Under the Securities Act of 1933, a company that offers or sells its
securities must register the securities with the SEC or find an exemption
from the registration requirements.
The Act provides companies with a
number of exemptions.
For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may
sell its securities to what are known as "accredited investors."
a bank, insurance company, registered investment company, business
development company, or small business investment company; an employee benefit plan, within the meaning of the Employee
Retirement Income Security Act, if a bank, insurance company, or
registered investment adviser makes the investment decisions, or if the
plan has total assets in excess of $5 million;
a charitable organization, corporation, or partnership with assets
exceeding $5 million;
a director, executive officer, or general partner of the company
selling the securities;
a business in which all the equity owners are accredited investors;
a natural person who has individual net worth, or joint net worth
with the person’s spouse, that exceeds $1 million at the time of the
purchase;
a natural person with income exceeding $200,000 in each of the two
most recent years or joint income with a spouse exceeding $300,000 for
those years and a reasonable expectation of the same income level in the
current year; or
a trust with assets in excess of $5 million, not formed to acquire
the securities offered, whose purchases a sophisticated person makes.
For more information about the SEC’s registration requirements and
common exemptions, read our brochure, Q&A: Small
Business & the SEC.
