Non-Accredited Investor - Explained
What is a Non-Accredited Investor?
Written by Jason Gordon
Updated at April 16th, 2022
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Table of Contents
What is a Non-Accredited Investor?Why Identifying Non-Accredited Investors is Important?Non-Accredited Investors and Private CompaniesAcademic Research on Non-Accredited InvestorsWhat is a Non-Accredited Investor?
A non-accredited investor is an investor that fails to meet the net worth requirements that will qualify him as an accredited or sophisticated investor. As stipulated by the Securities and Exchange Commission (SEC), an investor that does not have $1 million or more as his net worth or does not have an income of more than $200,000 annually is a non-accredited investor.
Investors who are capable of financing and managing their investment choices with or without the protection of the SEC are accredited investors. Before an investor can qualify as an accredited investor, he must have a net worth of over $1 million or an income of $200,000 per annum.
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Why Identifying Non-Accredited Investors is Important?
There are many investors that can into the category of unaccredited investors, these investors however still operate in the market. Non-accreditation does not disqualify an investor from trading, rather, the level of trade they can engage in is restricted due to the limited funds at their disposal. Generally, unaccredited investors are called retail investors, they have less than $1 million as their net worth.
Non-Accredited Investors and Private Companies
When it comes to investment, there is a limit to the investment choices that unaccredited investors can make. Usually, they invest based on their financial level and capacity. As part of the regulations of the SEC, there is a regulation that was set out for unaccredited investors to prevent them from getting into investments in which they have no financial capacity or understanding.
As spelled out by the SEC, there are certain products that unaccredited investors can invest in such as hedge funds and private funds. Also, some companies can have unaccredited investors but the number must be kept as low as possible. The SEC expects that investors, whether accredited or unaccredited must know their stake in an investment, including the risks and returns of investment.
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