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Assets

Entities, not just individuals, can qualify as accredited investors. One way for entities to achieve this status is by meeting the asset standard, which requires proving that the entity has $5 million or more in assets.

Understanding the Asset Standard​

To qualify as an accredited investor based on the asset standard, an entity must demonstrate that it holds at least $5 million in assets. This standard applies to a variety of entities, including:

  1. Corporations
  2. Partnerships
  3. Limited Liability Companies (LLCs)
  4. Trusts
  5. 501(c)(3) Organizations
  6. Family Offices
  7. Family Clients of a Family Office

Types of Entities​

Corporations​

  • Description: A legal entity that is separate and distinct from its owners, providing limited liability and perpetual existence.
  • Example: A publicly traded company or a privately held corporation with significant assets.

Partnerships​

  • Description: A business entity where two or more individuals share ownership and management responsibilities.
  • Example: A venture capital firm or real estate investment partnership with substantial assets.

Limited Liability Companies (LLCs)​

  • Description: A hybrid entity that combines the limited liability of a corporation with the tax efficiencies and operational flexibility of a partnership.
  • Example: An investment LLC formed to manage a portfolio of properties or securities.

Trusts​

  • Description: A fiduciary relationship in which one party, known as a trustee, holds assets on behalf of another party, the beneficiary.
  • Example: A family trust established to manage and distribute wealth across generations.

501(c)(3) Organizations​

  • Description: A nonprofit organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code.
  • Example: A charitable foundation with significant endowments and assets.

Family Offices​

  • Description: A private wealth management advisory firm that serves ultra-high-net-worth individuals (UHNWI).
  • Example: A family office managing investments, estate planning, and other financial affairs for a wealthy family.

Family Clients of a Family Office​

  • Description: Family members and entities that receive services from a family office.
  • Example: A trust or LLC managed by the family office for the benefit of family members.

Documentation Required​

To verify accredited investor status via the asset standard, entities should provide:

  • Financial Statements: Audited or unaudited financial statements showing total assets.
  • Bank Statements: Recent bank statements reflecting the entity's holdings.
  • Appraisals: Professional appraisals of real estate or other significant assets.
  • Confirmation Letters: Letters from CPAs or other financial professionals confirming the entity’s asset levels.

Investor FAQs​

  1. Can a newly formed LLC qualify as an accredited investor if it has $5 million in assets?:

    • Yes, as long as the LLC can provide documentation proving it holds at least $5 million in assets, it can qualify. It's important to note that the LLC cannot be formed for the sole purpose for investing in the specific private security that it is getting verified for.

  2. Are there any restrictions on the types of assets that can be included to meet the $5 million threshold?:

    • Generally, all types of assets, including cash, securities, real estate, and other investments, can be included. However, the assets must be verifiable through appropriate documentation.

Conclusion​

Entities such as corporations, partnerships, LLCs, trusts, 501(c)(3) organizations, family offices, and family clients of family offices can qualify as accredited investors by meeting the SEC's asset standard. By demonstrating that they hold $5 million or more in assets, these entities can access private investment opportunities typically reserved for accredited investors.