TEXAS BUSINESS LAW
What Is an Accredited Investor? Rules & Thresholds
An accredited investor is a person or entity the SEC treats as financially sophisticated enough to buy securities that are not registered with the government — chiefly the private placements companies use to raise capital. The status is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, and you qualify by clearing a wealth test, an income test, a professional-license test, or one of several entity tests.
This matters on both sides of a deal. If you are raising money for a startup, fund, or real estate syndication, the accredited-investor definition sets the pool of people you can sell to without a costly SEC registration. If you are the investor, it determines which opportunities are even open to you.
The individual thresholds
An individual qualifies as an accredited investor by meeting any one of these tests. You do not need to satisfy all of them.
| Test | Requirement |
|---|---|
| Net worth | Individual or joint net worth over $1 million, excluding the value of your primary residence |
| Income | Income over $200,000 in each of the last two years ($300,000 jointly with a spouse or spousal equivalent), with a reasonable expectation of the same this year |
| Professional license | Hold a Series 7, Series 65, or Series 82 license in good standing |
| Knowledgeable employee | A “knowledgeable employee” of a private fund qualifies for that fund’s offerings |
The net-worth test excludes your home, but a mortgage above the home’s fair market value counts as a liability. The income test looks back two full years and forward one — a single big year does not qualify you.
The entity thresholds
Entities can also be accredited. Common paths include an entity with more than $5 million in assets, an entity in which all equity owners are themselves accredited, banks and registered investment companies, SEC- and state-registered investment advisers, and — added in the SEC’s 2020 amendments — LLCs and family offices with more than $5 million in assets or investments.
Why the status exists, and why it’s contested
The framework dates to the Securities Act of 1933, passed after the 1929 crash to protect ordinary investors from unregistered, higher-risk offerings. The theory is that accredited investors can absorb losses and fend for themselves without the disclosures that come with a registered public offering.
The thresholds are not indexed to inflation, so the same $1 million and $200,000 figures set decades ago now capture far more households than they once did. As of mid-2026 the core numbers above are unchanged, but reform is actively on the table: a 2025 petition asked the SEC to revisit the definition, and Congress has repeatedly advanced bills to add knowledge- and exam-based paths. Treat the dollar tests as current but watch for change.
What accreditation actually unlocks
Accredited status is the gateway to Regulation D private placements — the most common way private companies raise money. Two rules do most of the work:
- Rule 506(b) lets a company raise an unlimited amount from accredited investors (plus up to 35 sophisticated non-accredited investors) without general advertising.
- Rule 506(c) allows public advertising of the offering, but every investor must be accredited and the issuer must take reasonable steps to verify it — typically by reviewing tax returns, bank statements, or a letter from your CPA or attorney.
Being accredited is permission to participate, not a promise of returns. Private deals are often illiquid, lightly disclosed, and high-risk; the label means you are allowed in, not that the investment is sound.
Frequently asked questions
Does my home count toward the $1 million net worth test? No. Your primary residence is excluded. However, if your mortgage exceeds the home’s value, that excess is counted as a liability against your net worth.
Can my spouse and I combine finances to qualify? Yes. You can use joint net worth for the $1 million test or the $300,000 joint-income test. The SEC also recognizes a “spousal equivalent” for this purpose.
Do I have to be certified by the government as accredited? No. There is no government certificate. For a Rule 506(c) offering, the company selling the securities must verify your status; for a 506(b) offering, self-certification is often accepted.
Is this the same as being a “sophisticated investor”? No. “Sophisticated investor” is a separate, looser concept used in some exemptions. Accredited investor is the specific, defined standard in Rule 501.
This article is general information about federal securities concepts, not legal or investment advice. Whether a particular offering or exemption fits your situation is a fact-specific question.
Raising capital or structuring an investment in Texas? Reidel Law Firm advises business owners on entity setup, contracts, and the legal side of bringing on investors. Talk to a Texas business attorney →
