How to Become an Approved Investor

An approved investor is aware that his registration is at stake if an investor writes a complaint to SEC for swindling activities. Are you also aware that your funds are too precious to be invested with an unapproved investor? The root is the cause of scams and fraudulent financial activities. Note that instead of relying on individuals for the security of your investments, learn how to become an approved investor and become a business expert.

An Approved Investor

An approved investor is a person or an organization registered by the Securities and Exchange Commission SEC to invest in securities. Approved investors are able to invest money directly into the profitable world of private equity, hedge funds, venture capital, private placements, and equity crowdfunding.

Under SEC, a firm can sell its own securities and investments to approved investors. An approved investor have legal access to invest in products that are not available to the general public. An approved investor is an individual who has specific professional certifications, designations, or credentials.  The individual should be an intelligent employee of a private fund and must be SEC and state-registered investment advisers.


How Does Securities and Exchange Commission Define an Approved Investor?

According to Securities and Exchange Commission Rule 501, there are two ways to define and determine an approved investor. First, a person with an income which is more than $200,000 in two most recent years or joint income with a spouse more than $300,000 for those years and an expectation of the same income level in the current year. Then someone who has an individual net worth or joint with the spouse that surpass $1 million at the time of purchase, excluding the value of the primary residence of the person.

It is very essential to note that the income calculation must follow the same format for the two or three years required by SEC which means that the individual either has to calculate yearly income individually or with a spouse, but not both.

Reasons People Become Approved Investors

A governmental body like Securities and Exchange Commission put up rules for investors approval to protect investors’ funds. However, the requirements for approval enable the investment owner to have enough knowledge to understand investments to prevent monetary loss. Becoming a verified investors also enables them to have hedge funds to withstand any loss and pay back investors’ funds.

Who is Eligible as an Approved Investor

The following individuals can be eligible to become an approved investor;                                                           

  • Financial institutions
  • Individuals and spouses
  • Specific types of insurance companies
  • Knowledgeable employees of private funds
  • Brokerage firms
  • A corporation or LLC, not formed for the certain purpose of acquiring the securities offered, with total assets in excess of $5M
  • Business investment firms
  • Employer-sponsored retirement plans
  • Registered investment advisor firms
  • Trusts
  • SEC-registered investment advising firms

How to Become an Approved Investor

To become a verified investor, you have to pass some tests. Securities and Exchange Commission recently allows an individual to pass one of these tests.

You also need to have a net worth that exceeds $1M which doesn’t include the value of their primary residence.

You will have a pre-tax income exceeding $200,000 in the two most recent tax return years. Correspondingly, the investor can also become approved with their spouse as they will have a pre-tax income of at least $300,000 for the previous two years and the upcoming year. The couple should also have a net worth of $1M not including their primary residence.

Furthermore, in the United States, before you can become a verified investor, you must have a net worth of at least $1,000,000 which doesn’t include the value of the primary residence.

You can click here for more information.

Find more articles on Student Resources here