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Can Entities Be Accredited Investors?

July 15, 2014 by James Johnson Leave a Comment

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The answer to that question is yes. The flip side, of course, is that some entities can also not be accredited investors. In addition to the well-known definitions of an individual accredited investor, an entity accredited investor includes: -A bank, insurance company, registered investment company, business development company, or small business investment company -An employee benefit plan, if a bank, insurance company, or registered investment advisor makes the plan’s investment decisions, or if the plan has assets in excess of $5 million -A trust with assets in excess of $5 million, not formed to acquire the securities in question, whose purchases are made by a sophisticated investor (a person with the knowledge and experience necessary to evaluate the risks of investment -A charitable organization, partnership, or corporation with assets exceeding $5 million -An entity in which all the equity owners are accredited investors. One can see that, unless the entity is a bank, insurance company, or investment company, the entity will usually have to have assets in excess of $5 million (not unlike the individual accredited investor’s sufficient condition of assets of $1 million). An entity can also be an accredited investor with less assets if all its owners are also accredited investors. So when you have to verify the status of accredited investors, when soliciting entities that aren’t banks, insurance companies, or investment companies, check not only the entity’s net worth, but also each of the owners’ income or net worth — even if the entity has insufficient assets to qualify as an accredited investor, the owners’ own accredited status (if they have it) can pass through to the entity.

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