, otherwise referred to as Reg D, consists of a series of exemptions to the securities registration requirement given by the Securities Act of 1933. Through Reg D, issuers and sponsors can raise capital privately without the need to register those securities with the Securities and Exchange Commission (SEC). Differences between Rules 506(b) and 506(c) At the time that Regulation D was first instituted, Rule 506 consisted of only one exemption. However, in 2013, the JOBS Act added another category of exemption in the form of Rule 506(c). With the addition of Rule 506(c), issuers now have the opportunity to market offerings to investors outside of their close network. The differences between the two Rules in Reg D are as follows: Rule 506(b) General Solicitation – Not permitted. Issuers are required to have a pre-existing relationship with their investors. Investor requirements – An unlimited number of accredited investors, in addition to 35 non-accredited investors, are permitted. Investor verification – Issuers are permitted to rely on self-certification alone. Document Disclosure – Issuers are required to provide non-accredited investors with disclosure documents. Rule 506(c) General Solicitation – Issuers may perform general solicitation, openly marketing their offering to all accredited investors. Investor requirements – Only accredited investors are allowed to participate. Investor verification – Issuers are required to take reasonable steps to verify that investors meet accreditation requirements. Document Disclosure – Issuers are not required to submit disclosure documents. The Biggest Difference Between the Two Regulation D Exemptions As it concerns exemptions 506(b) and 506(c) of Reg D, the major difference between the two is the ability to perform general solicitation and offer securities for sale to investors. Before the JOBS Act of 2013, issuers could only sell securities to investors within their personal networks. This restricted new companies and companies outside of major population areas from opportunities to raise capital. It is important to note that despite the fact that advertising and marketing efforts are permitted under general solicitation, actual sales of the securities must be performed by registered broker-dealer representatives unless your employees qualify under the issuer exemption. Investor Verification Unlike with Rule 506(b), issuers operating under Rule 506(c) are required to take reasonable steps to verify the accredited status of all their investors. The verification process is usually carried out through the services of a trusted third party or registered broker-dealer. This reduces regulatory risk and makes the process more efficient, especially when a large number of investors are involved. 1 person likes this...
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