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Monday, December 11, 2023

Accredited Investor Verification Service: 3 Mechanisms Widely Adopted

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An verify accredited investor is allowed to invest in those opportunities which are not accessible by general investors. This is because they are trusted more and comply with special guidelines. A business entity is always on the lookout for investors to strengthen its financial position. Investments do help to establish a continuous financial stream for a business or a company to avoid cost constraints. But the dire need for funds should not blind the eyes of a company or a business so that they take the wrong or a dangerous client onboard. To avoid all such threats and fears of loss, it is advised to run a proper authentication process of that entity. Again, the legal bodies of each country have provided the needed guidelines to follow in this regard. A business entity should verify three things to determine the accredited status of an investor which are discussed below.

Three Techniques for Investor Verification

Investor Verification Using Networth Method

In the net worth checking process, the investor’s financial status is analyzed in the context of his overall wealth that is legally possessed by that entity without any dispute. Networth also includes the private valuations and the vehicles that are in the investor’s possession. If an investor is found to have a total net worth of $1 million, then that client is perceived as an accredited one by the business or a company. Otherwise, the investor is not considered to be taken on board for funding. This is because it will result in violations which may cost the business drastic results in the future. The lesson here for businesses is that no matter how much attractive wealth an investor may seem to have; a business should never fall prey to deception.

Knowing The Investor Through Insider Method

If a business entity wants to save its reputation from falling to pieces. It should keep an eye on who it does business with. While acquiring funds, a business entity needs to consider the repute of the investor. By collecting information from outside sources that are affiliated with that investor. It is internal in nature for the investor because the information is gathered from the people who are in connection with him. But, for the business entity that needs to authenticate, these sources will be considered outsiders because the company wants to gain unbiased opinions about the accredited status of the investor. These parties can include the employer of the investor. For instance, an investor can be verified if he is working as a director or executive position. Moreover, if an investor is found to be associated with a private security issuer, it can also help the company to verify the credibility of that investor.   

Accredited Investor Verification By Income Method

Another mechanism that is adopted by companies and business entities while considering the profiles of various investors is the authentication of their legally required income to be deemed as accredited. According to the rules and regulations of the Securities and Exchange Commission (SEC), an accredited investor is bound to have an annual income of $200000 in the recent two years of business operations. If there is the involvement of the spouse then jointly, the investor is required to show the income statements that should demonstrate an amount of $300000 or above for the recent two years of business operations each. 

An investor will be considered an accredited one only when these three conditions are duly fulfilled. Otherwise, the investor verification process will be labeled as failed. Other than these three methods. 

Documents Needed For Investor Verification

There are some other documents that need to be considered while verifying an investor’s accredited status. For instance, if the funds are taken from a company then it should be confirmed whether the company is registered privately or publicly. A company needs to demonstrate the memorandum of association which states the purpose of the company and the guidelines which assure and restrict that a company will not perform other than the limits stated in the guidelines. Also, the articles of association are submitted for verification which states the rules and regulations of a company.   

If a company is registered as a private entity then it should possess the certificate of incorporation which states the date of registration and the date of starting operations. But if the company is publicly recognized then it is mandatory for verification purposes to check the certificate of commencement in addition to the certificate of incorporation to be necessarily held by that entity. This is because the certificate of incorporation is the proof of the existence of a public company in front of the governing bodies whereas the certificate of commencement gives the right to a public company to start its operations. In the case of a private company, there is no government involvement in its operations.

Final Thoughts

Summing it up, investor verification is important to assure the legal status of an entity from which a business is desiring to take in funds. Because any kind of negligence can result in unwanted consequences. Thus investor verification solutions provides security and saves the business entity from frauds and scams that are contingent on relying on non-verified entities for investment.

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