Business Law

Securities and Exchange Commission Updates Accredited Investor Definition

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General Overview

The Securities and Exchange Commission (“SEC)”) has amended to Rules 501(a), 215, and 144A from the Securities Act of 1933, to update the accredited investors definition, one of the principal tests to determine eligibility for participation in private capital markets. Chairman Jay Clayton explained, “For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication.” The amendments allow investors to qualify based on professional knowledge, experience or certifications in addition to income or net worth.” The SEC does not expect a large rise in private market expansions due to the amendments but regard the amendments as more inclusive.

Limited Liability Company (“LLC”) Specific Updates

Commission Rule 501(a)(3)
LLC may qualify as an accredited investor, if capitalized by $5 million in assets and not formed solely to function as an accredited investor. 

Commission Rule 501(a)(4)
An LLC which functions as a director, executive officer, or general partner for a defined accredited investor may qualify as an accredited investor.

Commission Rule 501 (f)
In defining an “executive officer” the amendments indicate that LLC managers cannot be considered de facto accredited investors.

The Securities Act of 1933, 215
LLCs may be regarded as a “Qualified Institutional Buyer” as long as they demonstrate $100 million in securities owned and invested. 

This eBulletin was prepared by Soyeun D. Choi, Esq. PC,

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