What does it take to become an accredited investor? Showing you how to become one is what we seek to achieve with this article. This is because the world of business and finance has seen a steady rise in people willing to become financial experts.
Becoming an accredited investor involves a series of steps that shouldn’t be skipped. You are at the right place as we show you every step involved in becoming one.
Who is an Accredited Investor?
An accredited investor is not limited to a person but can also be a business that is considered financially sophisticated and having less need for regulatory protection as provided for by disclosure filings. To become an accredited investor, certain conditions are attached. Such include professional experience, having a sizeable asset and net worth, as well as your income capacity.
In providing you with specifics regarding sizeable assets and net worth as well as income capacity, your net worth should be above a million dollars. This of course should exclude the worth of your primary residence. Qualification as determined by your income requires that your income exceeds $200,000 per annum. In assessing this condition, only the most recent years are included. All these are in addition to your professional experience.
Is there a Formal Institution Saddled with Accreditation?
During the process of becoming an accredited investor, this question will likely be asked. The answer is there is no form of certification or recognition is issued by a formal body. Hence, if this is the case, how does one become accredited? The U.S Securities and Exchange Commission SEC has laid down guidelines or rules on how one becomes an accredited investor.
SEC requires that any investor buying non-registered investments must be confirmed by the company selling such investments. This is an informal way of determining if an investor qualifies. In this sense, being an accredited investor boils down to having the minimum asset ownership and experience. SEC regulations for companies such as venture capital and hedge funds etc, requires that they conduct an assessment of the investor.
This assessment is in the form of a questionnaire. This questionnaire contains sections where the investor is required to provide information regarding financial status. You will be required to attach your tax return, credit reports, financial statements and necessary documentation that will help verify your claims.
How to Become an Accredited Investor
In view of the information provided above, we will now focus on how to become an investor. Because becoming an accredited investor is mainly dependent on your experience and net worth, the following steps become important;
- Evaluating your Net Worth
The first thing to do in your bid to become an accredited investor is to first evaluate your net worth. This is meant to ascertain your level of qualification as an investor. Your income is the first place to examine. Have you earned up to $200,000.00 per annum in the last two years? (Only the most recent years are taken into consideration). If you have, then this is good news.
However, that is not all as you also need to show that you will earn same amount or more at the end of the year. In determining your claims, the issuer will check your IRS tax documentations. This gives a clear picture of your income over the period stipulated. There are other considerations for couples interested in investing. In such situations, both of your incomes shouldn’t be less than $300,000 per annum.
- Knowing the Value of your Net Worth
Your net worth is another condition that must be met in your quest to become an accredited investor. In determining your net worth, the value of your primary residence isn’t included in your net worth calculation. However, other assets are, including secondary residential properties. The total value of your net worth is expected to be nothing less than a million dollars.
- The True Value of your Net Worth
Whenever your net worth is being calculated, all liabilities are discounted. In other words, these are subtracted from the real assets. But what constitutes liabilities you may ask. Liabilities include accumulated bills on credit cards, mortgages, student loans and more. In doing this, you get the true value of your net worth and can easily see if you will be considered an accredited investor.
- Getting your Paperwork Ready
We earlier mentioned that to be considered an accredited investor, proof of your earnings (equal to or exceeding $200,000 per annum) for the past two years will be required by stock issuing companies. Such requirements are a little different for couples as they are required to show proof of combined earnings of $300,000 per annum for the last two years.
Presenting these documentation aren’t enough as the companies will conduct their own due diligence to ensure that information provided by you tallies with findings from their independent verification process.
- Attaching All Copies of your Assets
This is most useful for the net worth declaration. In such a case, you are expected to attach recent documents that show proof of ownership for all assets included in your declaration. This allows for proper assessment of your net worth in order to confirm your status as an accredited investor or not. During this process, it is best to seek legal help where necessary. This gives you greater credibility.
- Applying for an Investment
This is the final stage of becoming an accredited investor. This process relies on your findings from the other steps. After going through the entire steps of finding out your true worth as well as income thresh hold, you begin the application process immediately.
You have been shown how to become an accredited investor and what to lookout for. It first begins by finding out the requirements which we have provided. Secondly, you need to determine if you meet such requirements and finally the application stage. The entire process can be challenging and sometimes overwhelming without the right information. We are sure the information provided here will be of immense help to you.