I've fielded several inquiries lately about just what an Accredited Investor is. In most cases this has been in conjunction with Tenancy In Common sponsorship. Below I've summarized the criteria for determining whether or not someone qualifies as an Accredited Investor. It's important to remember that working with AI's may facilitate the formation of a TIC that is exempt from registering as a security. This should only be done with the assistance of an attorney. The attorney chosen should be a real estate specialist.
Accredited Investor Criteria:
Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as "accredited investors."
The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:
1. a bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
4. a director, executive officer, or general partner of the company selling the securities;
5. a business in which all the equity owners are accredited investors;
6. a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase;
7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
Some hold members of an investment group such as the Northwest Real Estate Investors Association(NWREIA) to be tantamount to AI's...confirm this with your attorney. You don't want to violate SEC Rules. Think of them as being like the IRS...without as good of sense of humor. Contact me if you would like additional information at: 503.577.1034 or rick@rosecitycre.com.
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