Reg D & Compliance
What Is an Accredited Investor? The 506(c) Verification Rules
An accredited investor is someone the SEC considers financially sophisticated enough — by income, net worth, or credentials — to invest in private offerings that aren't registered with the SEC. For a sponsor, the accredited-investor standard isn't trivia: it defines who can legally invest in your deal, and in a Rule 506(c) raise it triggers a hard requirement to verify (not just trust) that every investor qualifies. Get this wrong and you can blow the exemption your entire offering depends on.
By One Million Media4 min read
This guide explains the accredited-investor standard for sponsors: who qualifies, the income and net-worth tests, the newer credential-based paths, and exactly how verification works in a 506(c) offering. It's educational, not legal advice.
Who qualifies as an accredited investor?
An individual generally qualifies as an accredited investor by meeting any one of these tests:
- Income: earned income exceeding $200,000 ($300,000 jointly with a spouse) in each of the last two years, with a reasonable expectation of the same this year.
- Net worth: a net worth over $1 million, alone or with a spouse, excluding the value of the primary residence.
- Credentials: holding certain professional licenses in good standing (the Series 7, 65, or 82) — a path added so financial sophistication, not just wealth, can qualify someone.
- Knowledgeable employees: certain employees of a private fund qualify with respect to that fund.
Entities can qualify too — for example, entities with over $5 million in assets, or entities in which all the equity owners are themselves accredited. The common thread is the SEC's premise that these investors can either bear the risk of loss or evaluate the investment without the protections of a registered offering.
Why the standard matters to your raise
The accredited-investor standard is woven into Regulation D, the exemption almost every private real estate raise relies on:
| Rule 506(b) | Rule 506(c) | |
|---|---|---|
| Who can invest | Accredited + up to 35 sophisticated non-accredited | Accredited only |
| Advertising | No general solicitation | Public marketing allowed |
| Accreditation proof | Self-certification generally OK | Sponsor must verify |
The trade-off is the whole game: 506(b) lets in a few non-accredited investors you know but bans advertising; 506(c) lets you market publicly but requires every investor to be accredited and verified. If you want to run ads, post on social, and build an audience of strangers into investors, you're in 506(c) territory — which means accreditation verification isn't optional.
How verification works in a 506(c) raise
In a 506(c) offering, the sponsor must take 'reasonable steps to verify' that each investor is accredited — a self-certification checkbox is not enough. Acceptable methods include:
- Reviewing documentation — tax returns or W-2s for the income test, or bank/brokerage statements and a credit report for the net-worth test.
- A third-party letter — written confirmation from the investor's CPA, attorney, registered investment adviser, or broker-dealer that they've verified the investor is accredited.
- A verification service — a specialized third-party service that reviews the investor's documents and issues a verification, which many sponsors use to keep sensitive financials at arm's length.
The verification (and the basis for it) is documented as part of the subscription process. This is a meaningful operational difference from 506(b): in exchange for the freedom to market publicly, you accept the diligence burden of verifying every investor — and you keep records proving you did.
What sponsors should keep in mind
A few practical points that keep your exemption clean:
- Don't let investors self-certify in a 506(c) deal — verify, and keep the records. A failure to verify can jeopardize the exemption.
- Use a verification service or require third-party letters to avoid handling investors' raw financial documents yourself.
- Remember the standard defines eligibility, not suitability — being accredited doesn't mean a deal is right for someone; your materials should still be honest and clear.
- Distinguish accredited investor from qualified purchaser — the latter is a much higher bar that only matters for certain large funds.
- Confirm current thresholds and verification rules with securities counsel; the SEC periodically updates the accredited-investor definition.
Frequently asked questions
What is an accredited investor?
An accredited investor is someone the SEC considers able to participate in unregistered private offerings based on income, net worth, or professional credentials. Individuals generally qualify with $200,000 in income ($300,000 jointly) over the last two years, a net worth over $1 million excluding their primary residence, or by holding certain financial licenses (Series 7, 65, or 82).
What are the accredited investor requirements?
For individuals: income over $200,000 ($300,000 with a spouse) in each of the last two years with the same expected this year, OR a net worth over $1 million excluding the primary residence, OR holding a qualifying professional license in good standing. Certain entities also qualify, such as those with over $5 million in assets or where all equity owners are accredited.
How do I verify an investor is accredited for a 506(c) offering?
In a 506(c) raise you must take reasonable steps to verify accreditation — self-certification isn't enough. Acceptable methods include reviewing the investor's tax returns or W-2s (income) or bank/brokerage statements and a credit report (net worth), obtaining a third-party letter from their CPA, attorney, or broker-dealer, or using a dedicated verification service. The basis for verification is documented in the subscription process.
What's the difference between 506(b) and 506(c) for accredited investors?
In a Rule 506(b) offering you can accept accredited investors plus up to 35 sophisticated non-accredited investors, generally relying on self-certification, but you can't advertise. In a 506(c) offering you can market publicly, but every investor must be accredited and you must verify it. The choice is between private (with some non-accredited) and public (accredited-only, verified).
How does someone become an accredited investor?
There's no application or registration — a person 'becomes' accredited by meeting one of the SEC's tests: the income threshold, the net-worth threshold, or holding a qualifying professional license (Series 7, 65, or 82). The credential path was added so financial sophistication can qualify someone who doesn't meet the wealth tests. In a 506(c) raise, the sponsor still has to verify the status.
Keep reading
This article is for educational purposes only and is not legal, investment, tax, or securities advice. Securities offerings are regulated; always work with your securities attorney to structure and run your offering. One Million Media is a marketing and lead-generation provider — not a broker-dealer, investment adviser, or law firm.
