Rely on a Third-Party Reviewer to Complete an Accredited Investor Test

Before a company finalizes a sale of securities when they have publicly solicited or advertised, they need to acquire proof that all potential purchasers are accredited investors. Public fundraising is now available to all businesses, even private companies, provided they meet certain conditions. An accredited investor test, which can be requested by either issuers or investors, is a necessary action under United States securities laws. Not taking steps to obtain validation can lead to catastrophic consequences for businesses.

Conditions of Private Offerings

In private offerings under Rule 506(c) of Regulation D, only accredited investors can purchase securities issuers. Generally solicited capital raises under Rule 506(c) of Reg D are exclusively available to accredited purchasers. While business owners are now free to use general solicitation to garner investment capital, they’re obligated to check the status of prospective investors before finalizing the sale. The process of properly reviewing an investor’s accreditation before a transaction is completed is known as taking “reasonable steps” and is ultimately the responsibility of issuers.

Methods Accepted by the SEC

To obtain certification, purchasers must pass an accredited investor test, which is basically an evaluation to determine whether or not they meet the definition of “accredited investor.” When implementing Title II of the JOBS Act, the U.S. Securities and Exchange Commission (SEC) provided a list of reasonable steps issuers are able to take to validate an investor. Generally, startups and small businesses have the option to review investors’ income, total assets, or net worth, or obtain verification from a licensed third party. Use of an appropriate third-party verification service can save time and money.

Quick & Secure Verifications

Dependable third-party review companies offer fast and affordable services to both investors and issuers looking to obtain confirmation of an accredited status. Through a third-party review company, entrepreneurs and investors can acquire proof of accreditation within a couple of business days. Licensed professionals, such as accountants, lawyers, investment advisors, or wealth managers, examine investors’ financial information to ensure certain requirements are met, based on the investor category they fall under. Review companies are beneficial for investors as well as business owners, as they can offer investors a simple process and help the investors keep their information hidden from issuers.

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