For 506(b) offerings, accept the investor's subscription agreement representations. This is self-certification and is the standard approach for the vast majority of private funds. Your subscription agreement should include specific representations about income, net worth, or other applicable criteria, not just a generic statement that the investor is accredited. Keep a signed copy of every subscription agreement on file for at least five years after the offering closes.
For 506(c) offerings, use one of the SEC safe harbor methods:
- Income verification: Review federal tax returns (W-2s, K-1s, or 1040s) for the two most recent years and obtain a written representation that the investor reasonably expects to meet the income threshold in the current year
- Net worth verification: Review recent bank statements, brokerage statements, and other asset documentation, then obtain a consumer credit report to assess liabilities and confirm the investor's net worth exceeds $1 million excluding the primary residence
- Third-party letter: Obtain a written confirmation from a licensed CPA, attorney, registered broker-dealer, or SEC-registered investment adviser, dated within the prior 90 days, stating that the professional has taken reasonable steps to verify the investor's accredited status
Regardless of which method you use, retain copies of all verification documentation.
See Investor Verification Requirements for Private Funds for the complete verification framework.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation. Capital Company is not a law firm and does not provide legal advice.