Accredited investor guide
Who qualifies under SEC rules, and how status is verified
Any offering by Zaman Capital Group is intended to be open only to accredited investors under Regulation D, Rule 506(c). This guide explains, in plain English, who qualifies under SEC Rule 501(a) and how verification works.
The main tests at a glance
Most individuals qualify through income or net worth. Meeting any one test is enough.
- Income
- Over $200,000
- a year on your own, or over $300,000 jointly, in each of the last two years, with the same expected this year
- Net worth
- Over $1 million
- on your own or jointly with a spouse or spousal equivalent, not counting your primary residence
- Credentials
- Series 7, 65 or 82
- a securities license held in good standing
Individuals
A person is an accredited investor if they meet any one of these tests at the time of the investment.
- Spousal equivalent
- A cohabitant in a relationship generally equivalent to that of a spouse. The 2020 amendments added it alongside spouses for the joint income and joint net worth tests.
Income
Individual income over $200,000 in each of the two most recent years, or joint income with a spouse or spousal equivalent over $300,000 in each of those years, and a reasonable expectation of reaching the same level in the current year.
Net worth
Net worth over $1 million, alone or together with a spouse or spousal equivalent.
- Your primary residence is not counted as an asset.
- Mortgage debt on your primary residence is not counted as a liability, except for any amount above the home's fair market value, and any increase in the 60 days before the investment that did not come from buying the home. Those amounts are counted.
- Joint net worth can include assets held in only one partner's name, and the investment does not have to be made jointly.
Professional credentials
Holding, in good standing, a Series 7 (General Securities Representative), Series 65 (Investment Adviser Representative) or Series 82 (Private Securities Offerings Representative) license. The SEC can designate other qualifying credentials by order.
Insiders of the issuer
Directors, executive officers and general partners of the company selling the securities, or of its general partner, for that company's offering.
Knowledgeable employees
“Knowledgeable employees” of a private fund (one that relies on section 3(c)(1) or 3(c)(7) of the Investment Company Act), for investments in that fund.
Entities
Companies, trusts and other organizations qualify through the categories in Rule 501(a). The main ones are:
Regulated financial institutions
Banks, savings and loan associations, registered broker-dealers, SEC- or state-registered investment advisers and exempt reporting advisers, insurance companies, registered investment companies, business development companies, private business development companies, small business investment companies and rural business investment companies.
Entities with more than $5 million in assets
Corporations, limited liability companies, partnerships, business trusts and 501(c)(3) organizations with total assets over $5 million, not formed for the specific purpose of acquiring the securities offered.
Trusts with more than $5 million in assets
Trusts with total assets over $5 million, not formed for the specific purpose of acquiring the securities, whose purchase is directed by a person with enough financial and business knowledge and experience to evaluate the investment's merits and risks.
Entities owning investments over $5 million
Any other type of entity, not formed for the specific purpose of acquiring the securities, that owns “investments” (as defined under the Investment Company Act) worth more than $5 million.
Family offices and their family clients
Family offices with more than $5 million in assets under management, not formed for the specific purpose of acquiring the securities, whose investment is directed by a person able to evaluate its merits and risks; and their family clients, when that family office directs the investment.
Benefit plans
State and local government plans qualify if total assets exceed $5 million. ERISA plans qualify if assets exceed $5 million, if decisions are made by a bank, insurance company, savings and loan or registered investment adviser acting as plan fiduciary, or, for a self-directed plan, only by accredited investors.
Entities owned entirely by accredited investors
Any entity in which every equity owner is an accredited investor.
How verification works
Rule 506(c) lets an issuer advertise an offering publicly, but only accredited investors may invest, and the issuer must take reasonable steps to verify that each one qualifies. What is reasonable depends on the facts and circumstances. The rule lists methods an issuer may use:
Income documents
Reviewing IRS forms that report your income for the two most recent years, such as Forms W-2 or 1099, a Schedule K-1 or a filed Form 1040, along with your written statement that you expect to reach the required level this year.
Net worth documents
Reviewing documents dated within the prior three months: bank and brokerage statements, certificates of deposit, tax assessments or independent appraisals for assets, and a credit report from a nationwide consumer reporting agency for liabilities, with your written statement that you have disclosed all liabilities.
Third-party confirmation
A written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a certified public accountant that, within the prior three months, they took reasonable steps to verify your status and determined that you are accredited.
Prior verification
If the same issuer verified you within the past five years, it may rely on your written statement that you still qualify, unless it knows of information to the contrary.
These methods are not the only ones; an issuer may use other reasonable steps. Ticking a box on a questionnaire, without more, is generally not enough.
Rule 506(c) offerings are open to accredited investors only. By contrast, Rule 506(b) offerings cannot be publicly advertised and may admit up to 35 non-accredited investors who meet a sophistication standard.
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