When a private company sells shares, the sale should be set up such that it falls under one of the exemptions from registration with the Securities and Exchange Commission (SEC). Offerings in which accredited investors purchase securities involve some of the most commonly used exemptions. The required steps to confirm the accredited status of investors can vary according to the exemption chosen. The minimum requirement is often that accredited investors confirm their status in that category of investor. Often this is accomplished through the investor answering questions provided by the issuer on an accredited investor questionnaire.
Typically, an investment management company will produce its own questionnaire. However, all of these questionnaires generally have certain features in common that help in obtaining the information necessary to meet the requirements of Rule 501(a).
The Accredited Investor Questionnaire
Accredited investor questionnaires are given to prospective investors in order to determine whether they fulfill the investor suitability requirements of Reg. D of the 1933 Securities Act. If investors do meet these requirements, the need for offering or issuing securities that are registered with the SEC can be bypassed.
The questionnaire document includes questions that help determine whether the potential investor has the financial and any other qualifications to operate in riskier securities than are normally available through the stock market.
Accredited Investor General Qualifications
Generally, an individual qualifies as an accredited investor if he or she has an annual income of more than $200,000 (or $300,000 with a spouse) in each of the previous two years and reasonably expects that the same level of income will continue in the current year or has a net worth (individually or jointly with a spouse) greater than $1 million (not including the value of his or her primary residence).
The issuer of securities is required to conduct reasonable steps to confirm if the prospective investor falls in the category of accredited investor. Asking a potential investor to answer an accredited investor questionnaire is a common part of this verification process. The questionnaire also includes basic biographical information, including the name of the investor, employer information, date of birth, and income and net worth questions.