Investor Status and the Accredited Investor Definition
Most private offerings turn on who is buying, not how much is raised. The rules use at least nine different tests for who counts, and passing one does not mean passing another.
The idea
Money and position stand in for sophistication.
The securities laws protect investors mainly by requiring disclosure. Several exemptions switch that protection off for investors presumed able to look after themselves. Rather than test what someone knows, the rules mostly measure wealth, job or license.
Each test was written for a different law and does a different job. An accredited investor may buy into a private fund and still not be someone its adviser may charge a performance fee. The labels sound alike. The consequences do not.
A mistake about status rarely shows at closing. It shows later, when a regulator, a buyer’s lawyers or a disappointed investor examines the exemption and finds a purchaser who did not qualify.
Accredited investor Sophisticated purchaser QIB No category California Qualified purchaser Knowledgeable employee Qualified client Foreign broker-dealers Swaps
At a glance
Nine tests, and what each one opens.
Accredited Investor
Regulation D offerings, including advertised Rule 506(c) raises.
Headline test
Net worth over $1 million excluding the home, or income over $200,000 ($300,000 jointly).
Source
Securities Act Rule 501(a)
Sophisticated Purchaser
Up to 35 non-accredited buyers in a Rule 506(b) offering.
Headline test
No dollar test. Knowledge and experience, alone or with a representative.
Source
Rule 506(b)(2)(ii)
Qualified Institutional Buyer (QIB)
Rule 144A resales.
Headline test
Institutions only. Generally $100 million in securities.
Source
Rule 144A(a)(1)
Qualified Purchaser
Section 3(c)(7) private funds.
Headline test
$5 million in investments; $25 million for those investing for others.
Source
Investment Company Act § 2(a)(51)
Knowledgeable Employee
Investing in the private fund they help run.
Headline test
Senior role, or 12 months of investment work.
Source
Investment Company Act Rule 3c-5
Qualified Client
Paying an SEC-registered adviser a performance fee.
Headline test
$1.4 million with the adviser, or net worth over $2.7 million.
Source
Advisers Act Rule 205-3
Major U.S. Institutional Investor
Dealing with a foreign broker-dealer not registered with the SEC.
Headline test
Institutions only. Over $100 million in assets.
Source
Exchange Act Rule 15a-6
Eligible Contract Participant (ECP)
Swaps traded away from a regulated futures exchange.
Headline test
Individuals: over $10 million invested ($5 million if hedging).
Source
Commodity Exchange Act § 1a(18)
California Qualified Purchaser
California’s limited public offering exemption.
Headline test
Net worth of $500,000, or $250,000 plus $100,000 income. 10% cap.
Source
Cal. Corp. Code § 25102(n)
The definition
Accredited Investor
The test most private offerings turn on. An individual or an organization qualifies by meeting any one of the categories below. Source: Securities Act Rule 501(a).
People
Individuals qualify on any one of these.
Net worth
Over $1 million, alone or with a spouse or spousal equivalent. The primary residence does not count. Neither does its mortgage — except debt above the home’s value, and borrowing added in the 60 days before the sale other than to buy the home.
Income
Over $200,000 in each of the last two years, or $300,000 jointly, with a reasonable expectation of the same this year.
Professional license
A Series 7, 65 or 82 license held in good standing, whatever the person’s income or wealth.
Insiders
A director, executive officer or general partner of the issuer, or of its general partner.
Knowledgeable employees
A knowledgeable employee of the private fund making the offering.
Family clients
A family client of a qualifying family office, where the office directs the investment.
Entities
Organizations qualify on any one of these.
Regulated institutions
Banks, savings and loans, registered broker-dealers, insurance companies, registered funds, business development companies, and small business and rural business investment companies.
Investment advisers
Registered with the SEC or a state, and exempt reporting advisers.
Companies and charities
Corporations, LLCs, partnerships, business trusts and charities with total assets over $5 million, not formed to make this investment.
Trusts
Total assets over $5 million, not formed to make this investment, with the purchase directed by a sophisticated person.
Any other entity
Owning investments over $5 million, not formed to make this investment.
Family offices
Over $5 million under management, directed by someone with the needed experience.
Owned by accredited investors
Any entity whose owners are all accredited investors.
Employee benefit plans
State plans over $5 million. ERISA plans over $5 million, or whose decisions are made by a bank, insurer or registered adviser, or which are self-directed by accredited investors.
