“Assets” are things that have value and that an individual or an entity owns or controls with the expectation that it will provide a future benefit. Assets include real property, physical property, financial assets, and intangible items. Real property is land and things attached to the land, like non-movable buildings. However, not all real property may be counted toward determining whether an individual qualifies as an “accredited investor” on the basis of having a net worth in excess of $1 million. The SEC requires that the value of a person’s primary residence be excluded from the net worth calculation. The term “primary residence” is commonly understood to mean the home where a person lives most of the time vs. a “secondary residence” such a person’s vacation home or an investment property. Likewise, debt secured by the primary residence (such as a mortgage or home equity line of credit) is not counted as a liability in the net worth calculation, unless the home is underwater (worth less than the mortgage or other home-equity line of credit) or the debt has increased within the past 60 days. Physical property includes items like raw materials, inventory, office supplies, machinery, equipment, vehicles, furniture, boats and collectibles. Financial assets are cash, stocks, bonds, certificates of deposit, mutual funds, retirement accounts, and accounts receivables. Intangible assets are things that can’t be touched but nevertheless exist and have value, such as trade secrets, trademarks, copyrights, patents, and other intellectual property.

FAQs Archive - Page 8 of 11

Q: What is an investment?

An “investment” is an allocation of money or capital with an investment purpose and an expectation of generating a return. For purposes of the accredited investor definition, the SEC refers to the existing definition of investments under Investment Company Act of 1940, which includes, among other things, the following items held for investment purposes: securities (with some exceptions) real estate commodity interests physical commodities futures, options, swaps and other financial contracts cash and cash equivalents (e.g., bank deposits, certificates of deposits, bankers acceptances and similar bank instruments, and net cash surrender value of an insurance policy)

Q: Can anyone other than a “spouse” be included in the calculation of net worth or income under the Accredited Investor definition?

Yes. Joint income and assets may be included from “spousal equivalents” when calculating income and determining net worth. The SEC views a spousal equivalent as a cohabitant occupying a relationship generally equivalent to that of a spouse.

Q: What other kinds of entities qualify as Accredited Investors?

Other options for an entity to qualify as an Accredited Investor include: a bank or savings and loan, an insurance company, an investment company registered under the Investment Company Act of 1940, a business development company, a Small Business Investment Company (as defined under Section 301(c) or (d) of the Small Business Investment Act of 1958), a private business development company (as defined in Section 202(a)(22) of the Investment Advisers Act of 1940), a Rural Business Investment Company (as defined in 384A of the Consolidated Farm and Rural Development Act), an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), with plan assets in excess of $5 million or with a plan fiduciary, as defined in Section 3(21) of ERISA, that is a bank, savings and loan insurance company or registered investment adviser, or if a self-directed plan, with investment decisions made solely by persons who are accredited investors described in one or more categories set forth by the SEC, a plan, established by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, with total assets in excess of $5 million. For more information on the SEC's definition of an accredited investor, please click here and for SEC’s amendments to the definition, effective December 8, 2020,

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Yes. Joint income and assets may be included from “spousal [...]

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