Accredited investor verification has two questions. Does this purchaser qualify under an accredited category? Has the issuer taken reasonable steps to verify that qualification for the Rule 506(c) sale?

Those questions are related, but they are separate conditions. An identity check, a large investment, or an investor’s confidence in their finances does not resolve both.

Start with the purchaser and the qualifying category

Common individual qualification routes include net worth exceeding $1 million, excluding the primary residence, or income exceeding $200,000 individually or $300,000 jointly with a spouse or spousal equivalent in each of the two most recent years, with a reasonable expectation of the applicable level in the current year. Certain professional credentials also qualify. These examples are not exhaustive. The SEC’s accredited investor guide summarizes the categories.

Net worth is not the same as liquid assets. It accounts for relevant assets and liabilities. The primary residence and related debt have specific treatment under Rule 501(a). Avoid reducing that calculation to a question about a bank balance or home value.

Identify the actual purchaser early. A person, an LLC, and a trust can require different analyses. Entity categories have their own conditions, including asset or investment thresholds, ownership tests, and in some cases restrictions on formation for the specific investment. A wealthy individual signing for an entity does not automatically establish that entity’s status.

Understand the verification standard

Rule 506(c)(2)(ii) requires reasonable verification steps. Its listed methods for natural persons are nonexclusive and nonmandatory. The issuer can use an appropriate principles-based approach rather than treating the list as the only possible route.

The appropriate method depends on the facts. Work with counsel to decide how your offering handles individuals, entities, professional qualifications, and unusual documentation. A checkbox alone is not a substitute for a reasonable verification process.

Give the reviewer a route for resolving conflicting information. If the investor’s evidence names a different person or contradicts the chosen category, collect clarification before relying on it.

What the listed natural-person methods cover

The rule’s examples include the following approaches, each subject to its full conditions in Rule 506(c).

  • For income, review specified IRS income forms for the two most recent years and obtain the purchaser’s written representation about the current year’s expected income.
  • For net worth, review qualifying asset and liability documentation dated within the prior three months and obtain a representation that the necessary liabilities have been disclosed.
  • Obtain a qualifying professional’s written confirmation that the professional took reasonable verification steps within the prior three months and determined that the purchaser is accredited.

The professional confirmation method identifies a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney in good standing, or a duly registered CPA in good standing. A generic “financial advisor” title does not by itself satisfy that list.

These methods concern natural persons. For an entity purchaser, establish a process suited to the entity’s qualifying category rather than automatically applying an individual’s income test.

Returning investors still need attention

The rule also includes a method for a purchaser whose accredited status the issuer previously took reasonable steps to verify. For five years after that verification, the issuer can rely on a written representation at the time of a subsequent sale that the purchaser remains accredited, provided it has no contrary information. The SEC’s capital formation compliance guide explains the conditions.

This is not a blanket five-year accreditation certificate. Record the initial verification date, the subsequent representation, and any relevant contrary information. Have counsel assess whether an old letter or another issuer’s previous review supports the method you intend to use.

A hypothetical documentation example

A fictional issuer receives a professional confirmation for an individual purchaser. The confirmation identifies a person who uses the title “financial consultant,” but it does not establish a qualifying professional status or describe a timely verification determination.

The issuer requests clarification or another suitable method before the sale. The investor may be accredited, but the document has not yet established the issuer’s chosen verification approach. This example illustrates a review question, not a determination about any real professional.

How Issuance fits

Issuance’s platform includes investor onboarding, dashboard visibility into screening information, and Click-to-Attest requests through which investors can ask their CPA or lawyer for an attestation. Confirm the available workflow for your particular offering during a demo.

Your counsel and responsible reviewers still determine whether the evidence satisfies the applicable method. Plan access to sensitive records, a process for missing information, and records of review decisions. Issuance provides the technology for offering operations. Software collection and status updates do not make it the legal decision-maker for accredited investor status.