The 1929 Wall Street stock market crash led to the Great Depression, which lasted for ten years in the United States. Many investors and banks went bankrupt due to the rapid and severe aftermath of the crash. In response to the impact, the federal government adopted several policies, including the Securities Act of 1933 and the 1940 Investment Company Act. Remarkably, in 1996, Congress enacted the National Securities Markets Improvement Act, which introduced an investor known as a Qualified Purchaser.
A Qualified Purchaser is any natural individual or family-owned business with more than five million dollars in investment. The portfolio in question does not include personal residence or business premises. Therefore, investors need to keep a clean cap table that rightfully displays their securities.
Defining Qualified Purchasers
A Qualified Purchaser is:
- An individual with at least five million dollars worth of investments.
- A family-owned business holding five million dollars or more in assets.
- A trust that is managed or sponsored by several Qualified Purchasers.
- An investment manager in charge of twenty-five million dollars or more.
- A corporation with at least twenty-five million dollars worth of investments.
Qualified Purchasers vs. Accredited Investors
Qualified Purchasers can be Accredited Investors, but not all Accredited Investors are Qualified Purchasers. This is because the requirements to become a suitable purchaser is higher than that of an accredited investor.
For instance, while Qualified Purchasers can invest in both 3(c)(1) and 3(c)(7) funds, Accredited Investors can only invest in 3(c)(1) funds. Besides, Qualified Purchasers can also access 3(c)(7) funds, which can accept up to two thousand of them as compared to only one hundred Accredited Investors in 3(c)(1) funds. Understanding the standards of Qualified Purchasers vs. Accredited Investors is vital since it determines which investment possibility is open for an investor.
What Can You Do As An Accredited Investor?
Accredited Investor status primarily enables individuals and businesses to buy unregistered securities. As an Accredited Investor, you will have opportunities such as angel investments, hedge funds, high-risk and complicated deals, and venture capital. You will also have permission to invest in funds that have rather severe restrictions on the total number of fund investors. For instance, 3(c)(1) funds must invest primarily in private businesses to be considered venture capital funds.
What Can You Do As A Qualified Purchaser?
Qualified purchasers are assessed based on investment holdings rather than income or net worth. Therefore, as a qualified purchaser, you will be open to more investment possibilities such as mutual funds, stocks, and bonds, than Accredited Investors. For instance, you can accept up to two thousand qualified purchasers and only one hundred or fewer accredited investors in private offerings.
How Do You Prove A Qualified Purchaser?
For an individual or a company to be considered a qualified purchaser by the Securities & Exchange Commission (SEC), you have to meet at least one of the following:
- A trust sponsored and managed by qualified purchasers.
- An individual or family-owned business holding five million dollars or more in investments.
- An investment manager who is in charge of twenty-five million dollars or more.
- A corporation with at least twenty-five million dollars worth of assets.
Let Us Keep Track Of Every Investment
Investment firms may be looking for information on the type of investors they need. As an investor, you need to keep an intuitive cap table to make you more appealing to possibilities. Browse our website for more information, or contact us for cap table management services. Be sure to request a demo to gain insight into how our services might benefit your business.