“Institutional accredited investor”
Rule 144A uses the phrase for the entity categories of the accredited investor definition, leaving individuals out. Offering documents use it too, sometimes more narrowly. When a document uses the term, check how that document defines it.
Raising money
More tests that decide who can buy.
Sophisticated Purchaser
Rule 506(b) only. There is no dollar test. See Rule 506(b) vs. Rule 506(c).
The purchaser
Up to 35 in any 90 days who are not accredited.
The test
Enough knowledge and experience in financial and business matters to evaluate the investment.
The cost
Admitting even one requires detailed disclosure, including financial statements, for every buyer who is not accredited. In practice most issuers give it to everyone.
Purchaser representative
For a purchaser who lacks that experience.
Experience
Must have the knowledge and experience the purchaser lacks.
Independence
Not an insider or 10% owner of the issuer, with family exceptions.
In writing
The purchaser acknowledges the representative. The representative discloses any conflict a reasonable time before the sale.
Qualified Institutional Buyer (QIB)
Institutions only. No individual qualifies, however wealthy, though a company they own can. The test is securities owned and invested on a discretionary basis, not total assets.
$100 million in securities
Owned and invested on a discretionary basis. Most institutions.
Financial institutions
Insurance companies, registered funds, business development companies, and small business and rural business investment companies.
Plans and trusts
State and ERISA plans, and certain bank-trusteed plan trusts.
Companies and advisers
Charities, corporations, partnerships, LLCs, registered advisers, and any institutional accredited investor not otherwise listed.
Different rules
Banks, dealers and fund groups.
Banks and savings and loans
$100 million in securities plus audited net worth of at least $25 million.
Registered broker-dealers
$10 million, or acting as riskless principal for a QIB.
Fund families
May count their holdings together.
Owned by QIBs
An entity owned entirely by QIBs is itself one.
Investors in No Category
Two exemptions let anyone invest, and cap how much.
Regulation Crowdfunding
Over any 12 months, across every crowdfunding offering.
Income or net worth under $124,000
The greater of $2,500 or 5% of the greater of the two.
Both $124,000 or more
10% of the greater of the two, capped at $124,000.
Accredited investors
No limit.
Regulation A, Tier 2
For purchasers who are not accredited.
Individuals
No more than 10% of the greater of annual income or net worth.
Entities
No more than 10% of the greater of revenue or net assets.
Exception
No cap if the securities will be listed on a national securities exchange.
California’s Own Lists
California counts investors its own way. Its tests matter mainly outside Rule 506. A Rule 506 offering needs only a California notice filing and fee. For every exemption’s California filing, fee and deadline, see Exempt Offerings Compared.
The 35-purchaser count
California’s limited offering exemption.
Limit
35 purchasers, but some buyers are not counted.
Not counted
Accredited investors.
Also not counted
Anyone investing $150,000 or more who can protect their own interests, or whose investment is no more than 10% of net worth, alone or with a spouse.
California qualified purchaser
The limited public offering exemption, for issuers organized in California and out-of-state corporations California treats as its own.
Net worth
At least $500,000; or at least $250,000 plus income over $100,000 last year and expected this year.
Counting
Home, furnishings and cars are left out.
Cap
An individual qualifying this way may not invest more than 10% of net worth.
Running a fund
Three tests decide who can invest and on what terms.
Qualified Purchaser
The test for a Section 3(c)(7) fund. Every investor must qualify, apart from knowledgeable employees and a few people who receive interests from them. In exchange the fund escapes the 100-investor cap that limits a Section 3(c)(1) fund.
Who qualifies
Any one of these.
Individuals
At least $5 million in investments, alone or with a spouse.
Family-owned companies
At least $5 million in investments.
Trusts
Not formed to buy this fund, where the trustee or other decision-maker, and everyone who contributed assets, is a qualified purchaser.
Larger investors
Anyone investing at least $25 million on a discretionary basis, for itself or other qualified purchasers.
What counts as investments
A defined term, described broadly.
Counts
Securities, real estate held for investment, commodity interests and cash held for investment.
Does not count
Property used personally or for a business, and generally stock in a company the investor controls.
Knowledgeable Employee
The people running a private fund may invest in it without counting toward the 100-investor cap or needing to be qualified purchasers. Each is also an accredited investor, as an individual, when buying into that fund.
