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How to identify a sophisticated investor

When we are JVing, what paperwork/agreements do we need to produce/sign? Others have mentioned being a sophisticated investor or an individual of high net worth. How does that translate into any agreement? Do we simply have to state we are one or the other? And what are the definitions of each?  I think I need the new JV PS 13.3.

PS13/3 is the FCA placing restrictions on the marketing of unregulated investments to members of the public.  Basically it's to control people who they consider unable to be able to work out a good deal from a bad deal

This pretty much covers any investment where the investor stands to gain (or lose) money depending how the investment performs, but is not regulated by the FCA or sold through an FCA regulated financial adviser.

It certainly covers any property deal from selling off plan Caribbean hotel rooms (remember them) to a two-up two-down refurb.

Loans on a specified rate of interest, regardless of whether the project makes or loses money, are outside the remit of PS13/3. The FCA thinks even the dumbest person can understand how a loan works.

If you want others to invest in your project, you don’t have to be a sophisticated investor yourself, but they do.

If you are offering a share of the profits on your project PS 13/3 says you can only do so after you have verified that your intended partner is a sophisticated investor that meets any one of 6 criteria

  1. Salary of £100k pa +  
  2. £250k + in investment assets
  3. Professional investor i.e. stockbroker/fund manager
  4. Bona fide business angel investor
  5. Director of £1m + Ltd Co
  6. Family member
  7. Long time personal friend

The burden of proof is on you to establish that they are one of the above i.e. if they are £100k + earner take a pay slip as proof etc.  The proof they give you is part of the due diligence you keep to record you are inviting a sophisticated investors to invest in your project.

 

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