Why can’t an entity be formed for the sole purpose of buying securities?

[Vitaliy Gnezdilov]

Hi, I am looking to invest in a real estate fund syndication and I have received advice to invest through an LLC for a specific tax purpose.

However upon research, I am finding that an organization cannot be formed with the sole purpose of purchasing specific securities. And my question is why is this not allowed?

Source: https://www.sec.gov/corpfin/amendments-accredited-investor-definition-secg

What am I missing?

[Brian Burke]

This regulation isn’t saying that you can’t form an entity for the specific purpose of buying securities.  Doing so is fairly common.

What this is saying is that an entity formed for the specific purpose of buying securities cannot be considered to be an accredited investor, unless all of the members are accredited investors.  An entity with more than $5 million in assets is considered to be an accredited investor if it was not formed for the specific purpose of buying securities.