In the U.S., a company that offers or sells its equity interests or other securities must register the offering or sale with the Securities and Exchange Commission (SEC), unless the offering or sale falls within an exemption from registration. Several exemptions from the registration requirement for securities offerings and sales permit a company to sell its securities to “accredited investors.” The term is defined in Rule 501
of Regulation D
. As to natural persons (i.e., humans), an accredited investor is anyone who (a) earned income in excess of $200,000 (or $300,000 jointly with a spouse) in each of the prior two years, and reasonably expects the same for the current year or (b) has a net worth over $1,000,000, either alone or jointly with a spouse (excluding the value of the person’s primary residence). A legal entity such as a company or a partnership can be an accredited investor if all of the equity owners of the entity are accredited investors. In other countries, similar rules exist that identify sales to certain types of sophisticated investors as exempt from registration and disclosure requirements. From a policy perspective, the registration and disclosure requirements applicable to the sale and offering of securities are designed to protect investors from fraud. Requiring an offeror or seller to register the sale with an agency increases transparency and permits more oversight. In cases where an investor has a track record of investment activities, the value of the registration and disclosure requirements may be less important to that investor. Sophisticated investors may be better positioned to independently evaluate investments and identify fraudulent offerings and sales based on their prior investment experience alone, without needing as much publicly disclosed information about the offering company.