What it is

A sophisticated investor certificate is a document issued by a qualified accountant under the Corporations Act 2001. It certifies that a person meets a prescribed net asset or gross income threshold. Holding the certificate allows an issuer to offer that person securities or other financial products without providing the disclosure document normally required for retail investors.

Why this exemption exists

Offers of securities and financial products in Australia generally require a disclosure document, a prospectus for shares or debt, or a Product Disclosure Statement for other products. These documents are costly to prepare and expose the issuer to legal liability if incomplete or misleading. Many issuers respond by offering certain products only to investors who fall outside the disclosure requirement entirely. The wholesale investor is the main mechanism for this.

Wholesale client: eligibility

A person is a wholesale client if:

1. They hold a certificate from a qualified accountant, issued no more than 6 months before the offer, confirming net assets of at least $2.5 million, or gross income of at least $250,000 in each of the previous two financial years.
2. They have paid at least $500,000 for the qualifying shares, as a single offer or cumulatively for the same class of shares in the same company.
3. They are offered the shares through an AFS licensee who is satisfied, based on their previous investment experience, that they can assess the offer, and they sign a written acknowledgment that no disclosure document has been provided.
4. They meet the Corporations Act definition of a professional investor, for example by holding an AFS licence.
5. They have or control gross assets of at least $10 million, including assets held by an associate or a trust they manage.

Sophisticated investor: eligibility

A person is a sophisticated investor if any one of the following applies:

1. They hold a current certificate from a qualified accountant confirming net assets of at least $2.5 million, or gross income of at least $250,000 in each of the previous two financial years, and
2. The product offered is not insurance, superannuation, or a retirement savings account, and is not used in connection with a business.

Key differences

How assets and income are calculated for the certificate

1. Include your own net assets or gross income.
2. Include the net assets or gross income of a company you control. Control does not require majority ownership, it is based on your capacity to direct the company’s financial and operating decisions.
3. Exclude a trust’s assets or income if your only connection to the trust is control of its corporate trustee. The trustee holds trust property on trust, it does not own it.
4. Include a trust’s assets or income if you control the trust itself directly, for example by holding the power under the trust deed to direct distributions or to appoint and remove trustees.

Who can issue the certificate

An issuer may rely on a certificate at face value if it is signed by a recognised accountant, dated within the previous two years, and states which chapter of the Corporations Act it is issued under. The issuer does not need to verify the figures behind it.

Benefits

1. Access to offers that are only made to wholesale clients or sophisticated investors, including private equity, venture capital, and wholesale property funds.
2. For early stage investors, no annual investment cap under the ESIC rules (the tax offset itself is still capped at $200,000 per income year).
3. Faster execution, since the issuer is not preparing a prospectus or PDS for the offer.

Our Client Base

This firm accepts wholesale clients and sophisticated investors only. This policy allows offers to be made without the disclosure documentation required for retail clients, allows transactions to proceed on a shorter timeframe, and reflects the level of financial experience the Corporations Act attributes to this client classification.