Private offerings are a great way to solicit funds without the need to register officially with the Securities and Exchange Commission (SEC). Private placement offerings are possible under the Regulation D exemption of the Securities and Exchange Act of 1933. The rules state that only accredited investors may participate in certain private placements due to the fact that they are more financially able and savvy to sustain a total loss if the investment fails.
How an Accredited Investor is Defined
According to the SEC definition of accredited investor, an individual must have an income greater than $200,000 USD for each of the previous two years or $300,000 USD with a spouse, with the expectation of making the same income in the current year; or a net worth of greater than $1 million USD at the time of purchase, not counting the value of the individual’s primary residence.
Rules for Overseas Investments
Companies who utilize Rule 506(b) based in the U.S. may receive investments from upto 35 non-accredited investors living outside of the US. This is possible through the EB-5 program. An international accredited investor living outside of the U.S. may invest in local companies and in doing so qualify for a visa to enter the country. The minimum investment amount required can vary between programs – with some it may be $500,000 USD, while others may require a $1 million USD minimum investment.
These types of investments from overseas are connected in a direct or indirect way with job creation, and are also sometimes used for real estate projects. The investment must be one that is designed to enhance the local economy by creating jobs.
It is important to note that a number of foreign investors have had their investments fail through the EB-5 program. These projects are regulated loosely and some of them never gain traction. The local or international accredited investor or non-accredited investor should always proceed carefully when considering any investment opportunity.
