If you’re considering a private stock offering to help fund your small business, you’ll need to do a little legwork. You’ll have to fill out a Private Placement Memorandum, for example, to give potential investors an idea of what sort of company you run. But these investors can’t just be anyone. In fact, they must be what the SEC calls “accredited investors.”

But just who exactly does the SEC classify as an accredited investor? And how do they play a role in funding your business?

Let’s look at that first question now.

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What is an accredited investor?


Put simply, an accredited investor is a wealthy, savvy individual or company. They purchase securities (stocks or bonds, usually) in your company for investment purposes, not for resale. And according to the SEC, they must meet certain “sophistication [and] wealth” standards. Some examples of accredited investors are:

  • A charitable organization with assets exceeding $5 million
  • A corporation or partnership with assets exceeding $5 million
  • A bank, insurance company, or business investment company
  • Any director, general partner, or executive director of the company actually selling the securities
  • An individual with a net worth of $1 million
  • An individual with income of over $200,000 for each of the past two years
  • A household with income of over $300,000 for each of the past two years
  • A trust with assets exceeding $5 million which was not formed expressly to purchase the securities being offering
  • A business with equity owners who are also all accredited investors as defined above

What role do accredited investors play?


If you secure accredited investors, they’ll be infusing cash into your small business. The money they invest can help push your business to the next level and, in return for their trust in your business and the financial help they'll give you, you’ll provide them stocks or bonds that will be worth much more once your business really starts picking up.

But remember, you will have to fill out certain documents to keep the process legal. We can help you through the process in our “What are Private Stock Offerings?” article, but a Private Placement Memorandumis a great place to start. 

Get started Start Your Private Placement Memorandum Answer a few questions. We'll take care of the rest.

Get started Start Your Private Placement Memorandum Answer a few questions. We'll take care of the rest.