To accredit an investor is to give him the status which may allow him to enter certain kinds of transactions and make specific types of investments. To be qualified for this, an investor must meet certain criteria set by securities laws. These are usually wealthy individuals and corporations. Accredited investors are allowed to make higher risk investments, invest in hedge funds, seed money, and other types of securities. They are recognized by their territory’s Securities and Exchange Commission, which regulates the process of accreditation.
One of the factors to be considered before a person is accredited is his net worth. In North America, the usual standard is pegged at one million US dollars. Another consideration is the amount of money the individual makes annually and the person’s ability to consistently receive a certain amount in the current and succeeding years. In the United States, the minimum requirement is for the investor to be able to prove that his minimum income for the year has surpassed the $200,000.00 USD mark. In the case of a joint account with a spouse, the total income for the household should be over $300,000.00 USD annually. However, for such investors, limits are also set as to the percentage of net worth that may be entered into a high-risk investment.
Companies do not automatically get accreditation, either. Banks and insurance companies are usually accredited, as are other investment companies. Smaller businesses may also be accredited if its stock holders or equity owners are already accredited. For other organizations, a certain amount in assets is required. Employee benefit plans with bank tie-ups are also considered for accreditation.