While almost any person of sufficient wealth and resources is able to invest in stocks for oil and gas companies and invest in oil and gas EFTs for hedging purposes, only the accredited investor meets the required criteria for investing in the more lucrative oil and gas direct partnership programs and joint ventures. The Securities Act of 1933 establishes the requirement that any company that sells securities must be registered with the SEC, however, when the company chooses to sell to an accredited investor, it meets one of the exemptions offered under Regulation D that allows unregistered companies to sell securities to an accredited investor.
The accredited investor is defined in Rule 501 as a number of different individuals and entities, including:
- organizations like banks and insurance companies
- certain investment groups like employee benefit plans
- charitable organizations, partnerships, and other companies with more than $5 million in assets
- high level officers within the securities companies, such as the director, executive officers, or general partners
- any business in which each of the owners of the business all individually qualify as an accredited investor
- individuals who have more than $1 million in net worth
- individuals with an income of $200,000 or more ($300,000 for married couples) for at least two years and an expectation of continuing to receive the same income or more
- certain trusts with more than $5 million in assets
The rules in place protect both the companies offering the investments as well as the investors. By requiring you to be an accredited investor, it establishes a level of solvency that allows you to withstand the risk involved with some of the more lucrative oil and gas investment opportunities.
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If you are an accredited investor, you have options available to you that will allow you access to oil and gas investments that may be able to help you protect your wealth. Not only are these oil and gas investment opportunities potentially lucrative from the point of view of their return on investment benefit and short term and long term cash flows, but also because of the tax benefits.
An accredited investor is one who can participate in direct participation programs and joint ventures, giving the accredited investor units of ownership in the well. This ownership provides the accredited investor with the ability to offset income and deduct well expenses even if the well does not produce.