Qualified Purchaser vs Accredited Investor: The 3(c)(7) Line

Accredited investor is a Securities Act status. It gates who can buy most Rule 506 SPV and fund interests. Qualified purchaser is an Investment Company Act status. It is the person-level test for a 3(c)(7) fund. The two are not substitutes. An LP can be accredited and still fail the 3(c)(7) line. This page is the person-level definitions. Fund investor-count limits live on 3(c)(1) vs 3(c)(7).

This is general information, not tax or legal advice. Status is determined at the time of the sale, on that person's facts. Counsel and, for 506(c), a verification process should make the call — not a subscription checkbox alone.

Two statutes, two jobs

A private fund or SPV usually needs two federal exemptions at once:

• Securities Act. Most emerging managers use Regulation D Rule 506(b) or 506(c). Those rules key off accredited investor in 17 CFR 230.501(a). See 506(b) vs 506(c).

• Investment Company Act. A vehicle that would otherwise be an "investment company" stays out of ICA registration by using section 3(c)(1) (a cap on beneficial owners) or section 3(c)(7) (owners must be qualified purchasers). (15 U.S.C. § 80a-3(c)(1), (c)(7))

506 answers "may we sell this security without a 1933 Act registration?" 3(c)(1)/3(c)(7) answers "is this pool an investment company?" Mixing the person-level tests is the error: stuffing a 3(c)(7) fund with accredited-but-not-qualified purchasers, or treating a 3(c)(1) investor-cap problem as if raising the person's net worth to the QP line would fix it.

Section 3(c)(7) requires that outstanding securities are owned exclusively by persons who, at the time of acquisition, are qualified purchasers, and that the issuer is not making and does not propose to make a public offering. (15 U.S.C. § 80a-3(c)(7)(A))

Accredited investor: the 506 line

Under Rule 501(a), "accredited investor" means a person who comes within one of the listed categories, or who the issuer reasonably believes comes within a category, at the time of the sale. (17 CFR § 230.501(a))

The SEC's current investor-facing summary of the natural-person tests (page last reviewed April 24, 2026):

• Net worth over $1 million, excluding the primary residence (individually or with a spouse or partner).

• Income over $200,000 individually or $300,000 with a spouse or partner in each of the prior two years, and a reasonable expectation of the same for the current year.

• Professional criteria: Series 7, 65, or 82 in good standing; directors, executive officers, or GPs of the issuer (or of a GP of the issuer); certain family clients of a qualifying family office; and, for private-fund investments, knowledgeable employees of the fund.

(SEC, Accredited Investors, last reviewed April 24, 2026; 17 CFR § 230.501(a)(5), (a)(6), (a)(10), (a)(11))

Net worth under 501(a)(5) excludes the primary residence as an asset. Mortgage debt on that residence is generally excluded as a liability up to the home's fair market value; underwater mortgage amounts, and certain increases in home-secured debt in the 60 days before sale, are included as liabilities. Joint net worth with a spouse or spousal equivalent does not require jointly titled assets or a joint purchase. (§ 230.501(a)(5) and Note 1)

Entity categories include, among others: entities with total assets in excess of $5 million of specified types not formed for the specific purpose of buying the offering; any entity in which all equity owners are accredited (look-through to natural persons is permitted); any entity not listed in certain other paragraphs, not formed for the specific purpose, owning investments in excess of $5 million (investments as defined in ICA rule 2a51-1(b)); family offices with AUM in excess of $5 million; and SEC- or state-registered advisers, ERAs, and SEC-registered broker-dealers. (§ 230.501(a)(1), (3), (8), (9), (12))

Rule 506(c) adds a verification obligation on top of the definition. Self-certification is not the 506(c) test. That process is 506(c) accredited investor verification for SPVs. Rule 506(b) uses reasonable belief, not the 506(c) methods, and still cannot rest on a checkbox with no other knowledge.

Qualified purchaser: the 3(c)(7) line

Section 2(a)(51)(A) of the Investment Company Act defines qualified purchaser as:

1. A natural person who owns not less than $5,000,000 in investments (including certain shared ownership with a qualified-purchaser spouse in a 3(c)(7) issuer).

2. A family company that owns not less than $5,000,000 in investments and is owned by two or more natural persons who are related as siblings or spouse (including former spouses), or direct lineal descendants by birth or adoption, spouses of such persons, their estates, or foundations, charitable organizations, or trusts established by or for those persons.

3. A trust not covered by (2), not formed for the specific purpose of acquiring the offered securities, whose trustee (or other authorized decision-maker) and each settlor or contributor is a person described in (1), (2), or (4).

4. Any person, acting for its own account or the accounts of other qualified purchasers, who in the aggregate owns and invests on a discretionary basis not less than $25,000,000 in investments.

(15 U.S.C. § 80a-2(a)(51)(A))

"Investments" is not net worth. Rule 2a51-1 lists what counts: securities (with exceptions for certain controlled issuers), real estate held for investment purposes, commodity interests and physical commodities held for investment, certain financial contracts, uncalled commitments to 3(c)(1)/3(c)(7) vehicles and commodity pools, and cash and cash equivalents held for investment. Personal-use real estate is out. Outstanding indebtedness incurred to acquire the investments is deducted. Valuation is fair market value on the most recent practicable date, or cost. IRAs directed by and held for the person may be included. Spouses may combine investments for a joint 3(c)(7) purchase. (17 CFR § 270.2a51-1)

A 3(c)(7) issuer may rely on reasonable belief that a person meets the definition. (§ 270.2a51-1(h))

Qualified purchaser vs accredited investor

(17 CFR § 230.501; 15 U.S.C. § 80a-2(a)(51); 17 CFR § 270.2a51-3)

A person who clears 501 on income alone, with no investment portfolio that meets the $5 million investments test, is accredited and is not a qualified purchaser. A person with $6 million of brokerage and fund interests and a modest salary is often both. Do not infer QP from a 506(c) verification letter that tested income.

