The Accredited Investor Rule 501 and Its Features

 

Regulation D offerings are types of security offerings that are not subject to registration with the SEC. Rule 501 provided by the SEC covers terms on the definition of Reg D exemptions. These include who may be considered accredited investors. If you plan to issue a Reg D offering, it is vital to understand the terms defined in SEC Regulation D Rule 501.

Accredited Investors Under Rule 501
According to Rule 506 of Regulation D, securities that are exempted from registration may only be sold to accredited investors as defined in Rule 501 of Regulation D.

Aggregate Offering Price
A securities aggregate offering price per Reg D is the summation of all property, cash, notes, services, debt cancellations, and other considerations exchanged for shares. The worth involved must be measured in money when using a combination of the considerations for reporting and offering price. This aggregate offering price may not be greater than $1 million under Rule 504 and $5 million under Rule 505.

Acquisitions or Mergers Not Registered With the SEC
A business combination occurs when a share-based acquisition or merger does not have SEC registration per a relevant Regulation D exemption. After the acquisition, the issuer must be entirely under the control of another company to qualify.

Purchaser Limits
Only a limited number of purchasers may participate in Regulation D exemptions under accredited investor Rule 501. The purchasers in the form of a business, trust, partnership, or individual are counted once except:

  • Corporations or trusts in which another purchaser or that purchaser’s family owns the majority control
  • Relatives who live with a purchaser

Qualifying as a Purchaser Representative
Under accredited investor rule 501, qualifying as a purchaser representative requires that you have experience and knowledge in financial matters to a sufficient extent that enables you to evaluate the benefits and risks of the investment. The purchaser must also have acknowledged you in writing as such. You must also have revealed any material relationship between yourself, your affiliates, and the issuer or the issuer’s affiliates. Finally, you cannot be an officer, director, affiliate, or other employees of the issuer or beneficial owner with control of at least 10% of any category of securities issued by the company with certain exceptions.

Executive Officer
Under Reg D, an executive officer can include the president, one or more of the vice presidents over a particular business division, unit, or function, and any other officer who carries out policymaking activities for the issuer.

If you need to verify the accredited investor status of a potential purchaser of your securities or your investor status, contact an experienced investor verification service today.

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    Author: Kendrick Wilkes

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