708 Certificate
What exactly do "sophisticated investors" refer to according to Australia's Corporations Act?
If you've achieved stock market success, you might consider yourself a sophisticated investor; however, this might not hold true from a legal perspective. To clarify, being classified as a sophisticated investor in Australia grants you access to opportunities that are unavailable to retail investors.
A sophisticated investor, also known as a wholesale investor, refers to an individual or entity authorized to engage in transactions with reduced due diligence compared to standard cases (referred to as restricted deals). Such transactions encompass Pre-IPOs, capital raises, and unlisted equity opportunities.
Why have a 708 Certificate?
Owning a 708 certificate can prove advantageous for investors, enabling their involvement in these transactions at a valuation lower than the standard rate. This could potentially lead to higher rewards.
Pre-IPO opportunities are offered at a discounted rate compared to the regular IPO price, and an on-market capital raise also comes with a reduced price. However, it's important to note that limited information is provided, necessitating a reliance on your personal due diligence process.
Qualification for the 708 Certificate
The criteria for obtaining a 708 certificate pertain to the legal interpretation of a sophisticated investor as stipulated within Corporations Regulation (2001) 6D.2.03. This definition is established under the umbrella of the Corporations Act. Guidelines governing the engagement of sophisticated investors in capital raising endeavours are succinctly delineated within s708(8) of the Corporations Act:
Sophisticated investors
(1) Pursuant to subparagraph 708(8)(c)(i) of the Act, a specified amount of $2.5 million is indicated.
(2) In accordance with subparagraph 708(8)(c)(ii) of the Act, a specified amount of $250,000 is indicated.
It is important to note that as per subsection 708(8) of the Act, the issuance of a company's securities does not necessitate disclosure to investors under Part 6D.2 of the Act if substantiated by a certificate furnished by a qualified accountant no more than 6 months preceding the offer. This certificate should affirm that the individual to whom the offer is extended:
(a) Maintains net assets equal to or exceeding the amount stipulated in regulations formulated for the purposes of subparagraph 708(8)(c)(i); or
(b) Has exhibited a gross income for each of the immediate past 2 financial years, amounting to at least the sum designated in regulations framed for the purposes of subparagraph 708(8)(c)(ii).
In simpler terms, a sophisticated investor must possess net assets of at least $2.5 million or an annual gross income of $250,000 or higher for each of the two preceding financial years.
Where a standard IPO is accompanied by a comprehensive prospectus, often spanning more than 200 pages and offering intricate insights into a company, a Pre-IPO comes forth with no more than a presentation and a term sheet. Roberto elaborated, "Investment in a Pre-IPO carries heightened risk, as it lacks liquidity and tradability. Thus, a 708 certificate signifies your acknowledgment of the inherent risks involved."
Should you deem yourself eligible as a sophisticated investor, we kindly request that you complete the form provided below and submit it to an authenticated qualified accountant for confirmation of Wholesale Investor status.
Should you fall short of the stipulations outlined in the 708 regulations yet possess substantial expertise in risk opportunities, you have the option to complete the Sophisticated Investor Questionnaire (SIQ) form. This form seeks details on your experience with risk and, if deemed satisfactory, grants access to participation in these restricted transactions.