Federal ERA status does not preempt state law. Filing Form ADV with the SEC satisfies your federal obligation, but each state has its own investment adviser regulations that apply independently. If you have a place of business in a state, you likely need separate filings with that state's securities regulator.
Many managers complete their federal ERA filing and assume they are done. They operate for years without reviewing state requirements. By the time the issue surfaces, usually during LP diligence or a state examination, they have been out of compliance for years and remediation is more complicated than if they had addressed it upfront.
State Filing Obligations for ERAs
State requirements for ERAs vary widely. Some states require only a notice filing and fee. Others require full registration even for advisers who hold federal ERA status. The specific obligation depends on where you have offices, where your investors are located, and which Investment Company Act exemption your funds rely on.
States with Restrictive Requirements
Delaware and Washington are particular problems. Their exemptions exclude 3(c)(1) funds entirely. If you manage 3(c)(1) funds (the standard structure for emerging managers using accredited investors), you may need state registration in these states even though you are a federal ERA.
California has its own framework with additional requirements for non-VC 3(c)(1) funds, including mandatory audits and performance fee restrictions.
Consequences of Non-Compliance
Operating as an unregistered adviser in a state can carry civil or criminal penalties. It also creates problems during LP diligence. Institutional investors ask about state registration status, and a gap raises questions about the overall compliance posture of the fund manager.
Mapping Your State Obligations
Before closing investors, map your state footprint. Identify where you have offices, remote employees, or significant investor concentrations. Review each state's requirements for private fund advisers and determine whether you need a notice filing, full registration, or neither.
Address required filings before the issue surfaces during diligence or an examination.
For a full analysis of state-by-state requirements, including the NASAA model rule, California's retail buyer fund rules, and registration obligations, see State Investment Adviser Registration for Private Fund Managers.
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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. Capital Company is not a law firm and does not provide legal advice.