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Investment companies, such as mutual funds and pooled investment vehicles, are regulated pursuant to the Investment Company Act of 1940. It is essential that companies operating in this area fully understand the coverage of the Act and are prepared to meet their regulatory obligations. Our attorneys stay continually up-to-date with evolutions in this framework, and are ready to help you satisfy ICA requirements.

Investment Company Act

An "investment company” is defined by statute as an issuer who:

  • Engages in, holds itself out as being engaged in, or proposes to engage primarily in the investing, reinvesting, or trading in securities;
  • Is engaged in or proposes to be engaged in issuing face-amount certificates of the installment type, or
  • Is engaged in or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns investment securities exceeding 40% of the issuer’s total assets.

In other words, the Investment Company Act regulates companies that engage in investing, trading, and offering their own securities to the public. Investment companies must register with the SEC, and typically must register their offerings as required by the Securities Act. Several components of business are regulated directly by the ICA, including registration requirements, specified capital requirements, director and trustee responsibilities, certain specified disclosures, transactions involving securities, and transactions involving underwriters.

Though the Investment Company Act tends to apply to relatively complex businesses, small businesses that do not intend to fall under the definition of “investment company” may become what are known as “inadvertent” investment companies. This may occur if a company inadvertently has, on an unconsolidated basis, more than 40% of total assets in investment securities. This can result from circumstances in which the company conducts a large amount of joint ventures, or if the company has recently sold assets and increased its balance sheet amount of marketable securities.

ICA Exceptions

There are certain statutory exceptions from the definition of “investment company.” For example, issuers that are engaged either directly or through a wholly-owned subsidiary in a non-investment business, i.e. a business other than investing, reinvesting, owning, holding, or trading in securities falls outside of the statutory definition. Certain specialized activity exceptions also exist, as well as exceptions for some private companies.

Our Services

Our attorneys can help your company:

  • Structure and operate to avoid falling under the regulatory scope of the ICA
  • Examine sources of financing for potential ICA issues
  • Comply with investment adviser and investment company registration requirements
  • Navigate investor relations matters
  • Resolve ICA issues if they do arise
  • Advise on the applicability and use of certain ICA exceptions and exclusions to the definition of 'investment company'

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  • Investment Company Act
  • ICA Exceptions
  • Our Services

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