There are many investors in corporate and financial markets having different privileges and access rights. Each of them has various private offerings, capital funds, and business associations that define their financial standing and investment profile. Such individuals and entities operating in the legal financial system are subjected to specific jurisdictions set forth by governing bodies in the regulatory landscape.
Based on their qualifications and expertise, the investment market grants certain investors exemptions to carry out relaxed business transactions. But the fact that these investors still pose a decent amount of risk to corporate entities makes KYC verification necessary for venture capitalists and shareholders.
Who is a Qualified Purchaser?
The Securities and Exchange Commission (SEC) of the US defines a qualified purchaser as:
- A natural person owning a property, corporation, or having investments in a joint venture of more than $5 million (including their spouse’s mutual holdings)
- An entity or organization with a capital investment of no less than $5 million by two or more mutual partners related either as a spouse or through kinship. Direct heirs by birth and by adoption, former spouses, estates, charities, and foundations are also part of this list.
- A trust organization that was not created to acquire securities in which the trustee, board members, settlers and shareholders have the characteristics defined in the first two above-mentioned points.
- A natural person who owns total investments of $25 million or more and acts as an investor for either their account or on behalf of another qualified purchaser
- An entity sponsored/managed or owned by qualified purchasers
What do Qualified Purchasers Invest in?
Qualified purchasers make investments as venture capitalists, shareholders or equity owners, etc. These investments may include real estate, securities, stocks and bonds, fungible assets and other financial commodities. Some of these investments are listed below:
- Real estate Investments in buying and selling apartments, hotels, mansions, guest houses and other rental property, etc.
- Securities in businesses either in the form of stocks, bonds, Exchange-traded Funds (ETFs) and convertible assets
- A private company with a $50 million valuation or more
- Trust funds and retirement plans issued by a certain individual or entity
- Hard cash, monetary equivalents, deposit certificates and treasury bills
Qualified purchaser organizations are not directed to declare their security offerings as public.
How are Qualified Purchasers Different from Accredited Investors?
According to the SEC, for an investor, the following is the minimum criteria for becoming accredited:
- Have a net worth of more than $1 million
- Sustain an income greater than $200,000 each year
- In case of a mutual partnership or joint-stock, should possess $300,000 in sum, for the last three yearsOn the other hand, qualified purchasers need to have at least $5 million or more in investments, making them eligible for more offerings and privileges. Private funds and multinational investment firms only allow qualified purchases to onboard as investors.
Why are Qualified Purchaser Checks Necessary?
The SEC requires that any qualified purchaser who has unregistered securities or is unverified needs to be officially identified and verified with their partner entities and the businesses with whom they deal. Because of their net worth, qualified purchasers are much more entitled compared to accredited investors and qualified clients. But, this does not change the KYC and investor verification process for them.
When dealing with investors and managing their funds, it is important to make sure they are eligible and honest in their financial dealings. A proper assessment of each investor through a risk-based AML approach could not only allow businesses to comply with SEC’s investor regulations but also avoid associations with the wrong investor.
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