When a company is looking to sell its stock to investors, it must be mindful of the Securities Act of 1933, which requires that the stock be registered with the SEC. To avoid the time-consuming and expensive registration process, the SEC allows in its Regulation D the option of selling stock to accredited investors. Shares sold to accredited investors are restricted from sale for at least one year from the date of sale. To be an accredited investor, an individual must satisfy one of the following standards: (a) have a combined net worth with their spouse in excess of $1,000,000; (b) have individual income for the past two years and a reasonable expectation of income for the current year in excess of $200,000, (c) have joint income with their spouse in excess of $300,000 for the past two years and a reasonable expectation of such income for the current year; or (d) be a director or executive officer of the company. Accredited investors also include banks, savings and loan associations, brokers, dealers, insurance companies, and other institutions.
Accredited investors can form an important part of a company’s plans to sell stock, given the reduced cost of these sales. A large proportion of the buy side is comprised of accredited investors, so keep in mind the value of these investors when considering who should be included in an outreach campaign.