On Dec. 18, the U.S. Securities and Exchange Commission (SEC) announced that they plan to redefine the terms “qualified institutional buyer” and “accredited investor”. They also highlighted their plans to allow additional institutions and individuals to invest in startups than have been allowed to do so previously.
Up until this latest SEC proposal was announced, individuals or entities were required to have $200,000 in annual income or at least $1 million cash to be classified as an accredited investor. Under the new proposal, individuals who’d recently obtained a stockbroker’s license and other related credentials would be able to invest in these private capital markets (PCMs), even if they didn’t have the requisite capital to do so.
Under this new proposed legislation, spouses would be able to join their assets. Family businesses would be able to pool their financial resources if they needed to do so in other to meet the SEC’s asset threshold.
Revere Business Industry Classification System (RBICs) and limited liability companies (LLCs) would be able to invest in PCMs such as startups or venture, hedge and private capital funds if the new legislation were passed. These entities would need to own $100 million in securities to be eligible to qualify as an institutional buyer though.
The new legislation would create a new investment class just for Native American tribes. Any Indian-owned business entity would be able to invest in these PCMs so long as they had a net worth of $5 million or less. Their right to do this is protected by the Investment Company Act.
There will be a 60-day comment period during which lawmakers and others can provide feedback about the proposal. If the sentiments are overwhelmingly favorable, then the SEC will be a bit closer to getting its way.
If you’re considering investing in PCMs and you need some guidance as to whether it’s the right choice for you and your company, then an attorney can provide the advice and insight that you’re looking for here in Louisville or elsewhere in Kentucky.