Raising capital without officially registering with the SEC can be done through private offerings. The Securities and Exchange Act of 1933 includes Regulation D which allows for these private placement offerings. Under Reg D, companies are able to raise money from financially qualified individuals defined under the law as accredited investors. These investors are considered to have the financial savviness and strength to endure losses if the investment opportunity fails for some reason. However, what about foreign investors? Is international accredited investor status required for these individuals?
For U.S. investors, the SEC identifies an accredited investor as an individual with either:
• An income exceeding $200,000 each of the previous two calendar years (or $300,000 as a married couple) with the expectation of maintaining this level of income in the current year.
• A net worth (individual or joint) greater than $1 million at the time of purchase (excluding the value of the primary residence, but including liabilities exceeding the value of the primary residence and liabilities incurred on the primary residence within the last 60 days).
Also note that the income requirements must be met using the same method in each of the three years, whether as a single individual or jointly with a spouse.
Foreign Investment Through the EB-5 Program
The rules are different regarding the investments received from overseas investors – international accredited investor status is not needed for these investors. A company based in the U.S. is permitted to receive investments from non-accredited investors who live outside the country. The EB-5 program makes this possible. The program enables foreign investors to invest in local businesses, and due to that investment obtain a visa to live in the U.S. The minimum investment required can vary depending on the program – for instance, $500,000 or $1 million.
SEC Treatment of Foreign Investors vs. U.S. Non-accredited Investors
Investors in the U.S. are prohibited from participating in certain non-public investment opportunities unless they are accredited investorsf. However, the SEC has chosen to relax the rules for foreign investors.
One of the purposes of the JOBS Act was to enlarge the investment opportunities available to non-accredited investors via crowdfunding platforms. The SEC will only allow U.S. non-accredited investors to invest $2000, or 5 percent of their income, on a yearly basis. This is compared to foreign investors who do not require international accredited investor status and can invest anywhere from $500,000 to $1 million.