Accredited investor vs qualified purchaser
Two thresholds, two different statutes, and a structural choice that determines who can invest in your fund at all.
Accredited investor is a Securities Act concept governing who may buy in a private offering. Qualified purchaser is an Investment Company Act concept governing which fund structure you can use. They are not two rungs of one ladder — they come from different statutes and answer different questions.
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Get in touchTwo statutes, two questions
| Accredited investor | Qualified purchaser | |
|---|---|---|
| Statute | Securities Act — Regulation D | Investment Company Act — Section 2(a)(51) |
| Question answered | May this person buy into a private offering? | Which fund exclusion may the fund rely on? |
| Basis | Income, net worth, or professional credentials | Amount of investments owned |
| Threshold | Lower | Substantially higher |
| Relevant fund exclusion | 3(c)(1) | 3(c)(7) |
| Verified by | The issuer, at subscription | The issuer, at subscription |
Why the structural choice matters
Private funds generally rely on one of two exclusions from registering as investment companies:
Section 3(c)(1) limits a fund to a capped number of beneficial owners, who in practice must be accredited investors. It is simpler and accessible to a broader investor base, but the investor cap is a hard constraint — it is why many smaller funds hit a ceiling that has nothing to do with capital.
Section 3(c)(7) permits a far larger number of investors, but every one must be a qualified purchaser. It removes the count constraint and replaces it with a wealth constraint.
This is a decision to make at formation with counsel, because it determines your addressable investor universe. A manager targeting many smaller cheques from a wealth channel and a manager targeting a handful of institutions face genuinely different structural answers.
Verification, and who does it
Eligibility is verified by the issuer as part of the subscription process. An introducer, an intermediary or a platform does not perform this function and should not represent that it has.
The standard depends on how the offering was conducted. Under Rule 506(b), where there is no general solicitation, an issuer may generally rely on investor self-certification supported by reasonable belief. Under Rule 506(c), where general solicitation is permitted, the issuer must take reasonable steps to verify accredited status — typically reviewing tax documents, financial statements, or obtaining written confirmation from a lawyer, accountant, broker-dealer or investment adviser.
The practical consequence catches managers out: if you market publicly under 506(c), you take on a materially heavier verification burden for every investor. That trade-off should be decided deliberately at the outset, not discovered at subscription.
Outside the United States
These are US concepts. Other jurisdictions classify investors under their own regimes — professional and elective professional clients in the EU and UK, wholesale and sophisticated investors in Australia, accredited investors under separate local definitions in Singapore and Hong Kong. Marketing rules differ too, and several jurisdictions regulate who may be approached at all before any eligibility question arises.
Any cross-border raise needs local advice in each jurisdiction where investors are located. Assuming a US analysis travels is one of the more expensive mistakes available.
Frequently asked questions
What is an accredited investor?
A US investor meeting income, net worth or professional-credential thresholds under Regulation D. Accredited status permits participation in most private offerings made under Rule 506.
What is a qualified purchaser?
A higher US threshold than accredited investor, based generally on the amount of investments owned. It matters because funds relying on the Section 3(c)(7) exclusion from the Investment Company Act may accept only qualified purchasers.
What is the difference between 3(c)(1) and 3(c)(7)?
Both are exclusions from registration as an investment company. A 3(c)(1) fund is limited to a capped number of beneficial owners who are generally accredited investors. A 3(c)(7) fund may have far more investors but every one must be a qualified purchaser.
Who verifies investor eligibility?
The issuer, as part of its subscription process — not an introducer or intermediary. Under Rule 506(c), where general solicitation is used, the issuer must take reasonable steps to verify accredited status rather than relying on self-certification.
Can a fund accept a non-accredited investor?
In limited circumstances under some exemptions, but almost all private funds restrict participation to accredited investors, and many to qualified purchasers, because doing otherwise triggers substantially heavier disclosure and structural requirements.
Do these thresholds apply outside the United States?
No. Other jurisdictions have their own investor classification regimes — professional or elective professional clients in the EU and UK, wholesale or sophisticated investors in Australia, and so on. A cross-border raise needs local advice in each jurisdiction.
This page is general information, not legal advice. Thresholds, definitions and verification requirements change and differ by jurisdiction. Take advice from qualified counsel on any specific offering. SeRuM provides introduction and networking services. We are not a registered broker-dealer, not a placement agent, and not an investment adviser. We do not offer, solicit or sell securities, we do not provide investment, legal, tax or accounting advice, and we do not make recommendations regarding any investment. Nothing on this website constitutes an offer to sell or a solicitation of an offer to buy any security, and no such offer will be made except through definitive offering documents provided by the issuer. All investment decisions, due diligence and negotiations are the sole responsibility of the parties involved. Investing in private funds and private companies involves substantial risk, including illiquidity and total loss of capital. Past performance is not indicative of future results.
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