Section 3(c)(7) of the Investment Company Act exempts a fund from registration if its securities are owned exclusively by qualified purchasers and it does not make a public offering.
Why It Matters
Section 3(c)(7) removes the 100 investor cap that limits 3(c)(1) funds. In exchange, every investor must meet the qualified purchaser standard ($5,000,000 or more in investments for individuals). This exemption is the standard choice for larger funds with institutional limited partners, pension funds, and high-net-worth investors who clear the threshold.
Key Details
- There is no limit on the number of investors. The fund can accept as many limited partners as it wants.
- All investors must be qualified purchasers. For individuals, this means $5,000,000 or more in investments. For entities investing for their own account or for other qualified purchasers, the threshold is $25,000,000.
- Look-through rules for investor counting do not apply under Section 3(c)(7), though Regulation D look-through rules for the securities offering still apply separately.
- This exemption allows larger LP bases than Section 3(c)(1), making it the standard structure for funds above $200,000,000 with institutional investors.
- Knowledgeable employees are excluded from the qualified purchaser requirement.
For more, see Section 3(c)(1) vs. Section 3(c)(7).
Capital Company handles qualified purchaser verification and investor classification 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.