July 8, 2021
Remember if you’re selling a security, you either need to register that security or have an exemption from registration. Regulation D is a common exemption that many people use. Within regulation D, there are 506(b) and 506(c). One of the important things that we get from Regulation D are the concepts of accredited investor and sophisticated investor. So the accredited investor is someone who generally has a high income or high net worth.
There’s many other ways to qualify as an accredited investor, but income and net worth are the common ways. Simply put, an individual that makes two hundred thousand dollars or more, or an individual that has a net worth of one million dollars or more exclusive of their primary residence will often qualify as an accredited investor, essentially accredited investors. The SEC says, hey, these are people of high income, high net worth. They’ve got means. And so if this deal goes bad, they can weather that storm a little bit better than other people. And so the rules and regulations for them are sometimes a little bit more relaxed.
The other definition we get is a sophisticated investor. This definition is a little bit more gray, not quite as clear-cut. We’re looking at your education, your experience, your past investments, maybe do have a financial planner. And so we’re looking essentially at do you have the resources to determine whether this is a good investment for you and whether this is good for your financial plans and whether you can weather the storm, that sort of thing.
So, again, an accredited investor is generally a high net worth or high-income earner. So they make two hundred thousand dollars or more or they have a net worth of one million dollars or more exclusive of their primary home. And a sophisticated investor is someone, through the combination of their education, their investment experience, their work experience, their use of a financial adviser or a financial planner. If we look at all of that and we say, you know what, they have the resources available to them to determine whether this deal makes sense for their financial plans and their financial goals.
So those are the two big definitions that we get from regulation D. Stay tuned for more videos where we’ll talk very specifically about 506(b) and 506(c), which are two of the exceptions within regulation D.
For more securities information, consider contacting a knowledgeable lawyer at Polymath Legal PC by calling (833) 931-6418.