Accredited Investors: Definition, Requirements, and Verification
Accredited investors: Rules and requirements
Author:
The Carta Policy Team
| Read time: | 11 minutes |
|---|---|
| Published date: | February 26, 2026 |
Understand the accredited investor rule, including the requirements for qualification, why the requirement exists, and how the accredited investor rules may change.
Contents:
- Accredited investors: Rules and requirements
- What is an accredited investor?
- What are the accredited investor requirements?
- Requirements for individuals
- Requirements for institutions and entities
- Non-accredited investor
- Accredited investors vs. qualified purchasers
- How to become an accredited investor
- Why do the accredited investor rules exist?
- How fund managers verify accredited investor status
- What are the risks of non-compliance?
- How have the accredited investor rules changed?
- What is the future of the accredited investor rule?
- The SEC
- Congress
- Maintain accredited investor compliance with Carta
- Frequently asked questions about accredited investors
What is an accredited investor?
An accredited investor is an individual or an entity that the U.S. Securities and Exchange Commission (SEC) permits to invest in securities that are not required to be registered with the SEC. These securities include investment opportunities in the private markets, which include stakes in private investment funds, venture capital (VC) funds, private equity (PE) funds, hedge funds, private placements, and startups. Because most private securities offerings are restricted to this group, understanding the accredited investor definition is fundamental for any fund manager.
What are the accredited investor requirements?
To protect investors from the unique risks of the private markets, the SEC establishes specific criteria for who can be considered an accredited investor. These requirements are officially outlined in Rule 501 of Regulation D under the Securities Act.
Requirements for individuals
An individual, also known as a natural person, can qualify as an accredited investor by meeting specific financial thresholds or by demonstrating professional knowledge and experience. There are four main ways for an individual to qualify:
Income: You must have an annual income exceeding $200,000 (individually) or $300,000 (joint income with spouse or spousal equivalent) for the last two years, with a reasonable expectation of earning the same or more in the current year.
Net worth: Your individual net worth or joint net worth with a spouse must exceed $1 million. The value of your primary residence is not included when calculating this net worth.
Professional experience: Certain professional roles automatically grant you accredited status because the SEC assumes you have a high degree of financial sophistication. This includes directors, executive officers, or general partners (GP) of the fund or company issuing the securities.
Professional licenses: You can also qualify by holding certain professional licenses in good standing, such as the Series 7, Series 65, and Series 82 licenses.
Requirements for institutions and entities
Many LPs in private funds are not individuals but entities like corporations, trusts, or other funds. Accredited institutions include:
- Entities with more than $5 million in total assets (corporations, partnerships, trusts, etc.).
- Certain financial entities, including banks, insurance companies, registered investment companies, and business development companies.
- Registered investment advisers and exempt reporting advisers.
Non-accredited investor
A non-accredited investor (or unaccredited investor) is anyone who doesn’t meet the definition of an accredited investor described above.
Accredited investors vs. qualified purchasers
Accredited investors have to meet income and wealth thresholds set by the SEC, whereas Qualified purchasers are individuals or entities with at least $5 million in investments.
How to become an accredited investor
To become an accredited investor, you must meet the individual or institutional eligibility requirements, gather relevant documents, and verify your status before you begin investing in the private market:
- Meet the accredited investor criteria.
- Gather the required documentation: You will need financial statements or professional records.
- Verify accredited investor status: Choose a verification method such as third-party verification or investment firm verification.
Why do the accredited investor rules exist?
The accredited investor rules are a cornerstone of investor protection in the private markets, ensuring that only those with sufficient financial knowledge are allowed to invest in opaque investments.
How fund managers verify accredited investor status
Verification can be manual or platform-based, with many fund managers transitioning to more efficient digital solutions.
| Manual verification | Platform-based verification | |
|---|---|---|
| LP experience | Slow and cumbersome | Secure and streamlined |
| Data security | High risk of breaches | Institutional-grade security |
| Compliance trail | Disjointed records | Centralized, auditable records |
What are the risks of non-compliance?
Failing to comply with accredited investor rules carries severe consequences, including rescission rights, SEC enforcement actions, loss of exemption, and reputational damage.
How have the accredited investor rules changed?
The SEC originally established the criteria in response to the Great Depression and the last substantial refresh occurred in 1982. The SEC has recently broadened access to private investments.
What is the future of the accredited investor rule?
The accredited investor definition is subject to ongoing debate among policymakers, regulators, and industry participants, with potential changes focusing on adjusting income/net worth thresholds and expanding the definition of accredited investors.
Frequently asked questions about accredited investors
What is the difference between an accredited investor and a qualified purchaser?
A qualified purchaser is defined by owning a much larger amount of investments, which is required for investing in certain private funds.
Can non-accredited investors participate in private offerings?
While limited exemptions exist, non-accredited investors face extensive disclosure requirements that most find impractical.
How often must a fund verify an investor's status?
Verification should be done at the time of investment and it is best practice to re-verify for each new fund to ensure compliance.