Accredited Investor

The two money tests, and what the rule excludes

Rule 501 sets two routes for a natural person. The income test asks for individual income above $200,000, or $300,000 joint with a spouse, in each of the two most recent years, together with a reasonable expectation of reaching the same level in the current year. The net worth test asks for net worth, individually or jointly with a spouse, above $1,000,000, and it excludes the value of the primary residence.¹

That exclusion does more work than founders expect. A person whose wealth is mostly a house does not clear the net worth test, and the two year requirement on the income side means one strong year qualifies nobody. Read the rule text rather than a summary of it. The conditions bolted onto each threshold are where subscription documents get rejected, not the headline numbers.

The 2020 amendments put knowledge next to money

In 2020 the SEC added categories that turn on credential and role rather than balance sheet. Investment professionals in good standing holding the general securities representative licence (Series 7), the investment adviser representative licence (Series 65), or the private securities offerings representative licence (Series 82) qualify. So do directors, executive officers and general partners of the company selling the securities, any family client of a family office that is itself accredited, and, for investments in a private fund, knowledgeable employees of that fund.²

The firm's interpretation is that the Series 65 route matters more in token rounds than it gets credit for, because it opens a documented path that does not depend on wealth at all. The SEC's own summary of these categories carries a review date of April 2026, so it reflects current agency guidance rather than the language of the original rulemaking.²

Entities are tested on a different set of facts

The entity list starts with regulated institutions: banks, broker dealers, insurance companies, registered investment companies and business development companies. It extends to charitable organizations and trusts holding over $5 million in assets, directed by a sophisticated person and not formed for the specific purpose of making the investment, and to any entity where every equity owner is itself accredited.¹ The 2020 amendments widened it again, to entities owning investments in excess of $5 million and to any entity type with assets over $5 million that was not formed to acquire the securities on offer.²

Two of those conditions are anti abuse rules and they bite. A special purpose vehicle assembled to pool non accredited buyers fails on the look through, because the test asks whether every equity owner is accredited. A trust formed the week before the round fails the not formed for this purpose condition. Neither is an exotic edge case. Both turn up in token rounds where a community wants access to a private allocation and someone proposes a wrapper to get it.

Verification is the issuer's job, and the rule you pick decides how hard

Rule 506(b) permits no general solicitation or advertising. It allows unlimited accredited investors plus up to 35 non accredited but sophisticated purchasers, with additional disclosure duties if any of the latter participate, and it lets the issuer rely on a reasonable belief about accredited status.³

Rule 506(c) inverts both terms. General solicitation is permitted, every purchaser has to be accredited, and the issuer must take reasonable steps to verify it. In practice that means reviewing tax returns, W-2s, bank or brokerage statements or credit reports, or accepting a written confirmation from a lawyer, accountant or broker dealer. A signed self certification on its own does not meet the standard, and purchasers receive restricted securities either way.³ The issuer then files a Form D notice electronically within 15 calendar days after the first sale in the offering.⁴

Across the token rounds we have worked on, this choice is usually made before anyone reads either rule. A founder posts about the raise, a podcast episode goes out, a deck circulates on a public channel, and 506(b) is gone. If that is where you are, the round runs 506(c) and documentary verification is the price of the conversation you already had.

What accreditation settles for a token round, and what it does not

It settles who may lawfully buy under the exemption. It settles nothing about whether the instrument you are selling is a security, whether a token delivered eighteen months later is one, or what the next distribution looks like. Those questions run on the Howey analysis, and they are worked through on the Howey test and SAFT pages rather than here.

Nor does the status travel with the asset. Securities sold under Rule 506 are restricted, so a purchaser who was accredited on the day of sale still faces resale limits afterwards, and an offshore leg runs under Regulation S with its own separate conditions. The firm's interpretation is that the common failure here is treating the accredited list as the compliance work, when it is one gate in a round that also has to answer for solicitation, filing, resale and delivery.

What we settle before the allocation list is drawn

Five answers, in writing. Which rule each tranche runs under. Whether any public communication has already foreclosed 506(b). How status will be established for each purchaser, and who reviews the evidence. What happens if a purchaser's status changes between signing and closing. And where the verification file lives, because that file is the record if anyone asks two years from now.

Whether a specific offering, purchaser or structure qualifies for an exemption is fact specific and jurisdiction specific, and that call belongs to your counsel. This page is reference material for structuring work. It is not legal advice, and it is not a recommendation to buy, sell, or hold any asset.