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Entity Owners

Entities can also qualify as accredited investors if all of their equity owners are individually accredited investors. This is known as the owners standard.

Understanding the Owners Standard​

To qualify as an accredited investor under the owners standard, an entity must ensure that every equity owner meets the individual accredited investor criteria set forth by the Securities and Exchange Commission (SEC). These criteria include:

  1. Income Standard
  2. Net Worth Standard
  3. Licensed Professional
  4. Knowledgeable Employees

Standards for Individual Accredited Investors​

Income Standard​

  • Criteria:
    • Individual Income: An annual income of at least $200,000 in each of the two most recent years.
    • Joint Income: A combined annual income of at least $300,000 with a spouse in each of the two most recent years.
  • Documentation: Tax returns, W-2 forms, Form 1099, pay stubs, etc.

Net Worth Standard​

  • Criteria:
    • A net worth exceeding $1 million, either individually or jointly with a spouse, excluding the value of the primary residence.
  • Documentation: Bank statements, brokerage statements, other securities holdings, liabilities documentation.

Professional Licenses​

  • Criteria:
    • Holders of certain professional licenses such as FINRA Series 7, Series 65, or Series 82.
  • Documentation: Copies of relevant FINRA licenses, confirmation letters from FINRA or employing firms.

Knowledgeable Employees​

  • Criteria:
    • Knowledgeable employees of a private fund, including executive officers, directors, trustees, and employees involved in investment activities.
  • Documentation: Employment contracts, letters from employers, proof of role and responsibilities within the private fund.

Types of Entities​

Entities that can qualify through the owners standard include:

  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

Documentation Required​

To verify accredited investor status through the owners standard, entities should provide:

  • List of Equity Owners: Detailed list of all equity owners.
  • Accreditation Documentation for Each Owner: Proof that each equity owner meets the accredited investor criteria (income, net worth, professional licenses, or knowledgeable employee status).
  • Confirmation Letters: Letters from financial professionals, if applicable, confirming the accredited status of the equity owners.

Investor FAQs​

  1. What happens if one of the equity owners does not meet the accredited investor criteria?:

    • The entity would not qualify as an accredited investor unless all equity owners are accredited.

  2. Can an entity qualify as an accredited investor if it has multiple classes of equity owners, some of whom are not accredited?:

    • No, all equity owners, regardless of class, must meet the accredited investor criteria for the entity to qualify.

Conclusion​

Entities can qualify as accredited investors by ensuring that all of their equity owners are individually accredited investors. This method, known as the owners standard, requires that each equity owner meets the SEC's criteria based on income, net worth, professional licenses, or knowledgeable employee status. By complying with these requirements, entities can access private investment opportunities typically reserved for accredited investors.