Section 3(c)(1) of the Investment Company Act exempts a fund from registration as an investment company if its beneficial owners do not exceed 100 and it does not make or propose to make a public offering.
Why It Matters
Without an exemption from the Investment Company Act, a pooled investment vehicle would need to register as an investment company and comply with extensive regulatory requirements designed for mutual funds. Section 3(c)(1) is the most common exemption used by emerging managers and smaller funds. The 100 beneficial owner limit is the primary constraint you need to plan around when structuring your fund.
Key Details
- The limit is 100 beneficial owners, not 100 investors. The distinction matters because look-through rules can increase the count beyond the number of direct investors.
- Look-through rules apply to certain entity investors. If an entity holds 10% or more of the fund and was formed for the purpose of investing in the fund, its underlying owners may each count individually.
- Knowledgeable employees of the fund and its management company do not count toward the 100 beneficial owner limit.
- There is no minimum wealth requirement beyond whatever Regulation D exemption the fund uses for its securities offering.
- Most emerging managers use this exemption because it does not require all investors to be qualified purchasers.
For more, see Section 3(c)(1) vs. Section 3(c)(7).
Capital Company handles beneficial owner tracking and investor count monitoring as part of fund administration.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation.