Question of the week: What is an accredited investor?

Submitted by nsscadmin on Wed, 02/28/2018 - 10:00

In last week’s question of the week blog post we mentioned the term accredited investor. That left some of our readers scratching their heads, because they didn’t know what an accredited investor was.

The long definition of accredited investor can be found in National Instruments 45-106 – Prospectus Exemptions. If you don’t have time, or don’t have the legal background to read through NI 45-106 we’ll try and simplify what it says about accredited investors.

The quick and easy definition of an accredited investor is a person or entity that can purchase securities by satisfying one of the financial tests regarding income, net worth, asset size, or have governance status or certain professional experience.

The criteria include a few different tests, but we’ll go through them to explain how they work.

Income:

You qualify as an accredited investor if your net income before taxes exceeded $200,000 in both of the last two years and you expect to maintain at least the same level of income this year – or - your net income before taxes, combined with that of a spouse, exceeded $300,000 in both of the last two years and you expect to maintain at least the same level income this year.

Net Worth:

You qualify as an accredited investor if you alone or together with a spouse, own financial assets worth more than $1 million before taxes but net of related liabilities and excluding your primary residence.

Assets:

You qualify as an accredited investor if you alone or together with a spouse, have net assets of at least $5,000,000, which can include your primary residence.

Governance status or professional experience:

You may qualify as an accredited investor if you are currently or were, a registered advisor or dealer, other than a limited market dealer.

Accredited investors need to meet these requirements because they are eligible to invest in exempt securities that often come with higher risks. Their financial situation or investing experience are seen as being necessary to handle and understand these increased risks.

Failure to file annual financial statements.
Failure to file interim financial statements.
Failure to file an annual or interim management’s discussion and analysis (MD&A) or an annual or interim management report of fund performance (MRFP).
Failure to file an Annual Information Form (AIF).
Failure to file a certification of annual or interim filings required by Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (MI 52-109).
Failure to file required proxy materials or a required information circular.
Failure to file an issuer profile supplement on the System for Electronic Disclosure by Insiders (SEDI).
Failure to file a material change report.
Failure to provide a written update after filing a confidential report of a material change.
Failure to file a business acquisition report.
Failure to file annual oil and gas disclosure prescribed by National Instrument 51-101 Standards of Disclosure of Oil and Gas Activities (NI 51-101) or technical reports for a mineral project required under NI 43-101 Standards of Disclosure for Mineral Projects (NI 43-101).
Failure to file a mandatory news release.
Failure to file corporate governance disclosure as required by national Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101).
Failure to file audit committee disclosure as required by Multilateral Instrument 52-110 Audit Committees (MI 52-110) or BC Instrument 52-509 Audit Committees.
Failure to include disclosure in an issuer’s MD&A relating to disclosure controls and procedures and their direct effectiveness that is referred to in a certificate filed under MI 52-109.
Financial statements of the reporting issuer, or the auditors’ report accompanying the financial statements, do not comply with the requirements of NI 51-102 Continuous Disclosure Obligations (NI 51-102), National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) or National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107).
The reporting issuer has acknowledged that its financial statements, or the auditors’ report accompanying the financial statements, may no longer be relied upon.
The reporting issuer’s AIF, MD&A, MRFP, information circular, or business acquisition reports do not contain information for each of the content items required by NI 51-102 or NI 81-106.
The reporting issuer’s technical disclosure or other reports do not comply with the disclosure requirements of NI 43-101 or 51-101.
Failure to pay a fee required by the Act or the regulations.
Failure to comply with any other requirement related to continuous disclosure.