Huron Capital Partners, a private equity firm with a notable presence in Detroit, focuses on investing in lower-middle-market companies. For individuals considering investment opportunities with firms like Huron Capital Partners Detroit, understanding the preliminary due diligence process is crucial. This process often involves questionnaires to ensure potential investors meet specific criteria, particularly regarding their financial status and investment sophistication.
One key aspect of this preliminary due diligence is understanding the definitions and terms used in these questionnaires. These definitions are often rooted in regulations like the Securities Act, designed to protect investors while allowing capital formation. Let’s break down some essential notes from a typical preliminary due diligence questionnaire for individuals, as it might relate to engaging with Huron Capital Partners Detroit.
The term “Entities” in these questionnaires is broadly defined. It’s not just limited to corporations. Instead, it encompasses a wide range of organizational structures you might be involved with. This includes corporations, partnerships, limited liability companies (LLCs), trusts, and any other form of entity recognized legally. Understanding this broad definition is the first step in accurately completing any due diligence paperwork.
Another critical concept is the definition of an “accredited investor.” This term, as defined by the Securities Act, outlines specific financial thresholds that individuals must meet to be considered accredited. The criteria are designed to ensure that investors participating in certain types of higher-risk investments have the financial capacity and, often, the investment experience to understand and bear those risks. According to the Securities Act, an accredited investor includes a natural person who meets one of several conditions:
- Net Worth: An individual whose individual “net worth,” or joint net worth with their spouse, exceeds $1,000,000.
- Income: An individual who has had an individual income exceeding $200,000 in each of the two most recent years and reasonably expects to have an income exceeding $200,000 in the current year. This threshold is higher for joint income, set at over $300,000 for the same period and expectation.
- Professional Licenses: Individuals currently holding in good standing specific professional licenses related to securities, such as a General Securities Representative license (Series 7), Private Securities Offerings Representative license (Series 82), or Investment Adviser Representative license (Series 65).
- Family Client of a Family Office: A natural person who is considered a “family client” of a “family office,” provided certain conditions are met regarding the family office’s assets under management ($5,000,000+), its formation purpose (not solely to invest in the specific fund), and the family office’s direction of the investment with sufficient financial expertise.
Within the “accredited investor” definition, the term “net worth” has a specific calculation. It’s defined as the fair market value of your total assets minus your total liabilities. However, there are nuances: when calculating net worth, you exclude the value of your primary residence. Conversely, you also exclude debt secured by your primary residence, but only up to the residence’s fair market value. An exception exists for “additional indebtedness” – if debt on your primary residence has increased in the 60 days before the investment, beyond what was outstanding previously (and not due to acquiring the residence), this additional debt is included as a liability.
Similarly, “individual income” for the purposes of the accredited investor definition isn’t simply your gross income. It starts with your adjusted gross income as reported for U.S. federal income tax purposes. Then, certain adjustments are made. Income attributable to a spouse or spousal property is subtracted. Conversely, several items are added back in, including: tax-exempt interest income, losses claimed as a limited partner, deductions for depletion, and any reduction in income from long-term capital gains under former Code §1202. Crucially, these adjustments also exclude amounts attributable to a spouse or spousal property.
Understanding these definitions is a foundational step in the preliminary due diligence process when considering investment opportunities, including those potentially offered by firms like Huron Capital Partners Detroit. Accurately assessing whether you meet the criteria of an accredited investor and understanding how terms like “net worth” and “individual income” are defined is essential for navigating the investment landscape and ensuring compliance with securities regulations.