Senior people
Of the fund or its manager.
Roles
Executive officers, directors, trustees, general partners and advisory board members, or anyone in a similar role.
Investment staff
Employees who take part in investing.
Experience
At least 12 months of that work, for this fund or the manager’s other funds, here or elsewhere.
Not included
Clerical and administrative roles.
Qualified Client
An adviser registered with the SEC may charge a performance fee only to a qualified client. In a Section 3(c)(1) fund, every investor who pays that fee is tested.
Wealth tests
Any one of these.
Assets with the adviser
At least $1.4 million, right after signing.
Net worth
Over $2.7 million, with a spouse, right before signing. The home is excluded on the same terms as the accredited investor test.
Qualified purchaser
Qualifies automatically.
The adviser’s own people
No wealth test.
Senior people
Executive officers, directors, trustees, general partners, or anyone in a similar role.
Investment staff
12 months of similar work, at the adviser or a prior employer. Clerical roles do not count.
Changed 29 June 2026
The amounts rose from $1.1 million and $2.2 million. A contract signed earlier under the old amounts stays valid. Anyone who becomes a party afterward — including a new investor in an existing fund — is tested at the new amounts.
Trading and dealing
Two tests that belong to the trading desk.
Major U.S. Institutional Investor
A foreign broker-dealer not registered with the SEC may send these investors research. It may also speak with them without a U.S. broker-dealer on the call, though trades still run through one.
Institutions
Over $100 million in assets, their own or under management.
Who
A U.S. institutional investor: a registered fund, bank, savings and loan, insurance company, business development company, employee benefit plan or similar institution.
Advisers
Over $100 million under management.
Who
An investment adviser registered with the SEC.
Eligible Contract Participant (ECP)
Only an eligible contract participant may enter a swap away from a regulated futures exchange.
Individuals
Money invested on a discretionary basis.
General
Over $10 million.
Hedging
Over $5 million, if the swap manages a risk.
Businesses and institutions
Any one of these.
Businesses
Total assets over $10 million; or net worth over $1 million when hedging a business risk; or obligations guaranteed by an eligible contract participant.
Institutions
Banks, insurers, registered funds, and incorporated broker-dealers and futures commission merchants.
Public bodies and pools
Governmental bodies with $50 million invested. Commodity pools and benefit plans over $5 million.
Traps
Where investor status actually goes wrong.
A questionnaire written before 29 June 2026 may test the wrong client
Qualified client amounts are now $1.4 million and $2.7 million. A subscription agreement drafted earlier may still ask about $1.1 million and $2.2 million. Some summaries still repeat the older $1 million and $2.1 million. Either will admit investors who cannot be charged a performance fee.
Accredited is not qualified
Take an investor with $1.5 million in net worth, not counting the home, who puts $250,000 into a Section 3(c)(1) fund. She is accredited and may buy. Unless she has $1.4 million with the adviser, an SEC-registered adviser may not charge her a performance fee.
The home is out, and so is recent borrowing against it
Cash from refinancing the house within 60 days before the sale does not raise net worth, because the new debt counts against the investor. Refinance earlier, and it can.
“Over” and “at least” are different words
An individual with net worth of exactly $1,000,000 fails the net worth test, which requires more than $1 million. The qualified purchaser test is at least $5 million. Questionnaires that blur the two admit the wrong people at the margin.
An entity formed to make the investment is looked through
Several entity tests require that the entity was not formed to buy this security. If it was, it qualifies only if every owner does.
A reasonable belief is not verification
A questionnaire alone supports a Rule 506(b) offering but not Rule 506(c). Under SEC staff guidance, it can work for 506(c) when paired with a high minimum investment. See Rule 506(b) vs. Rule 506(c).
The firm writes these tests into offering documents and fund subscription agreements, and reviews them from the other side for the broker-dealers selling the offering.
Worth watching — September 2026
The SEC’s regulatory agenda lists possible changes to the accredited investor definition. Nothing has been proposed yet. In December 2025 the House passed a bill that would write the accredited investor tests into the statute and adjust them for inflation. It has not been enacted. Check the tests against the rules on the day the offering launches, not against a summary written earlier.
This page is general information, not legal or tax advice. How it applies depends on facts this page cannot know, and the rules change. Reading it creates no attorney-client relationship. Please see our Attorney Advertising, Legal Notices & Disclaimers.
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