Look-through: where GPs mix the tests

501(a)(8) look-through (accredited). An entity is accredited if all equity owners are accredited. Note 1 to 501(a)(8) permits looking through layers of equity ownership to natural persons. If you rely on (a)(8), you verify the people, not a single entity checkbox. (§ 230.501(a)(8))

2a51-3 (qualified purchaser). A company is not a qualified purchaser under § 2(a)(51)(A)(ii) or (iv) if it was formed for the specific purpose of acquiring the 3(c)(7) securities, unless each beneficial owner is a qualified purchaser. Separately, a company may be deemed a qualified purchaser if each beneficial owner of its securities is a qualified purchaser. (17 CFR § 270.2a51-3)

Excepted investment companies. A 3(c)(1) or 3(c)(7) company is generally not itself a qualified purchaser unless the consent mechanics in § 2(a)(51)(C) are met (including unanimous consent of pre-April 30, 1996 beneficial owners in the statutory case). GPs who take a 3(c)(1) fund of funds into a 3(c)(7) deal as if the fund were a single $25 million QP are often wrong. Look through, or require every underlying owner to be a QP, as 2a51-3 and 2(a)(51)(C) require on the facts.

3(c)(1) 10% voting look-through is a counting rule for 3(c)(1) funds (beneficial ownership by a company that owns 10% or more of the issuer's voting securities and is itself a 3(c)(1) or 3(c)(7) company is attributed to that company's holders). It does not convert those holders into qualified purchasers. (15 U.S.C. § 80a-3(c)(1)(A))

Knowledgeable employees are not a QP substitute you can skip

Rule 3c-5 lets a knowledgeable employee of a 3(c)(1) or 3(c)(7) company (or of an affiliated management person) hold an interest:

• without being counted toward the 3(c)(1) 100-person (or qualifying VC 250-person) limit; and

• without being a qualified purchaser for 3(c)(7).

"Knowledgeable employee" includes an executive officer, director, trustee, general partner, advisory-board member, or similar person of the covered company or its affiliated management person; and certain non-clerical employees who participate in investment activities and have done so (or substantially similar functions) for at least 12 months. (17 CFR § 270.3c-5)

The same people can also be accredited under 501(a)(11) when investing in a 3(c)(1) or 3(c)(7) issuer. That helps the 506 analysis. It does not mean every employee on payroll is a QP.

How GPs get this wrong in SPVs

Running a 3(c)(7) SPV on accredited questionnaires. The subscription pack asks 501 questions and never collects investments under 2a51-1. Closing an accredited-only book into a 3(c)(7) vehicle is a status error, not a paperwork preference.

Assuming $1 million net worth equals $5 million investments. Home equity is out of 501 net worth and out of 2a51-1 investments (personal residence). A concentrated homeowner can be accredited and far from QP.

Treating a family LLC as one QP because it has $5 million of assets. QP family-company status requires $5 million of investments and the statutory family ownership. Operating-company equity that is a controlled private business may not count as an "investment" under 2a51-1(b)(1) unless an exception applies. Read the rule; do not count the LLC's unaudited "net worth."

Using an SPV as a formed-for-the-deal aggregator into a 3(c)(7) fund. If the SPV was formed to buy that interest, 2a51-3 requires each beneficial owner to be a QP. A 506-accredited angel list inside that SPV does not get you there.

Forgetting 506 still applies. A book of QPs still needs a Securities Act exemption. Most QPs are accredited, but the offering still has to fit 506(b) (no general solicitation, extra rules if any non-accredited purchasers) or 506(c) (general solicitation plus verification). QP status does not replace Form D or bad-actor checks.

On the admin side, collect the correct representation: 501 category for every 506 close; 2(a)(51) category plus investments methodology for every 3(c)(7) close; look-through worksheets for entity subscribers. Allocations administers SPVs and funds ($9,950 one-time per SPV, $19,500 per year per fund, 0% platform carry). The GP still owns the exemption analysis.

Is a qualified purchaser the same as an accredited investor?

No. Accredited investor is a Regulation D definition used for 506 offerings. Qualified purchaser is an Investment Company Act definition used for 3(c)(7) funds. The dollar tests differ ($1 million net worth or income tests versus $5 million / $25 million in investments), and neither status automatically confers the other. (17 CFR § 230.501; 15 U.S.C. § 80a-2(a)(51))

What is the qualified purchaser dollar threshold?

A natural person or qualifying family company must own not less than $5 million in investments, as defined by the Commission in rule 2a51-1. Any person acting for its own account or for other qualified purchasers must own and invest on a discretionary basis not less than $25 million in investments. (15 U.S.C. § 80a-2(a)(51)(A); 17 CFR § 270.2a51-1)

Can an accredited investor subscribe to a 3(c)(7) fund?

Only if that person is also a qualified purchaser (or is a knowledgeable employee who may hold a 3(c)(7) interest without being a QP under rule 3c-5), and the issuer is not making a public offering. Accredited status alone does not satisfy section 3(c)(7). (15 U.S.C. § 80a-3(c)(7); 17 CFR § 270.3c-5)