Basically the idea that a person or entity is wealthy enough to lose the investment without impact - and is therefore allowed to trade unregistered and unregulated securities. For the US: SEC guidelines, a person's or institution's net worth must be in excess of $1M (excluding personal residence) or income must be greater than $200,000 (single) or $300,000 (joint) for 2 consecutive years. Similar definitions exist in other jurisdictions. For 506(b) funds investors need to make a representation that they are accredited. For 506(c) funds investors need to prove that they are accredited, there are services that do this. Proving accreditation scares away large investors, so we do not recommend trying to do a 506(c) offering for this and other reasons.
Under U.S. securities laws, “accredited investors” are eligible to invest in certain unregistered securities. In order to qualify as an accredited investor, an individual or entity must meet certain criteria. Individuals can qualify by meeting certain financial criteria: (a) net worth over $1 million, excluding primary residence (individually or with spouse or partner); or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year. Individuals can also qualify by meeting certain professional criteria: (a) investment professionals in good standing holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82); (b) directors, executive officers, or general partners (GP) of the company selling the securities (or of a GP of that company); (c) any “family client” of a “family office” that qualifies as an accredited investor; or (d) for investments in a private fund, “knowledgeable employees” of the fund. Entities can qualify as an accredited investor as follows: (a) entities owning investments in excess of $5 million; (b) corporations, partnerships, LLCs, trusts, 501(c)(3) organizations, employee benefit plans, “family office” and any “family client” of that office with assets in excess of $5million; (c) investment advisers (SEC- or state-registered or exempt reporting advisers) and SEC-registered broker-dealers; or (d) a bank, savings and loan association, insurance company, registered investment company, business development company, or small business investment company or rural business investment company.