October 2026
Background
Many private companies help fund their growth by raising capital from outside investors. As a general rule, the offering and sale of stock or other securities to outside investors must be registered with the SEC unless an exemption from registration is available. Registration is the expensive process typical of an initial public offering (“IPO”). Since an IPO is not a practical option for many companies, the exemptions most relied upon by companies seeking investment capital are those set forth in Regulation D under the Securities Act of 1933 (“Reg D”).
Reg D divides investors into two categories: Accredited and Nonaccredited. Historically, the distinction was based exclusively on the investor’s income or net worth. Section 501(a)(10) to Reg D was later added to permit individuals holding FINRA (“Financial Industry Regulatory Authority”) Series 7, 65, and 82 licenses to qualify as Accredited Investors.
Offerings which include even one Nonaccredited Investor require that all investors receive significantly more robust disclosure than an offering limited exclusively to Accredited Investors. This disclosure is typically in the form of a “full-blown” private placement memorandum (“PPM”). Preparation of a PPM is time consuming and therefore far more expensive than preparation of the legal documentation required for an offering limited exclusively to Accredited Investors.
Proposed Changes
The SEC recently sent notices requesting public comment on several new ways to qualify as an Accredited Investor, including passing a proposed new FINRA examination or holding certain professional credentials. The proposed new FINRA exam would have a multiple-choice format with roughly 75 questions; passage of the exam would qualify an individual as an Accredited Investor for 10 years. The cost of the exam is estimated to be $100.
An individual in good standing as a Certified Public Accountant, a Certified Financial Analyst or a Certified Financial Planner would also qualify as an Accredited Investor. However, individuals with those credentials could only purchase securities for their own accounts, not for others.
Passage of these changes would make it easier and less expensive for companies seeking investment capital to limit their securities offerings solely to Accredited Investors.
We will monitor any progress on these proposed changes and keep you informed.
This memorandum is intended to provide general information of potential interest to clients and others. It does not constitute legal advice. The receipt of this memorandum by any party who is not a current client of the Business Law Group does not create an attorney-client relationship between the recipient and the firm. Under certain circumstances, this memorandum may constitute advertising under the Rules of the Massachusetts Supreme Judicial Court and the bar associations of other states.