What Rule 501(a) Sets for Accredited Investors and What 2025 Staff Guidance Covers
Some private rounds and funds limit who can invest. The SEC's income, net worth, entity and credential tests set the limits, and 2025 staff guidance covers verification in Rule 506(c) offerings.
Private funding rounds and private funds that rely on Regulation D can limit who may invest to people and entities that the SEC calls accredited investors. The definition sits in Rule 501(a) of Regulation D, the SEC's rules for private offerings.
The definition is not a single test. It sets separate standards for individuals, entities, trusts and certain professionals. The dollar thresholds for individuals were not changed in the 2020 amendments, and the rule's first version is dated March 16, 1982.
The Income and Net Worth Tests for Individuals
An individual qualifies under the income test with individual income above $200,000 in each of the two most recent years, plus a reasonable expectation of reaching the same level in the current year. Joint income with a spouse or spousal equivalent must exceed $300,000 in each of those years.
Under the net worth test, an individual or joint net worth must exceed $1,000,000. The person's primary residence is not included as an asset.
A Foley Hoag alert on the 2025 guidance says a natural person purchaser must be accredited under paragraph (a)(5) or (a)(6) of the rule.
The 2020 amendments also allowed individuals to include a spousal equivalent when calculating joint income or joint net worth, according to a post on the Harvard Law School Forum on Corporate Governance. The same changes clarified that jointly calculated net worth does not require jointly purchased securities.
Entities, Trusts and Family Offices
Under Rule 501(a)(3), a 501(c)(3) organization, corporation, business trust, partnership or limited liability company qualifies if it was not formed for the specific purpose of acquiring the offered securities and has total assets above $5,000,000. A trust with total assets above $5,000,000 can also qualify if a sophisticated person directs the purchase, under Rule 501(a)(7).
The rule also has a separate catch-all in paragraph (a)(9). That paragraph covers an entity owning investments above $5 million, with investments defined by reference to Rule 2a51-1(b) under the Investment Company Act. The catch-all is written for entity types not otherwise listed, including future forms, and it requires that the entity was not formed specifically to acquire the offered securities.
The two entity tests use different wording. Paragraph (a)(3) refers to total assets, while the catch-all in (a)(9) refers to investments, so the test that applies depends on the type of entity.
The 2020 changes also added family offices with more than $5 million in assets under management, if its prospective investment is directed by a knowledgeable person and it was not formed for the specific purpose of acquiring the securities. Its family clients can qualify when the office directs their investments.
The amendments confirmed that limited liability companies can qualify if they meet the other requirements. They also added a note permitting look-throughs to natural persons when assessing entity status.
The Professional Credential Route
The 2020 amendments added a path based on professional certifications rather than wealth. Under Rule 501(a)(10), the SEC designates qualifying certifications by order, after notice and public comment. The criteria in the rule consider whether the credential comes from an examination that reliably tests securities and investing knowledge, whether holders can be expected to evaluate investment risk, and whether holding the credential can be verified publicly or independently.
According to the Harvard Law School Forum post, the initial designations are three FINRA licenses: the Series 7 (General Securities Representative), Series 65 (Investment Adviser Representative) and Series 82 (Private Securities Offerings Representative). Holders in good standing qualify regardless of income or net worth.
The rule text itself does not list the licenses. The Federal Register text says the initial Commission order accompanying the final rule would include the licenses, and the Commission designates credentials by order.
The SEC declined to require credentialed individuals to practice in the relevant field. It reasoned that such a requirement would make status harder for investors to demonstrate and for issuers to verify, without providing significant additional protection for investors.
Verifying Status in Rule 506(c) Offerings
Issuers relying on Rule 506(c) must take steps to verify that purchasers are accredited. A staff no-action letter issued on March 12, 2025 allows issuers to rely on investor self-certification when the purchaser's investment meets a minimum amount, according to a Foley Hoag alert published April 30, 2025.
The minimum is at least $200,000 for a natural person and at least $1 million for a legal entity. The purchaser should affirm that it is an accredited investor and that its minimum investment is not financed in whole or in part by a third party for the specific purpose of making that investment.
For natural persons, the affirmation refers to Rule 501(a)(5) or (a)(6). For legal entities, it refers to Rule 501(a)(3), (7), (8), (9) or (12). Some entities that qualify only because all of their owners are accredited may need additional representations.
The issuer must have no knowledge of facts indicating that the purchaser is not accredited, or that a third party is financing the investment for that purpose.
“The SEC declined to adjust the financial thresholds for inflation, and it stated that a significant reduction in the accredited investor pool from raising them could have disruptive effects on the Regulation D market.”
Status-Based Entities and Employee Categories
Some entities qualify on their status alone. According to the Harvard Law School Forum post, SEC-registered and state-registered investment advisers, exempt reporting advisers and rural business investment companies fall in this group.
Exempt reporting advisers, which are advisers exempt from SEC registration under Advisers Act Sections 203(m) or 203(l), were added after the proposal. The SEC viewed them as financially sophisticated and noted that investors in private funds are presumed sophisticated.
Employees who meet the definition of knowledgeable employee under Rule 3c-5 of the Investment Company Act can also qualify as accredited investors of their own issuer, under Rule 501(a)(11). The category is tied to issuers that would be investment companies but for Sections 3(c)(1) or 3(c)(7).
The SEC declined to add qualified purchasers to the definition. It noted that most qualified purchasers already meet the accredited investor standard, and that the two standards serve different purposes.
What Changed in 2020 and What Stayed the Same
The SEC proposed the amendments on December 18, 2019, and adopted them on August 26, 2020, largely as proposed with some modifications. The final rule was published in the Federal Register on October 9, 2020, and it became effective on December 8, 2020.
The amendment history in the Code of Federal Regulations lists an entry dated October 9, 2020, at 85 FR 64277, and a later entry dated February 18, 2025, published at 90 FR 9687.
The income and net worth thresholds were not changed in 2020. The SEC declined to adjust the financial thresholds for inflation, and it stated that a significant reduction in the accredited investor pool from raising them could have disruptive effects on the Regulation D market. It cited other factors, including technological advances and changes in information availability.
Advisers to private funds and other pooled investment vehicles relying on Regulation D were advised to update their subscription agreements before the effective date. The original text of Rule 501 is dated March 16, 1982, in the amendment history, which is the date of the first version of the rule.
